Kaito Depth Analysis: Business Model, Profitability, Competition and Risks

Kaito is essentially not a Decentralization project, but a project that attempts to establish a new profit distribution mechanism in the niche industry of Web3 content creation.

Written by: Caijie Web3

Introduction: A Great Experiment

Kaito is essentially not a Decentralization project, but rather a project that aims to establish a new benefit distribution mechanism in the niche industry of Web3 content creation. It is actually conducting a great experiment, and if successful, it may break through the scope of Web3 and be applied to other information industries.

Since it is not a purely decentralized project, we cannot judge the quality of this project based on its degree of decentralization.

This article attempts to provide a simple analysis based on the project's basic information:

Project Mission: To solve the two major problems currently facing the content track.

The two major issues are: inefficiency and unfairness.

• Inefficiency is reflected in that, due to the influence of algorithms, users will increasingly encounter information and opinions that align with their own views, interests, or beliefs, making it difficult to receive different or opposing viewpoints, resulting in information cocoons or echo chamber effects. Moreover, the algorithms may be biased, distancing users further from the truth.
• Unfairness is manifested in:
• Content creators only receive a small portion of the value of the created content;
• The time and effort invested by a large number of users is the foundation for the continued existence of centralized platforms, yet there is almost no sharing of the results.
• Centralized platforms hold absolute power, lack transparency in the allocation of attention (traffic), and do not take responsibility.

Three Core Assumptions:

Kaito based his business model design on the following 3 assumptions.

• Assumption 1: Attention can be assetized or tokenized, and thus serve as the basis for a fairer mechanism.
• Assumption Two: Content creators in the market, using the points earned through their own efforts (Yaps) to cast votes, can better reflect the true situation of a project being recognized and accepted by the market. Referring to Polymarket's predictions for the U.S. election results, the outcomes of voting with real money are more accurate than traditional market research results. To achieve this effect, a reasonable incentive mechanism is needed. Currently, the point mechanism adopted by Kaito (Yaps) forms a community of shared interests between project parties and traffic leaders, which is an impressive innovation.
• Assumption Three: Market sentiment can be quantified. The expression of information by everyone represents the overall sentiment of the market.

Principle: Create things that people want to use

Business Model: Reshaping the Attention Economy with Web3

Profitability: Still in its infancy, yet to be observed

Income

As a decentralized information platform, the difference in revenue sources compared to traditional centralized information platforms is reflected in:

Both exclude free users from the value distribution system, while Kaito will direct benefits towards users with higher participation and high-quality outputs.

From the perspective of income sources, Kaito has a significant income gap compared to traditional Web2 platforms: advertising revenue. Moreover, Kaito currently only covers the Crypto industry, and the audience size is much smaller than that of traditional Web2 platforms; among them, Kaito Pro's paying customers include project parties, investment institutions, and researchers, which lays a certain foundation; the majority of paying users on Yapper Launchpad are project parties, and the number is even smaller. This means that the number of project parties willing to join the Kaito ecosystem becomes the main factor affecting Kaito's revenue. From the way Kaito officially discloses data on its Dune page, we can roughly infer that the number of paying customers is currently not very large, as mainly some ecological indicators have been published, the revenue is annualized data, and only the number of monthly active content creators is provided, with no actual paying customer count. We have reason to suspect that Kaito's revenue model (subscription + token economy) is still in its early stages, with subscription revenue being stable but limited in scale, and the token economy relying on the value and market acceptance of the $KAITO token.

cost

Kaito's cost structure differs from traditional Web2 centralized information platforms in that:

Traditional centralized information platforms enjoy significant economies of scale due to their large user base. After distributing the infrastructure costs and the costs of technology development and maintenance mentioned in the table above, the per-unit cost is very low.

