For cryptocurrency projects, tokens are the product

Original Title: 《The Token Is The Product》

Author: Mark

Translation: Deep Tide TechFlow

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 often expect to achieve growth solely based on product quality, rather than investing energy into creating repeatable models that will help them continuously attract attention and users to their products.

However, there is another factor that I believe many cryptocurrency founders overlook, which is the token. Cryptocurrency founders generally overestimate the marketing value of their product while underestimating the marketing value of their token. When I say "the token is the product," I am not joking; I genuinely 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 for your token, that is, to sell it to anyone willing to hold it long-term.

As anyone can see, the primary use case for blockchain so far has been to buy, transfer, and sell tokens. Some applications add extra 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 cross, ultimately serves an interaction triggered by our purchase of certain token ecosystems.

While a small number of successful cryptocurrency projects have achieved widespread and lasting distribution of software without a token, they are exceptions. 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 crypto market offers users higher efficiency and fairness, so naturally, it is extremely difficult to establish a sustainable competitive advantage against new entrants trying to drive down profits.

One example is Uniswap, which has managed to maintain its dominance over the years through its strong brand and high-quality technology. Even they eventually released a token in response to competitors like Sushi, which provided users with more value through their token than through product features. Examples like this are why I believe that over a sufficiently long time frame, any successful crypto product that does not launch a token will ultimately lose its profits and/or be defeated by competitors that launch tokens and build tokens.

This may ultimately also apply to businesses outside of cryptocurrency, in response to the increasingly efficient markets driven by the development of the internet and artificial intelligence. Notably, 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's main product is no longer flights; it is Delta points.

Looking back at cryptocurrency, history seems to suggest that very successful cryptocurrency projects can be built by:

• Continuously attracting attention and capital through tokens
• Converting that liquidity into products that are valuable to 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 of their antics, it is hard not to be impressed by the actual utility provided by the TRON network (as a giant in the stablecoin payment ecosystem). He has proven to be very adept at attracting liquidity attention and converting it into a real network that has created value for millions. The facts clearly show that tokens can serve as a self-fulfilling prophecy of their own value, where price increases can occur before value creation itself. This stands in direct contrast to traditional company building/valuation methods, which is why cryptocurrency remains confusing for those unaccustomed to this new paradigm.

When the price of any asset skyrockets, people pay more attention to it, and this is true for cryptocurrencies as well as any other asset. However, cryptocurrency assets seem particularly adept at converting this increased attention into increased inherent value for 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 crypto assets, one cannot rely solely on the current and future value created by the network but must also consider the impact of subsequent liquidity on the network's future trajectory.

People enter this ecosystem to make money through this new type of business model, which offers huge rewards for those who can predict future liquidity flows and value creation early. The best founders in the crypto space do not ignore this fact but instead manage to leverage this inherent desire to build valuable networks where all participants profit from the existence of the network.

A typical example is the Helium network, which was able to attract enough liquidity to its ecosystem (through its HNT token) to provide stable incentives for selfish strangers to buy mining machines and start earning real profits for themselves. Through the power of token liquidity, they were able to launch their network with enough miners to capture the stagnant mobile broadband market. Without the help of deep liquidity, coordinating nearly 400,000 users to join such a network would be a daunting task, and deep liquidity provides a useful expedient in the early fluctuations that occur as any multi-sided market develops. In this way, the first and most important product that Helium needed to sell was their token; without it, no matter how impressive their hardware or software was, they could not attract and maintain enough attention or challenge large existing enterprises.

In tokenized products like Helium, the price of the token serves as a measure of the attention flowing in and out of a given ecosystem. When the token price drops, miner liquidity also drains away as their economic situation changes, and also because of the group psychology surrounding attention; if I see others leaving, I may also leave.

In this way, attracting liquidity is not just important in the early stages; it is always a prerequisite for the network's continued existence, although this becomes less critical once enough local supply and demand are attracted to the network. The ability to continuously attract liquidity attention to your project is not a trivial task; the pressure on cryptocurrency founding teams is akin to the agony experienced by creators on large social platforms, where even taking a day off at the wrong time can have catastrophic effects on your growth.

However, some cryptocurrency founders are both excellent technical experts and degens in the crypto space, who keenly understand the flow of attention and how best to navigate these tides to continuously create value for their ecosystems. They create a self-reinforcing positive feedback loop by consistently delivering on their promises to community members and strive to innovate on their products to keep their users (token holders) engaged with the long-term vision of the project.

From a practical perspective, the art of attracting liquidity often takes many forms. For most founders, this process begins with raising some small seed funding from friends and family, then raising more from institutional investors (whether explicitly or implicitly for future tokens), followed by other pre-issue token trades, formal launches, bounty campaigns for token distribution, partnerships with exchanges and market makers to provide liquidity for the token, and a series of other marketing techniques to increase the project's visibility in the cryptocurrency attention space. 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 that tokens provide for early joiners, they are incentivized to contribute to the network. Ideally, the people you sell tokens to should be the first true users of the network itself or at least those who will loudly promote the network to their audiences.

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 by locking investments or staked tokens, and sometimes through the use of memes. In any case, the best tokenized communities are adept at playing infinite games in adversarial settings, where strangers coordinate with each other to keep the game going (i.e., bidding during token sell-offs), even though they ultimately still compete with each other to exit at a higher price later.

Tokens are an extremely powerful coordination tool, and over the next decade, we will see explosive growth in tokenized networks, which will seriously challenge institutions that still hold significant power today. Tokens also allow companies in commoditized markets to accumulate attention and goodwill during competitive times, thereby avoiding the complete loss of their moats. This presents a tremendous opportunity for founders who are skilled 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, understandable, and repeatable that it means practical token networks will continue to attract significant early investment capital from investors who see the potential for early and correct gains when betting on founders. As this market matures, I also expect to see competition for liquidity attention become 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 advancements in wallet and zk technology, combined with the proliferation of secure block space, have created perfect conditions for a whole new set of applications and users to join cryptocurrency.