Original author: Boost VCAssociateMark Beylin
Translator: Odaily Planet Daily Azuma
There is an old saying in the venture capital world: "First-time entrepreneurs focus more on the product itself, while second-time entrepreneurs pay more attention to distribution." This indicates that developers who focus on the product often believe that as long as the product is good enough, growth can be achieved without further effort to establish a sustainable mechanism to attract and retain customers.
However, I believe that many entrepreneurs in the cryptocurrency field overlook another key factor — tokens. Entrepreneurs in the cryptocurrency field often overestimate their product's entry strategy and underestimate their token's entry strategy. When I conclude that "Token is Product," I am not joking. I sincerely believe that for those who are trying to build valuable enterprises/projects in the cryptocurrency field, the first and most basic task should be to attract stable attention and liquidity to your token, in other words, you need to sell the token to those willing to hold it for the long term.
As keen observers have seen, the primary use case of blockchain so far has been the purchase, transfer, and sale of tokens. Some applications have added additional designs to these basic interactions, allowing users to create new value in more complex ways through the tokens they hold. However, in the cryptocurrency field, everything we do, every step we take, and even every mnemonic phrase we record ultimately serves the interaction starting from the purchase of a token.
Although there are a few projects that have successfully achieved widespread and sustainable dissemination without relying on tokens, they are more like exceptions than the norm. If you list the cryptocurrency products or protocols with monthly active users exceeding 100,000, you will find that the majority have either already issued tokens or have announced plans to launch tokens. The cryptocurrency market provides users with a more efficient and fair trading environment, making it particularly difficult to prevent new competitors from entering and cutting into your profit margins, thereby establishing a continuing competitive advantage.
Take Uniswap as an example. Thanks to its brand and technological advantages, it has successfully maintained market dominance for several years. However, even Uniswap had to choose to launch its own token when facing competitors like Sushi, rather than relying solely on its product for competition. Similar cases lead me to believe that if a successful cryptocurrency product does not launch a token, its profit margin will gradually erode in the long run, or it will be surpassed by competitors who have already issued tokens and can build a stronger sustainable network effect around the community.
This phenomenon may even apply to enterprises outside the cryptocurrency field, as a response to the market efficiency driven by the proliferation of the internet and artificial intelligence. It is worth mentioning that this is very similar to the operating model of airlines in the real world — due to the extremely low profit margins of airlines, their value mostly comes from their loyalty programs. For example, for Delta Air Lines, its main product is no longer the flights themselves, but the Delta SkyMiles.
Looking back at the development history of the cryptocurrency field, evidence seems to suggest that you can build a very successful project by:
First, attracting sustained attention and liquidity to your token;
Second, converting this attention and liquidity into valuable products for users.
The best example of this is Justin Sun and TRON — despite the many years of ridicule directed at Justin Sun, you cannot deny TRON's market share in the stablecoin payment ecosystem. Justin Sun is very good at attracting attention and converting it into products. Significant evidence indicates that tokens can be seen as a self-fulfilling prophecy of the project's value, in other words, "the price may rise before value creation," which is fundamentally different from the construction and valuation methods of traditional companies, and this is why the cryptocurrency field seems very confusing to those unfamiliar with this new paradigm.
When the price of any asset surges, its attention also surges in sync, whether in the cryptocurrency field or other asset fields. However, cryptocurrency assets seem particularly adept at converting this newfound attention into added value for the underlying network. Therefore, when evaluating cryptocurrency assets, we need to consider not only the value the network has already created and can create in the future, but also the impact of subsequent liquidity inflows on the network's future development trajectory.
In general, people enter the cryptocurrency field with the intention of making money through this new business model. For those who can recognize this and foresee and seize opportunities for liquidity and value creation, the market often rewards them with substantial value. The most outstanding founders in the cryptocurrency field are well aware of this and can find ways to translate this collective demand into design advantages, thereby building a value network where all participants can earn profits.
Helium is a good example — they have successfully attracted enough liquidity to their ecosystem through the HNT token and established a stable reward mechanism. The core mechanism of Helium encourages users seeking profits to purchase mining machines and then profit from the tokens. With the potential returns from the token, Helium eventually sold a large number of mining machines to challenge the outdated mobile broadband market. Without the token, coordinating nearly 400,000 users to join such a new network would undoubtedly be a huge challenge. Therefore, for Helium, the most important product to promote is not the mining machine, but the token. Without the token, no matter how advanced their hardware or software is, they cannot attract enough attention, let alone challenge industry giants.
For tokenized products like Helium, the token price is a universal standard for measuring the inflow and outflow of attention. When the token price falls, miners gradually detach due to reduced economic benefits or herd mentality.
Therefore, attracting attention and liquidity is not only important in the initial stages of a project, but also a continuous requirement throughout the entire operation cycle. Although the importance of these matters will relatively decrease as the community's supply and demand gradually grow. Attracting sustained attention and liquidity is not easy, and the challenges faced by cryptocurrency project founding teams are no less than those of various creators on social media platforms, because even taking a day off at the wrong time could have a disastrous impact on project growth.
However, there are also founders with outstanding technical capabilities and strong appeal who are very clear about how to use the flow of attention and cleverly ride the waves, continuously injecting value into their ecosystem. By continuously fulfilling their commitment to the community, they have established a positive feedback loop and can continuously innovate their products to ensure that users (token holders) always have confidence in the project's long-term vision.
In practice, there are various methods to attract liquidity — for most founders, this process starts with raising a small amount of seed funding from family and friends, followed by obtaining more funds from institutional investors (often involving commitments to future tokens), then completing other pre-sales, and finally launching the project. Project teams also conduct bounty programs to distribute tokens, and collaborate with exchanges and market makers to ensure sufficient liquidity for the tokens. In addition, they use a series of marketing strategies to increase the project's visibility in the cryptocurrency world. They also collaborate with a wide range of people who trust their vision and are willing to join the community to help build it — these people genuinely trust the network and are motivated by the expectation of early entry to receive substantial rewards. Ideally, the people buying your tokens should be those who will actually use the network, or at least they will enthusiastically promote the network to others.
In summary, this playbook actually boils down to a simple strategy — sell the token to as many new buyers as possible, while doing everything possible to retain existing token holders and prevent them from selling their tokens. Sometimes, this can be achieved through lock-ups or staking, and sometimes through various meme cultures. Regardless of the method adopted, the best tokenized communities are adept at playing an "infinite game" in this game, even though everyone ultimately hopes to sell at a higher price, they can still work together to keep the game going when the token faces difficulties (such as buying in when the token price plummets).
Tokens are a powerful coordination tool, and in the next decade, we will witness explosive growth of tokenized networks, challenging the traditional institutions that still have a huge influence on our lives. Tokens can also help companies in the commoditized market solidify their market advantage, gain an edge in fierce market competition by accumulating attention and goodwill. This provides endless opportunities for founders who are both technically proficient and creative (good at software and memes) and dare to challenge the old patterns.
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