Regarding the customer acquisition cost mentioned in the table above, we can see on the official Dune page that the Total Value Distributed has exceeded 72 million USD (far greater than the financing scale of 10.8 million USD), which can be understood as the cost that Kaito has incurred to maintain the development of the entire ecosystem. Dune only disclosed the number of Yappers to be 210,000. We can roughly estimate Kaito's customer acquisition cost to be about 335 USD by using TVD/No. of Yappers, which is significantly higher than the average customer acquisition cost of Web2 centralized platforms (according to a Userpilot report, the average customer acquisition cost in the e-commerce industry is about 70 USD). Even if we include the number of paid customers not disclosed by Kaito in the calculation, the customer acquisition cost may still be relatively high. Of course, as the Kaito ecosystem becomes increasingly prosperous, many paying users will be actively attracted, and the marginal customer acquisition cost could even drop to 0, but this still needs to be based on significant and sustained ecosystem maintenance costs.

Kaito's cost advantage currently only manifests in lower labor costs.

Combining income and costs, Kaito's profit model is still in the exploratory stage. There is proof of income that products can be accepted by customers, but whether it can achieve profitability remains to be further observed.

Product Analysis: Product Matrix with Moat

As of now, Kaito has created a relatively complete product matrix, essentially forming a moat and establishing a leading position in the InfoFi sector. Let's take a look at the characteristics of each product and understand the design logic, target customer base, and competitiveness of the products.

Kaito Pro: Basic Product

Although the name contains Pro, it actually belongs to the basic products in Kaito's product matrix.

The purpose is to extract information, understand semantics, and do some basic visualization, which is equivalent to a smart search engine in the field of encryption.

Client base includes investment institutions, project parties, and researchers. The official announcement has stated that it has begun to make a profit.

The pain point demand that needs to be addressed is: aggregating encrypted information and presenting it intuitively.

Moat: The accuracy and timeliness of information.

Competitors:

• Alva.xyz is an AI-enhanced cryptocurrency data analysis tool similar to Kaito Pro, focusing on on-chain data visualization and market insights, with its depth in on-chain analysis being a competitive advantage.
• Nansen: Known for its on-chain analysis and NFT data, it has a user-friendly interface and powerful features, and it may be a major competitor of Kaito Pro in the high-end user market, especially in data visualization and user experience.

Kaito Yaps: Core Innovation Points

Kaito utilizes AI algorithms to tokenize influence (influence), which serves as the foundation for other application scenarios, including reward distribution, etc. Since it is merely a mechanism, there are no sources of income.

Target Audience: Content creators, project teams, users of centralized platforms (e.g., users of platform X).

The pain point addressed is: creators need to monetize their content, project parties need to increase project visibility and participation, and users hope to receive returns after investing time and effort.

Moat: A set of Proof-of-Attention mechanisms POA(Proof-of-Attention). It includes three aspects and is essentially a comprehensive algorithm.

• Proof-of-Work — Volume of subject-relevant content
• Proof-of-Exchange — Real, reputation-weighted engagement
• Quality Certification Proof-of-Insight — Insightful, original & focused discussions

Competitors:

• Mirror: Compared to Kaito Yaps, Mirror may have a stronger degree of Decentralization (content storage is completely decentralized), but its attention quantification mechanism is not as detailed as Yaps's AI-driven model.
• Lens Protocol: A Decentralization social graph protocol that allows users to create and share content, and incentivizes creators through tokens. Lens's community governance and content distribution capabilities may challenge Yaps, but its AI analysis depth is limited.

Kaito Connect:

In Kaito's product matrix, this is an advanced product. Simply put, it is a design that binds creators, users, and project parties into a community of shared interests, aimed at further structuring and organizing the information obtained by Kaito Pro, ensuring that attention and capital flow towards the most valuable aspects. Kaito Connect has three main pillars:

• POA(Proof-of-Attention)
• Creator Leaderboard (Yapper Leaderboard). There is both an overall ranking and a ranking by project.
• Yapper Launchpad (Yapper Launchpad). It is equivalent to the Kaito project team setting up a new stage, and can also be seen as a dynamic project ranking list. The biggest attraction of this stage is fairness, and it is based on market attention fairness. Every week, 3 projects are selected to be on the Yapper Launchpad through a voting mechanism, where the votes are cast by content creators (Yappers) and holders ($Kaito Holders). The influence weight of the two in the voting results is 25% and 75%, respectively. Considering that an individual can be both a Yapper and a $Kaito Holder at the same time, it can be understood that this voting rule gives more power to those who participate in the Kaito ecosystem with real money, while those content creators (Yappers) who participate in the Kaito ecosystem by investing time and effort also have an influence on the voting results, but if they want to increase their influence, they are encouraged to hold more $Kaito. This is also a reflection of the second core assumption mentioned earlier.

