Greenfield Capital: Can Web3 Disrupt the Online Dating Industry

Written by: Dr. David An, Partner at Greenfield Capital

Compiled by: Biscuit, ChainCatcher

Does anyone remember the rating site HotorNot? It launched in October 2000 at the peak of the Dotcom boom, reaching 2 million page views per day within weeks and becoming one of the top 25 ad providers within months. 23 years later, although the site has shut down, the popularity of online dating continues to rise. Over the past 30 years, online dating has surpassed all other methods of heterosexual dating by a margin of 40%. 30% of couples met in bars or restaurants, while only 20% were introduced by friends, a decline from 35% in the 1980s. Two-thirds of LGBTQ (transgender lovers) reported having met online. But where is the industry headed? What is the next milestone?

ChainCatcher Note: The Dotcom boom refers to the five years from 1995 to 2000, during which the stocks of leading internet companies averaged over tenfold increases and were eager to invest heavily in advertising.

This article discusses whether Web2 online dating will be the next industry to be disrupted by Web3 technology. We believe this will happen and showcase Web3 dating services, protocols, or products and their potential key features.

Source: Wayback Machine

Why is the Web2 Online Dating Market So Important?

Globally, the online dating market is expected to reach $10 billion in 2023, growing at a compound annual growth rate of 6.9% from 2021 to 2030. There are 384 million users worldwide, with 311 million of them paying. Forecasts predict there will be 440 million users by 2027, with the United States being the largest user market (36%) and Asia having the highest compound annual growth rate from 2022 to 2030.

There are over 8,000 dating websites globally, dominated by giants like Tinder (89 million users), Badoo (60 million users), Bumble (45 million users), Tantan (20 million users), Hinge (20 million users), Plenty of Fish (17 million users), as well as Grindr (the leading LGBTQ site with 15 million users) and Happn (15 million users). All dating services, except for Hinge and Plenty of Fish, focus on casual dating.

Web2 Online Dating Sites (in millions of users)

Web2 Online Dating Still Faces Significant Unresolved Issues

The main challenges in the industry include:

1. Catfishing, lies, and fake profiles
2. Online and offline harassment
3. Romance scams
4. Gender user imbalance

1. Catfishing, Lies, and Fake Profiles

Catfishing refers to the process of luring someone into a relationship using a fictitious online persona or false identity. Currently, it is estimated that 10% of profiles are fake. Additionally, 57% of dating users admit to lying on their profiles, which may lead to an even higher number of fake profiles. This specifically refers to information such as height, marital status, name, interests, education, and work history. These not only violate the terms of service of most dating services but also adversely affect the overall quality of dating services.

The more experiences users have with fake profiles, the lower their success rates, and the lower the trust and retention rates of dating services. In some cases, Web2 dating portals even profit from fake profiles among their existing user base. For example, the German dating site Amourny was accused of having its employees use fake profiles to chat with users, thereby increasing the conversion rate of paying users.

For most dating services, the registration process does not require a complete KYC procedure. Usually, only an email or phone number is needed. Even with mandatory KYC processes, businesses cannot quickly discern the pass rate of fake profiles. On the other hand, catfishing also has reasonable advantages, allowing people to hide their identities for self-protection. For instance, using a profile picture avatar (PFP) or pseudonym can guard against "doxxing" harassment (see the next section). Therefore, future dating services need to find the right balance between anonymity and transparency.

2. Online and Offline Harassment

So far, Web2 dating apps have been heavily criticized for their lack of harassment protection for women. 57% of female users reported receiving unwanted explicit sexual messages or images. Among female users aged 18-34, 19% reported threats of physical harm (compared to 9% of male online daters).

In addition to threats and spam, doxxing has gradually become a challenge faced by female users. Doxxing involves searching for and publishing private or identifying information about individuals online, often maliciously. According to a survey by security software company Kaspersky, 16% of users experienced doxxing attacks through dating apps (22% in Asia), leading to 8% of users having private photos leaked.

3. Romance Scams

From 2016 to 2020, romance scams increased. It works like this: scammers use dating apps to deceive victims into believing that both parties genuinely want to establish a serious relationship, then the scammer asks for money under the pretext that they cannot maintain the relationship. In 2016, users were defrauded of $75 million in this regard, and by 2020, that amount had increased to a staggering $304 million.

