The Token Is The Product

From Mark beylin.eth

There’s an old saying in venture that says “first time founders focus on product, and second time founders focus on distribution”. This describes how product builders often expect that they can achieve growth purely thanks to the quality of their product, rather than by investing energy into creating repeatable patterns that will help them consistently attract attention and users to their product.

However, there’s another element here that I believe a lot of crypto founders are missing, and that’s tokens. Crypto founders chronically overvalue the go-to-market of their products, and undervalue the go-to-market of their tokens. When I say “the token is the product” I’m not being facetious — I actually believe that for anyone trying to build a valuable company in crypto, your first and primary goal should be to attract permanent attention and liquidity to your token, AKA to sell it to anyone who will hold it for a very very long time.

As anyone with eyes can see, the primary use-case for blockchains to date has been the purchase, transfer, and sale of tokens. Some applications add extra steps or metadata to these interactions, helping users construct elaborate ways to create value for themselves using the tokens in their possession. But everything we do in crypto, every hoop we jump through, every seed word we write down, is ultimately in service of an interaction which started with us buying into some token ecosystem.

While there have been a small number of successful crypto projects which have achieved broad persistent distribution for their software without the help of tokens, they exist as outliers. If you were to compile a list of crypto products or protocols with >100k MAU, you’ll notice the vast majority of them either already have a token, or have stated plans to eventually launch one. Crypto markets offer users increased efficiency and fairness, and so naturally it’s extremely difficult to build a sustainable competitive advantage against new entrants who will try to drive your margins down.

One example here is Uniswap, who was able to maintain hegemony for a number of years thanks to their strong brand and high quality tech. Even they were eventually forced to add a token as a response to competitors like Sushi who were delivering more value back to users than just the functionality of their product, via their token. Examples like this are why I believe that on a long enough time horizon, any successful crypto product which doesn’t launch a token will eventually have their margins competed away, and/or will be beaten by competitors who do launch a token, and build stronger persistent network effects for themselves and their community.

This may end up also being true of businesses outside of crypto too, in response to increasingly efficient markets driven by the proliferation of the web and AI. It’s worth noting that this closely mirrors how airlines function right now in the real world — because they operate with extremely low margins,  a majority of their value is derived from their loyalty programs . Delta’s primary product is no longer flights; it’s Delta points.

Looking back at crypto, the evidence seems to show that it’s possible to build wildly successful crypto projects by:

The best evidence that successful crypto products can be built in this specific order is Justin Sun and the TRON network— despite all of the shade people throw at their antics over the years, it’s hard not to be impressed by the real utility the network provides (as a  behemoth in the stablecoin payments ecosystem ). He’s proven himself extremely capable in both attracting liquid attention to himself, and converting that into a real network that has already created value for millions of people. The evidence clearly shows that tokens can act as self fulfilling prophesies of their own value, where price gains can occur in advance of the value creation itself. This stands in direct opposition to the way that traditional company building/valuations work, which is why crypto remains dumbfounding to anyone not accustomed to this new paradigm.

When any asset price skyrockets, people pay more attention to it — this is as true in crypto as in any other asset. However, crypto assets seem to be particularly good at converting that increased attention into an increased inherent value of the underlying network. This is because crypto networks welcome skilled contributors to their community regardless of their professional background, vs traditional organizations which are walled gardens with thin entrances. Very few non-crypto organizations are set up to take advantage of the massive inflows of attention that they might receive during reflexive price action. As a result of this, instead of just valuing crypto assets based on current and future value that the network is creating, one also needs to price in the effects that subsequent liquidity flows will have on the network’s future trajectory.

People enter this ecosystem to make money via this novel business model, which offers steep rewards for those who can be early in predicting future liquidity flows and value creation. The best founders in crypto are not blind to this fact, and instead figure out a way to weaponize this inherent desire, in order to spin up valuable networks where participants are all making money thanks to the existence of the network.

