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In the world of venture capital, there's an old saying: "First-time entrepreneurs focus on the product, while second-time entrepreneurs focus on distribution." This describes how product developers typically hope to achieve growth purely based on the quality of their product, rather than investing their energy into creating repeatable patterns that will help them continuously attract attention and users to their product.
However, there's another factor here that I believe many cryptocurrency founders overlook, and that's tokens. Cryptocurrency founders generally overestimate the marketability value of their product and underestimate the marketability value of their token. When I say "tokens are the products," I'm not joking. I actually believe that for anyone trying to build a valuable company in the cryptocurrency space, your primary goal should be to attract permanent attention and liquidity to your token, selling it to anyone willing to hold it long term.
As anyone can see, the primary use case of blockchain so far has been the buying, transferring, and selling of tokens. Some applications add additional steps or metadata to these interactions, helping users build complex methods to create value for themselves using the tokens they own. But everything we do in the cryptocurrency space, every hurdle we overcome, ultimately serves an interaction triggered by our purchase of some tokens.
While there have been a small number of successful cryptocurrency projects that have achieved widespread and enduring distribution of their software without a token, they are the exception. If you compile a list of cryptocurrency products or protocols with over 100,000 monthly active users (MAUs), you'll notice that the vast majority either already have a token or have indicated plans to launch one eventually. The cryptocurrency market provides users with higher efficiency and fairness, so naturally, building a sustainable competitive advantage against newcomers trying to undercut profits is extremely difficult.
An example is Uniswap, which has been able to maintain its dominance for years through its strong brand and high-quality technology. Even they eventually released a token in response to competitors like Sushi, who provided more value to users through their token than just product features. Examples like these are why I believe that over a long enough timeframe, any successful cryptocurrency product that does not launch a token will eventually lose its profitability and/or be beaten by competitors who do launch tokens and build token-based alternatives.
This may eventually apply to companies outside of cryptocurrency as well, in response to increasingly efficient markets driven by the development of the internet and artificial intelligence. It's worth noting that this is closely related to how airlines currently operate in the real world—because their operating profit margins are extremely low, much of their value comes from their loyalty programs. The primary product of Delta Air Lines is no longer flights; it's Delta SkyMiles.
Looking back at cryptocurrency, history seems to indicate that extremely successful cryptocurrency projects can be built in the following way:
Continuously attract attention and capital to your token
Convert this liquidity into valuable products for users
Successful cryptocurrency products can be built in this specific order, and the best evidence is Justin Sun and the TRON network, which has impressed people with the actual utility it provides (as a giant in the stablecoin payment ecosystem), despite years of criticism for their antics. He has proven to be very good at attracting liquidity and attention and turning it into a real network that has created value for millions of people. The facts clearly indicate that tokens can act as self-fulfilling prophecies of their own value, where price increases can occur before value creation itself. This is in direct contrast to traditional company building/valuation methods, which is also why cryptocurrency remains confusing to those not accustomed to this new paradigm.
When any asset price surges, people pay more attention to it, and this is true for cryptocurrencies and any other asset. However, cryptocurrency assets seem particularly adept at converting this increased attention into increased inherent value of the underlying network. This is because cryptocurrency networks welcome skilled contributors from various professional backgrounds to join their communities. Few non-cryptocurrency organizations are able to leverage a large influx of attention during price reflexivity fluctuations. Therefore, when valuing cryptocurrency assets, one must consider not only the current and future value the network creates but also the impact of subsequent liquidity on the network's future trajectory.
People enter this ecosystem to make money through this new business model, which offers huge rewards to those who can early predict future liquidity flows and value creation. The best cryptocurrency founders don't turn a blind eye to this fact but rather find ways to leverage this inherent desire to build valuable networks where all participants make money because of the network's existence.
A typical example is the Helium network, which has attracted enough liquidity to its ecosystem (through its HNT token) to provide stable incentives for selfish strangers to buy miners and start making real profits for themselves. Through the power of token liquidity, they were able to start their network with enough miners to dominate the stagnant mobile broadband market. Coordinating nearly 400,000 users to join such a network without deep liquidity would be a daunting task, and deep liquidity provides a useful stopgap measure in the early fluctuations of any multilateral market development. In this way, Helium needs to sell its token first and foremost, without it, no matter how impressive their hardware or software is, they would not be able to attract and maintain enough attention, nor challenge large existing companies.
In tokenized products like Helium, the price of the token is a measure of attention flowing in/out of a given ecosystem. When token prices fall, miner liquidity also flows away, both because their economic circumstances change and because there is a crowd psychology surrounding attention, and if I see everyone else leaving, I might leave too.
In this way, attracting liquidity is not only important in the early stages but always a prerequisite for the sustained existence of the network, although it becomes less important as more local supply/demand is attracted to the network. Being able to continuously attract liquidity and attention to your project is not a trivial task and puts pressure on cryptocurrency founder teams similar to the agonizing experience creators undergo on large social platforms, where even taking a day off at the wrong time could have catastrophic consequences for your growth.
However, some cryptocurrency founders are both excellent technical experts and degens in the world of cryptocurrency, understanding keenly the flow of attention and how best to ride those waves to continuously create value for their ecosystems. They do so by consistently delivering on promises to community members, creating self-reinforcing positive feedback loops, and striving to innovate on the product continuously to keep their users (token holders) engaged in the project's long-term vision.
Practically, the art of attracting liquidity typically takes various forms, and for most founders, this process begins with raising some small seed funding from friends and family, then raising more from institutional investors (whether explicit or implied token in the future), then other pre-sale token trading, official release, running bounty campaigns for token distribution, partnering with exchanges and market makers to provide liquidity for tokens, and through a range of other marketing techniques to increase the project's visibility in the cryptocurrency attention space. Importantly, they collaborate with increasingly wide networks of people who believe in their mission, who join their communities to help support their mission, and who are incentivized to contribute to the network due to their inherent belief in the existing network and the generous rewards the token offers to early adopters. Ideally, the people you sell tokens to should be the first batch of people who actually use the network itself, or at least be loud in promoting the network to their audience.
In conclusion, most situations boil down to selling tokens to as many new buyers as possible while also doing everything possible to prevent existing token holders from selling their tokens |
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Post time 10-4-2024 12:59:32