Cryptocurrency Startup Guide: How to Find Token-Market Fit

Author: Mark Beylin , Boost VC

Compilation: Yangz, Techub News

##In the article "Be Good" by Y Combinator founder Paul Graham, he outlines how startups can find product-market fit, That is, making something people want. If we believe that tokens are products, then the question we face is: how to build a token that people want?

Paul’s first piece of advice is not to worry too much about the business model in the beginning, although he admits that creating value without worrying about value capture is what charities do. In cryptocurrency, we see the opposite: by issuing utility tokens that people must buy before they can use them (sometimes years in advance), value is necessarily captured before it is created. And this may be why many successful crypto token ecosystems look more like scams than charities in their early stages, especially to those well versed in traditional startup building models.

In order to find cryptocurrency startups that match the token market, is it possible, as Paul originally suggested, not to worry about creating direct value for token holders at all, but to focus on first passing Selling tokens to capture value?

Tokens - Tools for discovering narratives

For startups that are in the early stages of entrepreneurship and have not found product-market fit, one of the most challenging difficulties is to constantly communicate with customers. to understand their interest in new products or features. Founders need to develop relationships with various stakeholders in the ecosystem, establish tight feedback loops, and design solutions that fully meet market needs. The tighter these feedback loops are, the faster teams can iterate on the best solutions and test them in the market. However, just talking to customers doesn’t scale, after all, there are only so many people willing to meet with you or talk to you on the phone…how are other customers going to connect?

When looking at projects with existing tokens issued, it is not difficult to find that there is a feedback loop between the price of the token and the market’s expectations of the future value that the token ecosystem will create. Whether it’s Uniswap pumping up token prices in response to its fee conversion proposal, Vitalik selling MKR in response to Maker’s plan to launch its own chain, or DEGEN pumping up prices in response to plans to launch L3, we can see that token prices Very responsive to news of future plans for specific projects.

The token acts as a prediction market, predicting the collective interest of the crowd in a project moving in a specific direction, and the expected likelihood of achieving this goal. The efficiency of this feedback loop is determined by the liquidity of the token. More liquid tokens such as BTC and ETH react immediately to news events, compared to smaller projects that attract speculators. (trading on news events) less. However, even less liquid tokens will attract new buyers if they are interested in the narrative that the project is building, i.e. if they believe that the solutions outlined by the project will be valuable to a certain group of people in the future. . The significant growth in AI token valuations over the past 6 months is evidence of this: although only a handful of tokens currently bring value to token holders, based on the huge value already created by traditional AI startups, The market has repriced the expected value that these ecosystems can create in the future.

The interesting thing about this process is that by launching a token and attracting enough liquidity attention (in order to make it worth their time/money for people to trade on your news), the team has the potential to make decisions about its future. product launches form an extremely tight feedback loop. While talking to users, cryptocurrency product builders can also temperature-check product decisions through iteration after iteration until they find the ones that the market values ​​(i.e., the ones that make your token rise significantly). Once that happens, you'll know you're moving in a direction that the market thinks makes sense, allowing you to use the token's price mechanism as a tool to discover mass market demand without having to build anything up front. .

Tokens - Efficient Venture Capital

The mechanism, which allows people to purchase tokens based on their belief in the needs that the project can meet in the future, is the core of venture capital. It exploits the prerequisites for value creation in patterns that are often described by Paul Graham, which is why, technically, founders have followed this approach.

Typically, startups raise venture capital because they have a specific set of goals or plans that require new funding. This also provides a feedback loop of sorts for founders (if VCs aren't interested in your new plan, they won't invest), but that feedback loop is both exclusive and opaque, and only happens every 18 months or so. will appear once.

The emergence of tokens allows anyone to freely participate in the funding of new projects at any time, increasing the supply of funds in the market that can participate in purchasing early-stage projects, thereby increasing the proportion of projects receiving funds. If a new proposal expands the market opportunity for a token by providing new use cases that the token can enable, then the market will place a higher value on the project and the scale of token diversity will expand. With tokens, markets become direct financing mechanisms for innovation, which is at the heart of what makes tokens a powerful tool for expanding human potential.