The two most common methods used by scammers to obtain funds are gift cards and wire transfers, with the average scam amount reaching $2,500 in 2020. Women aged 20 to 29 are the demographic reporting the largest increase in scams, doubling from 2019 to 2020, estimated at $10 million.

4. Gender User Imbalance

Most Web2 online dating services face a severe imbalance between female and male users. In particular, casual dating apps are heavily skewed towards male users, with Tinder having 76% male and 24% female users. In contrast, Badoo has 65% male users and 35% female users. Among these, Bumble appears to have the most even distribution, with about 43% female and 57% male users. Other sources report that the number of male users on Tinder even exceeds female users at a ratio of 9 to 1, while Bumble is the most "female-friendly" app, with only 20% of its users being female.

Physical attractiveness is a key criterion for male users, while women have higher demands when selecting male partners, prioritizing socioeconomic attributes. As a result, male users are less selective, swiping right 46% of the time, while female users do so only 14% of the time. Additionally, men need to send an average of 114 messages to receive a reply, while women only need to send 25.

Thus, on today's Web2 online dating platforms, men must spam women to get a response. Naturally, women will respond more selectively to an overload of messages. This creates a vicious cycle: since it is understandable that women are reluctant to respond to all messages, men must send more messages to ensure any response.

Web3 as a Solution?

In this section, we will discuss how Web3 can help address the aforementioned challenges. We do not claim that Web3 technology is the only solution to these problems, but rather view it as a complementary approach to the issues of Web2 online dating.

We believe that innovations in decentralized identity (DID) and self-sovereign identity (SSI) will serve as catalysts for the next generation of Web3 online dating services. In Web2, data related to personal identity is owned by centralized organizations (such as Meta and Alphabet). For instance, Facebook sold private user data to Cambridge Analytica in 2010, which used the personal data of 87 million people for political advertising purposes. The next generation of online dating services will utilize Web3 capabilities in the decentralized identity space to address the challenges mentioned above, as well as privacy issues related to the publication, acceptance, control, expiration, discoverability, searchability, and trust of personal data.

Before we delve into specific applications, it is necessary to outline the mainstream solutions for Web3 data and privacy.

Decentralized Identity (DID) and Verifiable Credentials (VC)

Web3 assumes that personal identity and related data should be owned and controlled by real users through DID and VC. This should be done in a decentralized manner without the need for a central server. DID is a unique identifier that allows entities to be recognized in a verifiable and persistent manner. They are akin to Ethereum or Bitcoin addresses, PGP keys, or other proof aliases. VC is a digital certificate that acts as a badge or license, written by a DID and adhering to a tamper-proof W3C open standard.

Anyone can issue verifiable credentials about anything, and these credentials can be presented to anyone and verified by anyone. The party creating the credential is called the issuer. The credential is then provided to the holder, who presents it to the verifier when needed to demonstrate something about themselves. Examples of VCs include:

• Education: university degrees, certificates, courses
• Ownership: bank accounts, citizenship, residence, property, cars, assets
• Personal: age, height, weight, blood type, work history, employment status
• Activities: attendance at online and/or offline events or conferences

DID, VC, and Zero-Knowledge Proofs

The combination of DID, VC, and zero-knowledge proofs (ZK Proofs) can significantly enhance efficiency. ZK Proofs provide a way to verify data and communicate with third parties without disclosing the actual data. In other words, it allows users to share sensitive information without sharing the data itself.

Instead, ZK Proofs convey an encrypted proof that verifies the claim made without leaking the data itself. Zero-knowledge proofs effectively provide a risk-free way to share data. For example, Alice can prove she is Alice and her social security number using zk-SNARK (zero-knowledge succinct non-interactive arguments of knowledge). In this case, the verifier will never have access to the social security number.

Soulbound Tokens (SBT)

SBT is a concept proposed by Vitalik Buterin, representing non-transferable and publicly verifiable non-fungible tokens that can be used for immutable records, such as employment history, work experience, and educational qualifications. Similar to VC, SBT serves as proof of education, professional records (as digital resumes), and mementos of participation in major projects. As of now, there is no ERC standard for SBT, and most SBTs are built on ERC-721, featuring mintability and voting rights. Web3 builders like CAN focus on EIP-4671 (non-tradable token standard), EIP-4973 (account-bound tokens), and EIP-5192 (minimum soul-bound NFTs).