Customer base is similar to Kaito Yaps, but focuses more on project parties, as the main output of this product is a project ranking list (Yapper Launchpad), which is most relevant to the interests of project parties.

The pain points addressed are: 1) Project parties no longer need to maintain good relations with traditional centralized platforms to gain market attention; 2) Project parties want to distribute rewards to the community through more long-term sustainable and more precise solutions.

Competitors:

• Layer3: Focused on Decentralization social and reward systems, allowing users to earn points through tasks. Some features overlap with the community incentives of Kaito Connect, but its AI analysis and attention quantification are not as strong as Kaito's.
• QuestN: A decentralized task platform that connects projects and users, driving participation through a reward mechanism, potentially a competitor to Kaito Connect in the Launchpad feature.

Risk Analysis

As mentioned earlier, Kaito's existing competitors each have their own strengths, and these competitors are not complete substitutes, but rather approach the InfoFi market from different angles. Kaito's differentiation lies in the combination of AI and Decentralization, but its long-term competitiveness still needs to be validated by the sustainability of ecological rewards and user stickiness.

Who are the potential competitors? Elon Musk or other centralized platforms. The core advantages of these centralized platforms are their vast amounts of data and strong technological power. If they are willing to forgo some benefits to pursue the path of Decentralization, they could pose significant pressure on projects like Kaito.

Information supply interruption risk: Currently, Kaito's operation is mainly based on the openness of information from various centralized information platforms (such as X) + user permission. If X shuts down or prohibits the use of AI to scan and capture information, it will not be sustainable.

Market Cycle Risk: User activity is influenced by the overall risk appetite of the market. If a bear market occurs, the overall attention to the crypto market will decline, and the revenue of the Kaito project team may significantly decrease. Therefore, it is necessary for the project team to prepare for a bear market and conduct stress tests on their cash flow for a 2-year period without income, ensuring that the project team can safely survive the bear market. If the test results are not satisfactory, they may consider exiting the cryptocurrency industry and entering other sectors to provide information integration and diversion services to improve survival chances. Additionally, certain costs can be shifted to alleviate cash flow pressure. For example, an agreement can be made with the projects wanting to be listed, where the project team is responsible for covering the Gas fees.

The rules are not transparent. Although there are many explanations of the rules in the documentation on the official website, the core rules have not been made public, such as the detailed calculation rules for Yaps points. It is recommended to be transparent and public to reflect the fundamental spirit of the Web3 industry, but the project party can still retain control over the rules. Currently, this rule has a strong characteristic of centralization, and its operation is quite good, but if a future adjustment of certain rules disrupts the balance of interests among the parties, it may lead to adverse consequences, which requires special caution.

Summary: Let us look forward together.

In the process of building a decentralized utopia, we need to carry out decentralization transformations in various fields, and information finance (InfoFi) is one of the unavoidable areas. At this stage, "decentralized content creation" indeed must rely on Web2 platforms and must first establish centralized rules; otherwise, it becomes "cooking without rice." However, this does not mean that decentralized content creation is a false proposition, but rather a long-term goal that requires the joint efforts of technology, ecology, and community. Kaito is shouldering the great mission of promoting decentralization in the InfoFi field, providing innovative solutions for content value distribution through AI and token incentives, which is already a remarkable achievement!

From a broader perspective, the realization of decentralized content creation requires breaking through the limitations of existing infrastructure, integrating decentralized storage, social protocols, and governance mechanisms, and gradually freeing itself from dependence on Web2 platforms. Kaito's practice is an important step in this process, but to truly achieve decentralization, continuous iteration is needed in technical transparency, community governance, and ecological collaboration.