One prime example of this is the Helium network— they were able to attract enough liquidity to their ecosystem (via their HNT token) to provide a stable incentive for self-interested strangers to purchase miners and begin earning real profits for themselves. Through the power of token liquidity, they were able to bootstrap their network with enough miners to take on the stale mobile broadband market. Coordinating close to  400,000 users  to join such a network would be a daunting task without the help of deep liquidity, which provides a useful stop-gap during the early fluctuations that arise when spinning up any multi-sided marketplace. 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 would not have been able to attract and maintain sufficient attention to achieve the critical mass necessary to take on large incumbents.

In tokenized products like Helium, the token’s price acts as a lowest common denominator measure of the attention flowing in/out of a given ecosystem. When token prices drop, miners churn both not only because their economics have changed, but also because of the herd mentality that exists around attention— if I see everyone else leaving the party, I’m much more likely to go as well.

In this way, attracting liquidity isn’t a one-time thing that’s only important in the early stages — it remains a prerequisite throughout the continuous existence of the network, albeit a less and less important one as the community onboards sufficient native supply/demand to the network. Being able to attract consistent liquid attention to your project is not a trivial task — the strains it puts on crypto founding teams mirrors the grueling experience of being a creator on large social platforms, where even taking one day off at the wrong time can be disastrous for your growth.

Nonetheless, there are some crypto founders who are both excellent technologists and terrifying meme lords, who keenly understand how attention flows and how best they can ride those waves in order to continuously drive value into their ecosystem. They create self-reinforcing positive feedback loops by consistently delivering on the promises they make to their community members, and are driven to continue innovating on their products in order to keep their users (token holders) bought in to a long-run vision of the project.

Practically speaking, the art of attracting liquidity often takes many forms — for most founders the process starts with raising some small seed capital from friends family, then some more from institutional investors (with either explicit or implicit mention of the future token), followed by other pre-launch token deals, the launch itself, bounty campaigns to get the token distributed, campaigns with exchanges and market makers to provide liquidity for the token, and a myriad of other marketing techniques to raise the project’s profile within the crypto attention sphere. Importantly, they collaborate with an increasingly broad network of people who believe in their mission and join their community to help stand it up— incentivized to contribute to it thanks to their intrinsic belief in the existing network, and a token which offers steep rewards for joining early. In an ideal world, the people you’re selling your token to should be the first people who will actually use the network itself, or at the very least will champion it loudly to their audiences.

Ultimately, most of the art comes down to the simple math of selling the token to as many new buyers as possible, while simultaneously doing everything possible to keep existing token holders from dumping their tokens. Sometimes this is achieved via token lockups around investments or staked tokens, sometimes it’s achieved using memes. However they do it, the best tokenized communities are skilled at playing an infinite game within an adversarial game, where strangers coordinate in times of token distress to keep the game going (ie bidding when the token dumps), despite ultimately competing with each other to exit at a higher price later on. The founders within these ecosystems are often extremely technical individuals who have achieved enough ease of self that they don’t need to be taken seriously, and impart a human element on what can otherwise become an extremely commoditized relationship with their token holders.

Tokens are an extremely powerful coordination tool, and in the next decade we’re going to see an explosion of tokenized networks which will seriously challenge the institutions that still wield immense power in our lives today. Tokens are also going to save companies in commodified markets from losing their moats entirely, by letting them bank their attention and good will to spend in times of intense competitive need. This presents a massive opportunity for founders who are skilled in both technical and creative pursuits (software and memes), who are brave enough to take on massive incumbent organizations, and who have the grit to survive inevitable droughts of liquidity that will come along the way.

The fact that this playbook has become so clearly understood and repeatable means that utility token networks will continue to attract large amounts of early stage investment capital, from investors who see the potential gains to be had from being early and right when betting on a founder that’s working on a suitable meme. As this market matures, I also expect we’re going to see the competition for liquid attention becoming more fierce (as we’re already witnessing within the blockspace utility token markets).