Should we launch the coin first or find market fit first? Timing is more important

Author: Builders

Compiled by: Shenchao TechFlow

According to American entrepreneur Eric Ries, Product-Market Fit (PMF) refers to "the moment when a startup finally finds a large group of customers who resonate with its product."

Although Web2 and Web3 startups differ, the classic wisdom about product-market fit applies equally in the crypto space: find it or fail.

This raises the question: should product-market fit be achieved before issuing a Token?

The simple answer is that it depends on how much your product relies on the Token to achieve PMF. The positioning of the product in relation to Token usage will determine the best time to introduce the Token.

In this article, we will explore the issue of issuing Tokens before achieving PMF and under what circumstances doing so might be appropriate.

The Issue of Issuing Tokens Before Achieving Product-Market Fit

Frankly, there are many Tokens in the market that do not play a critical role in the products they serve.

For crypto products that do not rely on Tokens for operation, efforts should be made to achieve product-market fit before issuing Tokens, as the decentralized nature of these projects makes it exceptionally difficult to make adjustments after launch. For example, governance Tokens may be an important part of the project ecosystem, but they are not core to the product itself.

Introducing Tokens too early can distort incentive mechanisms, affect user behavior, and solidify certain product elements, thereby hindering the process of finding product-market fit. Additionally, while modifying the economic model of a Token after issuance is often challenging, such adjustments may be crucial for achieving product-market fit. Moreover, although Token incentives can attract users in the early stages, they do not ensure long-term user retention and do not address potential product issues that must be resolved before launch.

Scenarios Where Issuing Tokens Before Achieving Product-Market Fit is Appropriate

For some crypto products that are designed with Tokens as a core component (though such products are rare), Tokens are actually essential for product functionality and must be released before finding product-market fit.

For example, in certain cases, Tokens are crucial for achieving product-market fit, including those Layer 1 blockchains that gain economic security through miners or validators, such as Bitcoin, Ethereum, Solana, and Binance Chain, or DePin networks like Helium and Dimo that rely on Token issuance to provide initial support for the supply side of the network.

While less common, some DeFi networks do require Tokens to properly align incentive mechanisms within the network (excluding governance). The Token networks of these products must operate correctly to achieve scalability and incentive alignment.

Situations Where Issuing Tokens Before Achieving Product-Market Fit is Not Suitable

Although many products have issued Tokens, very few crypto products truly depend on Tokens for operation. The most common use of Tokens is to effectively kickstart user acquisition (or ultimately for exit liquidity). Blur is a prime example of this strategy working effectively. They successfully launched a "vampire attack" on OpenSea, which was the leading NFT marketplace at the time, using incentives from their native Token.

While Tokens can play a role in initiating user acquisition, if the product has not truly achieved product-market fit, user activity will inevitably decline significantly once these incentive activities end (refer to all major airdrop activities in 2024).

Conversely, if a product is already functioning well, adding incentives to promote user growth (and in many cases achieving decentralized governance) can significantly accelerate its development.

Take Compound as an example. Although they have a native Token for governance, this Token is not central to their core product (i.e., decentralized lending). Compound had already achieved significant market success before introducing the Token.

Similarly, Uniswap captured a large share of the decentralized trading market with its second version of the protocol before launching its Token. They effectively defended against SushiSwap's "vampire attack" by issuing their own Token.

Recently, Polymarket found excellent product-market fit in its decentralized prediction market, allowing users to bet on the outcomes of real-world events using USDC instead of a highly volatile native Token.

In summary, unless your product truly requires a Token, it is best to consider issuing a Token after achieving product-market fit. Otherwise, the Token may hinder rather than facilitate your growth.

Legal Disclaimer

Token issuance is not available in the United States (and its territories), Canada, and certain other regions.

This blog post is published by CoinList Global Services Ltd. or its subsidiaries. CoinList does not provide investment, legal, or tax advice, and this article should not be construed as such advice.