While venture capitalists love to spout long talks to express their love for tokens, what is overlooked is that tokens compete directly with venture capital and the two are substitute products. As a former founder and current venture capitalist, I believe that a modest amount of venture capital is useful and necessary for all founders. The appropriate amount of funding depends on the team and the market it's in, but I don't think it's zero for any project. VCs have also played an important role in continuing to fund early-stage projects during periods when public token markets have dried up, often reaping huge rewards for taking on this risk.

Surviving cyclical market fluctuations

One drawback of tokens is that capital flows as attention flows within a specific ecosystem. Market participants are not all alike, and the attention of specific investors is related to their own philosophies. People are constantly adjusting their portfolios based on their latest opinions, so the strength of a token cycle depends on its ability to continue to attract the attention of market participants.

One of the ways the founding team solves this problem is "narrative surfing", which is to constantly link their projects to the latest hot value propositions in cryptocurrencies that attract liquidity, hoping to continue to expand What the token can achieve, maximizing the value of the token.

Another way for the team to keep things fresh is to use memes: excellent memes will reverberate in the community, thus creating a snowball effect, and the current "meme war" between communities is also quite fierce. A community with a good meme creation cycle can ensure that there is always a lot of content being created/shared about the project on social channels, keeping their token in the spotlight. This is why memes are necessary to keep tokens sufficiently liquid, and one of the reasons why meme coins continue to attract and maintain liquidity. Get the right people into the ecosystem as early as possible, and they'll be naturally motivated to talk about the project and help it grow. If too many tokens are airdropped to people who are unwilling to continue to share the project, it will be difficult for the project to maintain attention in the long term.

Avoid over-financialization of decision-making

Imagine a world where the market is completely efficient and the price of project tokens is like a perfect oracle that can predict whether a certain course of action will be successful. Optimal. Perhaps the market is also flooded with a large number of AI agents that can trade tokens based on updates from various projects and do a good job of predicting whether a certain project will be successful. Moreover, the project team only takes actions that external market participants deem worthwhile. If someone asks, "Who has the final say here?" the correct answer would be the market as a whole (through the price of the token), and others in the ecosystem around the token simply exist as managers or custodians to help achieve market goals. But will this system of organizational governance actually achieve more than other models?

I think the answer is no.

First of all, the best founders in a given industry often hate being told what to do. They know their market well and have their own opinions on the best course of action. Second, the best founders are often receptive to opinions that deviate from the mainstream consensus. In fact, they are often proud of it. Importantly, these biases are exactly why they created such successful companies: every market misunderstanding is an arbitrage opportunity, a reward for the first person who dares to disagree. The most successful companies of our time have all gone through long periods when the market actively devalued their work, and it was their ability to withstand this force that allowed them to sustain their value over the long term.

Great founders are visionaries who don’t optimize around local minima like everyone else, but explore new areas in the hope of discovering new opportunities that others don’t think exist. They do this by asking questions that others have never thought of and relying on intuition to quickly switch between concepts with little data. This helps them achieve product-market fit faster than their competitors, win the market, and create valuable ecosystems out of thin air.

If a team collects valuable new data about an untapped market, the last thing they want to do is share that data publicly. But it’s hard for even the best founders to attract the attention of the public market if they keep their cards close to their chest. However, they will benefit from attracting capital through private financings (where the participants are screened and trustworthy) and from finding crazy investors who can see the vision and think as intuitively as they do.

How can we truly find the fit between the token and the market?

Going back to our original question, we believe tokens are a powerful tool that teams can use to discover market demand and the narrative that works for them. Like product founders before them, token founders can quickly iterate on the token’s value proposition based on the tremendous feedback the token provides.

To keep this feedback loop alive, teams should strive to continuously attract investors’ attention on social platforms. They should maintain a deep awareness of the various narratives surrounding them and understand why the market values ​​each narrative. They should use content and memes to stay on people’s radar consistently so people don’t lose interest and rebalance their portfolios. Most importantly, the team should focus on attracting high-value contributors who believe in the project vision and are willing to provide financial and energy support. If a team can do this well, they can build an army of Hodl’s who don’t sell their tokens and promote them to new audiences.

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