Build a very successful cryptocurrency project: use tokens to continuously attract attention and capital, and convert this liquidity into valuable products for users.
Written by: Mark
Translated by: DeepTechFlow
There is an old saying in the venture capital world: "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 is another factor here that I believe many cryptocurrency founders have overlooked, and that is tokens. Cryptocurrency founders generally overestimate the market promotion value of their product and underestimate the market promotion value of their tokens. When I say "tokens are the product," I am not joking. I actually believe that for anyone trying to build a valuable company in the cryptocurrency field, your primary goal should be to attract permanent attention and liquidity to your tokens, i.e., to sell them to anyone willing to hold them long term.
As everyone can see, the primary use case of blockchain so far has been the purchase, transfer, and sale of tokens. Some applications add additional steps or metadata to these interactions, helping users build complex ways to use the tokens they own to create value for themselves. But everything we do in the cryptocurrency field, every obstacle we overcome, ultimately serves an interaction triggered by an ecosystem of tokens we purchase.
While there have been a small number of successful cryptocurrency projects that have achieved widespread and enduring distribution of software without tokens, they are the exception. If you were to compile a list of cryptocurrency products or protocols with over 100,000 monthly active users (MAU), you would notice that the vast majority either already have a token or have indicated plans to eventually launch one. The cryptocurrency market provides users with higher efficiency and fairness, so naturally, it is extremely difficult to establish a sustainable competitive advantage against newcomers trying to lower profits.
An example is Uniswap, which has been able to maintain its dominant position over the years through its strong brand and high-quality technology. Even they eventually released a token in response to competitors like Sushi, who provided users with more value through their token than the product features. Examples like this are why I believe that in a long enough time frame, any successful cryptocurrency product that does not launch a token will eventually lose its profits and/or be defeated by a competitor that does launch a token and build a token.
This may ultimately also apply to enterprises outside of cryptocurrency, in response to the increasingly efficient markets driven by the development of the internet and artificial intelligence. It is worth noting that this is closely related to how airlines currently operate in the real world—because their operating profit margins are extremely low, most of their value comes from their loyalty programs. The primary product of Delta Air Lines is no longer flights; it is Delta points.
In reviewing cryptocurrency, history seems to indicate that very successful cryptocurrency projects can be built in the following ways:
Use tokens to continuously attract attention and capital
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, despite years of criticism of their antics, they have undoubtedly impressed with the actual utility provided by the TRON network (as a giant in the stablecoin payment ecosystem). He has proven himself very adept at attracting liquidity attention and converting it into a real network that has created value for millions of people. The fact clearly shows that tokens can act as a self-fulfilling prophecy of their own value, where price increases can occur before value creation itself. This forms a direct contrast to the traditional way of building/valuing companies, which is also why cryptocurrency remains confusing to those not accustomed to this new paradigm.
When the price of any asset surges, people pay more attention to it, and this is true for cryptocurrency 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 can leverage the influx of attention during price reflexivity fluctuations. Therefore, when valuing cryptocurrency assets, one must consider not only the current and future value created by the network, but also the impact of subsequent liquidity on the network's future development trajectory.
People enter this ecosystem to make money through this new business model, which provides huge rewards for those who can early predict the future flow of liquidity and value creation. The best founders in the cryptocurrency field have not turned a blind eye to this fact, but have found ways to leverage this inherent desire to build a valuable network where all participants make money because of the network's existence.
A typical example is the Helium network, which has been able to attract enough liquidity to its ecosystem (through its HNT token) to provide stable incentives for strangers to buy miners and start making real profits for themselves. Through the power of token liquidity, they were able to launch their network with enough miners to disrupt the outdated mobile broadband market. Coordinating the entry of nearly 400,000 users into such a network without the help of deep liquidity would have been a daunting task, and deep liquidity provided a useful stopgap measure during the early fluctuations in any multilateral market development. In this way, the first and most important product that Helium needs to sell is their token. 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 enterprises.
In tokenized products like Helium, the price of the token is a measure of the attention flowing in and out of a given ecosystem. When the token price falls, miner liquidity also diminishes, both because their financial situation has changed and because of the psychological dynamics around the attention group—if I see others leaving, I might leave too.
In this way, attracting liquidity is not only important in the early stages, it is always a prerequisite for the continued existence of the network, although it becomes less important as the community attracts enough local supply and demand to the network. Being able to continuously attract liquidity attention to your project is not a trivial task, and the pressure on cryptocurrency founding teams is similar to the agonizing experience of creators on large social platforms, where even taking a day off at the wrong time could have a disastrous impact on your growth.
However, some cryptocurrency founders are both outstanding technical experts and degens in the cryptocurrency world, and they keenly understand the flow of attention and how best to ride these waves to continuously create value for their ecosystem. They create a self-reinforcing positive feedback loop by consistently delivering on their promises to community members and strive to innovate on the product to keep their users (token holders) engaged in the long-term vision of the project.
From a practical perspective, the art of attracting liquidity usually takes various forms, and for most founders, this process begins with raising some small seed funding from friends and family, then raising more funds from institutional investors (whether explicitly or implicitly for future tokens), followed by other pre-issued token trades, official issuance, bounty activities for token distribution, cooperation with exchanges and market makers to provide liquidity for tokens, and increasing the project's visibility in the cryptocurrency attention field through a series of marketing techniques. Importantly, they collaborate with an increasingly broad network of people who believe in their mission and join their community to help support their mission, driven by their inherent belief in the existing network and the generous rewards the token provides to early joiners. Ideally, the targets for selling tokens should be the first group of people who truly use the network itself, or at least those who loudly promote the network to their audience.
It is important that they collaborate with an increasingly broad network of people who believe in their mission and join their community to help build it—these people are motivated to contribute because of their inherent belief in the existing network and a token that provides generous rewards for early joiners. Ideally, the people you sell tokens to should be the first group of people who truly use the network itself, or at least those who will loudly promote it to their audience.
Ultimately, most situations boil down to selling tokens to as many new buyers as possible while doing everything possible to prevent existing token holders from selling their tokens. Sometimes this is achieved through locking up investments or staking tokens, sometimes through the use of memes. In any case, the best tokenized communities are adept at playing an infinite game in a competitive environment, where strangers coordinate with each other to maintain the game (i.e., bidding during token sales) when tokens are in distress, although ultimately they still compete with each other to exit at a higher price in the future.
Tokens are an extremely powerful coordination tool, and over the next decade, we will see explosive growth in tokenized networks, which will seriously challenge the institutions that still wield enormous power today. Tokens also allow companies in commoditized markets to accumulate attention and good consumer willingness during competitive periods, thus avoiding complete loss of their moat. This provides a huge opportunity for founders who are proficient in technology and creative pursuits (software and memes) and have the courage to compete with large existing organizations.
In fact, this script has become so clear and repeatable that it means practical token networks will continue to attract a large amount of early investment capital from investors who see the potential for early and correct returns when betting on founders. As this market matures, I also expect to see competition for liquidity attention become even more intense (as we have already seen in the practical token market within the blockchain space).
We are excited about the upcoming tokenized networks, and we believe that recent advances in wallets and zk technology, combined with the widespread adoption of secure block space, have created the perfect conditions for a whole new set of applications and users to join the cryptocurrency space.
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