For cryptocurrency projects, tokens are the products.

Author: Mark

Translation: TechFlow

In the venture capital world, there is an old saying: "First-time entrepreneurs focus on products, while second-time entrepreneurs focus on distribution." This describes how product developers typically hope to achieve growth purely based on the quality of their products, rather than investing energy in creating repeatable patterns that will help them continuously attract attention and users to their products.

However, there is another factor here that I believe many cryptocurrency founders overlook, and that is tokens. Cryptocurrency founders generally overestimate the market promotion value of their products and underestimate the market promotion value of their tokens. When I say "tokens are the product," 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 everyone can see, the primary use case of blockchain to date has been buying, transferring, and selling 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 space, every obstacle we overcome, ultimately serves an interaction triggered by us buying some tokens ecosystem.

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 compile a list of cryptocurrency products or protocols with over 100,000 monthly active users (MAU), you will notice that the vast majority either already have a token or have indicated plans to eventually launch one. The cryptocurrency market offers users 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 provide users with more value through their token than just 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 competitors who do launch tokens and build token ecosystems.

This may ultimately also apply to businesses outside of cryptocurrency, to address 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. Delta Air Lines' main product is no longer flights; it's Delta points.

Looking back at cryptocurrency, history seems to suggest that very successful cryptocurrency projects can be built in the following way:

• Using tokens to continuously attract attention and capital

• Converting this liquidity into valuable products for users

Successful cryptocurrency products can be built in this specific order, with the best evidence being Justin Sun and the TRON network, despite years of criticism for their antics, it is hard not to be impressed by the actual utility TRON network provides (as a giant in the stablecoin payment ecosystem). He has proven to be very good 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 self-fulfilling prophecies of their own value, where price increases can occur before value creation itself. This forms a direct contrast to traditional methods of company building/valuation, which is 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 can leverage the influx of attention during price reflexivity fluctuations on such a large scale. 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 crypto space do not turn a blind eye to this fact but instead find 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 their ecosystem (through their HNT token), providing stable incentives for strangers to buy miners and start earning 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 nearly 400,000 users to join such a network without deep liquidity would be a daunting task, and deep liquidity provides a useful workaround during the early fluctuations in any multilateral market development. In this way, Helium's first and most important product 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 or challenge large existing enterprises.

In tokenized products like Helium, the token price is a measure of the attention flowing in and out of a given ecosystem. When the token price falls, miner liquidity also drains, both because their economic situation has changed and because of the psychological presence of the group around attention—if I see others leaving, I might leave too.

In this way, attracting liquidity is not only important in the early stages but always a prerequisite for the network's continued existence, 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 creators go through 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 excellent technical experts and degens in the cryptocurrency space, keenly understanding attention flows and how best to ride these waves to continuously create value for their ecosystems. They create a self-reinforcing positive feedback loop by consistently delivering on promises to community members and striving for continuous innovation in their products to maintain their users' (token holders') engagement with the project's long-term vision.

From a practical perspective, the art of attracting liquidity often takes various forms. 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-ICO token trades, official issuance, bounty campaigns for token distribution, partnerships 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 other marketing techniques. Importantly, they collaborate with an increasingly broad network of people who believe in their mission and join their community to help support it, motivated by their inherent belief in the existing network and the generous rewards the token provides for early joiners. Ideally, the people you sell tokens to should be the first to truly use the network itself or at least be vocal about promoting 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 to the network due to their inherent belief in the existing network and the generous rewards the token provides for early joiners. Ideally, the people you sell tokens to should be the first to truly use the network itself or at least be vocal about promoting it to their audience.

In the end, 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 investments or staking tokens, sometimes through the use of memes. In any case, the best tokenized communities excel at playing an infinite game in adversarial games, where strangers coordinate when tokens are in trouble to maintain the game (i.e., bidding when tokens are being sold), although ultimately they compete with each other to exit at a higher price in the future.

Tokens are an extremely powerful coordination tool, and in the next decade, we will see explosive growth of tokenized networks, which will severely challenge institutions that still wield enormous power today.Tokens can also allow companies in the commodified market to accumulate attention and good consumption willingness during competitive periods, thus avoiding them from completely losing their moats. This provides a huge opportunity for founders who are proficient in technology and creative pursuits (software and memes), giving them the courage to compete with large existing organizations. In fact, this script has become so clear and repeatable that utility token networks will continue to attract a large amount of early investment capital from investors who see the potential returns in betting on founders early and correctly. As this market matures, I also expect to see competition for liquidity attention become more intense (as we have already seen in the utility token market within the blockchain space). We are excited about the upcoming tokenized networks, as we believe recent advancements in wallets and zk technology, coupled with the widespread adoption of secure blockchain space, have created the perfect conditions for a whole new set of applications and users to join the cryptocurrency realm.