I think the most important thing a founder can deliver for community / VC is traction of some meaningful kind.
You can sell hopes/dreams at listing - but if people have no reason to hold, they’ll sell. At that point, it doesn’t matter what token-economic magic voodoo BS you do, people will exit. And when they exit in large troves, numbers go only in one direction. Down. Regardless of what the interest rate is, or where BTC is or what the TPS on Eth is.
Down. With a passion.
A lot of times, well intended founders actually put in the effort and get 50 logos slapped and a bunch of other metrics to get the news going. It makes sense because it is a narrative market. You want to show people you’re putting in the work. But EOD, we are in capital markets, with economic functions to serve.
If all that news, logo-collecting and community engagement does not translate to value capture / a sink where holding the underlying makes some sense - eventually, people will exit.
We are in the age of low-float, high FDV games, because a lot of founders (tend to) think the initial days of liquidity is all that their tokens will have. That ±18 months out, the token will trade 90% downwards.
One place I saw this happening is with DeFi - where powerlaws have been quite brutal. The first 2-3 lending players got high vals, by virtue of being high (and accruing TVL). But as market got saturated - by the 7th/8th player - it didn’t matter what the TVL or take rate was, the market simply went with the defacto leaders (Aave / compound). That market, then fixed itself when new approaches to lending emerged (Pendle, Ondo etc).
You could see this with perps too. In the early days - you could be the “first perp on xyz” chain - and it would get a valuation premium. But eventually, the market aggregated around volume (gmx), asset types (aevo) and off-late UX (hyper liquid).
In other words - what we’re seeing is a market that’s rapidly (and cruelly?) efficient. In the late 1990s you could “online” and that was cool enough. In the early 2020s, you could be “on-chain” and that was nice. But as markets evolve, capital and attention aggregates on what is useful, desirable and often times, intriguing.
A lot of the nuance that’s lost in the “low-float high fdv” discussion is the lack of traction or core metrics a ton of ventures have. In other words, what we are (likely) seeing - is just markets repricing protocols/ventures to where it should be. Unfortunately, a lot of retail folks buy these tokens at extremely high vals and lose money in the process. FWIW, i see regulatory capture (at exchanges) fixing this issue steadily.
In 2018, you could take a cohort of 10 seed-stage bets and see maybe 7-8 of them list on an exchange -if you were smart. By 2021, that number was down to 3-4. I think in 2024, that number is 1-2. Why? Because exchanges ask for traction, KPIs, backers, standardised token economic models and community engagement before a token goes live. For capital intensive products (like staking) - you can have a rich VC and some hedge funds helping you show TVL. But for a more consumer oriented app, that is not as easy to game.
Ultimately, the laws of start-ups, translate to founders in crypto too.
1. Having a token, is a force multiplier. If you have traction, it scales it. If you don’t, it drags you down
2. Regulatory capture at exchanges would mean founders would need to think harder before launching a token for the sake of it
3. It’s not the FDV or float that kills you - it’s spending 18 months of making noise and having nothing to show for it.
4. I think one way to think of this is — can a product’s users want to own stakes in it. If I use hyperliquid (which i do) - i likely wouldn’t want to sell my stake in it. And my stake, should make me want to help govern / manage it better.
Using tokens as a retention/governance tool is underexplored even in 2024 imo.
You can sell hopes/dreams at listing - but if people have no reason to hold, they’ll sell. At that point, it doesn’t matter what token-economic magic voodoo BS you do, people will exit. And when they exit in large troves, numbers go only in one direction. Down. Regardless of what the interest rate is, or where BTC is or what the TPS on Eth is.
Down. With a passion.
A lot of times, well intended founders actually put in the effort and get 50 logos slapped and a bunch of other metrics to get the news going. It makes sense because it is a narrative market. You want to show people you’re putting in the work. But EOD, we are in capital markets, with economic functions to serve.
If all that news, logo-collecting and community engagement does not translate to value capture / a sink where holding the underlying makes some sense - eventually, people will exit.
We are in the age of low-float, high FDV games, because a lot of founders (tend to) think the initial days of liquidity is all that their tokens will have. That ±18 months out, the token will trade 90% downwards.
One place I saw this happening is with DeFi - where powerlaws have been quite brutal. The first 2-3 lending players got high vals, by virtue of being high (and accruing TVL). But as market got saturated - by the 7th/8th player - it didn’t matter what the TVL or take rate was, the market simply went with the defacto leaders (Aave / compound). That market, then fixed itself when new approaches to lending emerged (Pendle, Ondo etc).
You could see this with perps too. In the early days - you could be the “first perp on xyz” chain - and it would get a valuation premium. But eventually, the market aggregated around volume (gmx), asset types (aevo) and off-late UX (hyper liquid).
In other words - what we’re seeing is a market that’s rapidly (and cruelly?) efficient. In the late 1990s you could “online” and that was cool enough. In the early 2020s, you could be “on-chain” and that was nice. But as markets evolve, capital and attention aggregates on what is useful, desirable and often times, intriguing.
A lot of the nuance that’s lost in the “low-float high fdv” discussion is the lack of traction or core metrics a ton of ventures have. In other words, what we are (likely) seeing - is just markets repricing protocols/ventures to where it should be. Unfortunately, a lot of retail folks buy these tokens at extremely high vals and lose money in the process. FWIW, i see regulatory capture (at exchanges) fixing this issue steadily.
In 2018, you could take a cohort of 10 seed-stage bets and see maybe 7-8 of them list on an exchange -if you were smart. By 2021, that number was down to 3-4. I think in 2024, that number is 1-2. Why? Because exchanges ask for traction, KPIs, backers, standardised token economic models and community engagement before a token goes live. For capital intensive products (like staking) - you can have a rich VC and some hedge funds helping you show TVL. But for a more consumer oriented app, that is not as easy to game.
Ultimately, the laws of start-ups, translate to founders in crypto too.
1. Having a token, is a force multiplier. If you have traction, it scales it. If you don’t, it drags you down
2. Regulatory capture at exchanges would mean founders would need to think harder before launching a token for the sake of it
3. It’s not the FDV or float that kills you - it’s spending 18 months of making noise and having nothing to show for it.
4. I think one way to think of this is — can a product’s users want to own stakes in it. If I use hyperliquid (which i do) - i likely wouldn’t want to sell my stake in it. And my stake, should make me want to help govern / manage it better.
Using tokens as a retention/governance tool is underexplored even in 2024 imo.
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