Unlike DID and VC, SBTs are immutable and fully on-chain, making them publicly visible, with their verification occurring off-chain. Therefore, SBTs represent personally identifiable information (PII) and ultimately store all transactions indefinitely on-chain, raising considerable controversy. Additionally, losing keys could theoretically lead to the loss of one's "soul," for which Buterin suggests implementing "guardians" to ensure keys can be recovered.

The advantage of VCs is that they provide interoperability, meaning they are not permanently bound to a specific blockchain. VCs also offer users greater privacy, allowing them to choose which information is stored locally or on backup servers rather than permanently on the blockchain. Furthermore, VCs provide higher scalability, as off-chain transactions reduce overall costs such as gas fees.

On the other hand, SBTs have their own advantages. Because SBTs are already on-chain, they can be easily integrated with existing protocols, making them highly composable. Additionally, issuing entities can use conventional smart contracts to verify certain standards, eliminating the need for a separate decentralized network to validate issuers, thus making the system more decentralized.

POAP: Proof of Attendance

POAP, launched in August 2021, is a protocol for producing digital badges or collectibles. POAP is an ERC-721 token designed to commemorate and record attendance at events, created as an NFT using smart contracts on Ethereum. The goal of POAP is to provide evidence of the holder's attendance at specific events or conferences. Since it is an NFT, even though POAP has a unique serial number and is immutable, it can be easily transferred. In the future, we hope to see POAP combined with SBT to make it a more reliable proof of personal attendance.

Web3 Applications and Feature Ideas

The following diagram outlines how Web3 technologies and functionalities can improve the gender imbalance issues faced by most Web2 online dating services through the creation of digital identities/dynamic dating resumes, profile verification, catfishing/scam insurance funds, and token-based reward systems:

Conclusion

This article discussed the challenges faced by Web2 online dating services at this stage and how Web3 can help alleviate these issues. The root of most problems lies in the identity system, with the current Web2 identity system enabling bad actors in fake profiles, scams, phishing, and online and offline harassment. We believe that, in addition to business model innovation, advanced analytics and machine learning Web3 technologies based on DID, verifiable credentials, SBT, and POAP can fundamentally address these issues, but specific use cases for Web3 online dating are still needed to prove this.

First, trust and authenticity can be increased through DID, VC, and SBT. Applications based on ZK Snarks, in particular, can verify identity by sharing only cryptographic proofs, which presents a huge opportunity in the dating space to significantly improve match rates. Alice's matching preferences (kinks) will only be displayed when Bob's kinks are shown alongside other VCs that must be met for a match to occur.

Second, we believe that creating dynamic online dating resumes has enormous potential, allowing users to control specific data while being rewarded for real-life activities, such as generating POAP from IRL meetings.

Third, we also suggest implementing Web3 mechanisms, such as insurance funds, which can be managed by DAOs and financially cover real scams.

Fourth, we advocate for establishing a token reward system based on messaging and revenue mechanisms that will improve gender imbalance for better ratios, with blockchain transparency serving as a primary driver to prevent malicious activities on platforms.

Fifth, we do not claim that Web3 is the only solution to the challenges mentioned above. We expect Web2 startups and academia to continue innovating in this space. For example, startups like Hulah aim to reduce catfishing scams by allowing only male users to join the platform. The Christian dating platform Salt only allows users to contact individuals of the same religion. Dating has also attracted academic interest. Researchers at the University of Dallas have found a way to dynamically illustrate users' preferences, behaviors, and activity metrics to improve the operational efficiency of matching platforms. In field experiments, they were able to improve matching algorithms by 27% compared to existing algorithms run by Cupid. These are examples of business model innovation and advanced analytics that could enhance the user experience of future online dating services.

Finally, we welcome any founders willing to provide solutions on how to implement Web3 dating protocols or platforms. We intentionally did not discuss in detail how DID, VC, or SBT and POAP are implemented. Instead, this article serves as a call to entrepreneurs who wish to disrupt the Web2 online dating industry and spark their own thoughts.