Those markets and networks that launched tokens from the beginning must find product-market fit within a shortened window of time.

Author: MASON NYSTROM

Translation: DeepTechFlow

It has been proven that when tokens (or token promises) are combined with innovative new products, it can effectively alleviate the cold start problem. However, while speculative activity can bring benefits to network activity, it can also bring negative impacts such as short-term liquidity and non-organic users.

Those markets and networks that launched tokens from the beginning (or before establishing sufficient natural demand) must find product-market fit (PMF) within a shortened window of time, otherwise they will deplete valuable token resources.

My friend and investor Tina refers to this as the "hot start problem," where the existence of tokens limits the time window for early-stage companies to find PMF and gain sufficient organic traction, in order to retain users and liquidity even as token rewards decrease.

Applications launched with a points system also encounter the hot start problem, as users now have implicit expectations for tokens.

I really like the term "hot start problem" because a core difference between Crypto and Web2 is the ability to use tokens as financial incentives to launch new networks.

This strategy has been proven effective, especially in DeFi protocols such as MakerDAO, DyDx, Lido, GMX, and others. Token launches have also proven effective for other Crypto networks, from decentralized IoT networks (such as Helium) to infrastructure (such as Layer 1 blockchains) and certain middleware (such as oracles). However, networks facing the hot start problem by choosing rapid expansion through tokens face several trade-offs, including blurring organic traction and PMF, prematurely depleting token resources, and increasing operational complexity due to DAO governance (such as fundraising, governance decisions, etc.).

Why Choose the Hot Start Problem?

In two scenarios, the hot start problem is more advantageous than the cold start problem:

• Startups competing in fiercely competitive and known-demand red ocean markets

• Products and networks with passive supply-side participation

Red Ocean Markets

The core disadvantage of the hot start problem is the difficulty in assessing natural demand, but in categories with strong product-market fit (PMF), this problem is somewhat mitigated. In such cases, later competitors may successfully challenge pioneers by early token launches. The DeFi sector provides many examples of latecomers overcoming the hot start problem by effectively using tokens to launch new protocols. While Bitmex and Perpetual Protocol were the earliest to offer perpetual contracts in centralized and decentralized exchanges, later GMX and dYdX rapidly increased liquidity through tokens, becoming leaders in the perpetual contract market. Newer DeFi protocols such as Morpho and Spark have successfully launched tens of billions of dollars in total value locked (TVL) in lending, despite pioneers like Compound still dominating, and Aave (formerly ETHlend) still leading. Today, when demand for new protocols is clear, tokens (and points) become the default choice for liquidity launches. For example, liquidity staking protocols actively utilize points and tokens to increase liquidity in fiercely competitive markets.

In the consumer Crypto space, Blur demonstrates a competitive strategy in red ocean markets, with its market-defined points system and token launch making Blur the dominant Ethereum NFT trading venue by trading volume.

Passive and Active Supply-Side Participation

Compared to active supply networks, the hot start problem is easier to overcome in passive supply networks. The brief history of token economics shows that tokens are very useful in launching networks when passive tasks need to be completed, such as staking, providing liquidity, listing assets (such as NFTs), or setting and forgetting hardware (such as DePIN).

On the other hand, while tokens have also been successful in launching active networks such as Axie, Braintrust, Prime, YGG, and Stepn, the early appearance of tokens often blurs the true product-market fit. Therefore, the hot start problem is more challenging in active networks than in passive networks.

The lesson here is not that tokens are ineffective in active networks, but that applications and markets that launch token rewards for active tasks (such as usage, gaming, gig work, services, etc.) must take additional measures to ensure that token rewards are used for natural usage and drive important metrics such as engagement and retention. For example, the data labeling network Sapien gamifies labeling tasks and allows users to stake points to earn more points. In this case, passive staking by users during certain operations may serve as a loss-avoidance mechanism, ensuring that participants provide higher-quality data labeling.

Speculation: Feature or Flaw

Speculation is a double-edged sword. If integrated early in the product lifecycle, it can be a flaw, but if strategically done, it can also be a powerful feature and growth tool to attract user attention.

Rather than solving the cold start problem, startups that choose the hot start problem by launching tokens before gaining organic traction have accepted the trade-offs of using tokens as external incentives to attract user attention, while betting on their ability to discover or create natural product utility in the increased speculative noise.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。