Cryptocurrency Startup Guide How to Find the Intersection of Tokens and Markets

Authored by Mark Beylin of Boost VC
Translated by Yangz of Techub News
In Paul Graham’s article “Be Good,” he outlines how startups can find the intersection between products and markets, by creating things that people want. If we believe that tokens are products, then the question we face is: how do we create tokens that people want?
Paul’s first suggestion is not to worry too much about the business model at the beginning, even though he admits that creating value without worrying about capturing value is something only charities do. In the cryptocurrency field, however, we see the opposite: through issuance, people must first buy tokens to use practical tokens (sometimes needing to buy years in advance), and value is inevitably captured before creation. This may be why many successful cryptocurrency ecosystems in the early stages appear more like scams than charities, especially for those who are well-versed in traditional startup building models.
To find cryptocurrency startups that match the token market, is it possible, as Paul initially suggested, not to worry about creating direct value for token holders, but to focus on capturing value through selling tokens first?
Tokens – Tools of Discovery Narratives
For early-stage startups that have not found the product-market fit, one of the most challenging aspects is continuously communicating with customers to understand their interests in new products or features. Founders need to develop relationships with various stakeholders in the ecosystem, create a tight feedback loop, and design solutions that fully meet market demands. The tighter these feedback loops are, the faster the team can iterate to find the best solutions and test them in the market. However, only communicating with customers may not scale, as there are only so many people willing to meet or talk to you… how can you reach other customers?
When observing existing token projects, it is easy to see that there is a feedback loop between the price of tokens and the market’s expectations of the future value the token ecosystem will create. Whether it’s Uniswap raising token prices in response to its fee conversion proposal, Vitalik selling MKR in response to Maker’s own chain launch plan, or DEGEN raising prices in response to launching L3, we can see that token prices are quite sensitive to news about specific project plans.
Tokens play a role as a prediction market, predicting the collective interests of the population in the direction of a project, and the expected likelihood of achieving this goal. The efficiency of this feedback loop is determined by the liquidity of the tokens, where tokens with higher liquidity (such as BTC and ETH) immediately respond to news events, while smaller projects attract fewer speculators (trading based on news events). However, if new buyers are interested in the narrative the project is building, i.e., if they believe the solution outlined by the project is valuable to a future group of people, even tokens with lower liquidity will attract new buyers. The significant growth in the valuation of artificial intelligence tokens over the past six months is evidence of this: while only a few tokens currently provide value to token holders, based on the huge value created by traditional artificial intelligence startups, the market has already revalued the expected value these ecosystems can create in the future.
The interesting part of this process is that by launching tokens and attracting enough liquidity attention (to make people worth spending time/money trading on your news), the team may form an extremely tight feedback loop for its future product releases. While conversing with users, cryptocurrency product builders can also temperature-check their product decisions through iterative cycles until they find the decisions that the market values (i.e., decisions that significantly increase the value of your tokens). Once this happens, you will know that you are moving in the direction the market considers meaningful, allowing you to use the token price mechanism as a tool to discover mass market demand without building anything in advance.
Tokens – Efficient Venture Capital Mechanism, allows people to buy tokens based on their belief in the needs a project can meet in the future, is at the core of venture capital. It usually employs the pattern of value creation described by Paul Graham, which is why founders have been following this approach technically.
Normally, startups raise venture capital because they have specific goals or plans that require new funding. This also provides founders with feedback loops (if venture capital firms are not interested in your new plan, they will not invest), albeit an exclusive and opaque feedback loop that appears only about every 18 months.
The emergence of tokens allows anyone to participate in funding new projects at any time, increasing the supply of funds available to participate in the purchase of early-stage projects in the market, thereby increasing the proportion of projects receiving funds. If a new proposal expands the market opportunities for tokens by providing new use cases, the market will assign higher value to the project, and the scale of token diversity will also expand. With tokens, the market becomes a direct financing mechanism for innovation, which is the core reason why tokens are a powerful tool for expanding human potential.
Although venture capitalists love to express their love for tokens in lengthy discussions, it is overlooked that tokens and venture capital compete directly and are alternative products. As a former founder turned venture capitalist, I believe that venture capital has a moderate amount that is useful and necessary for all founders. The right amount of funding depends on the team itself and the market in which they operate, but I believe it is not zero for any project. In times when public token markets are drying up, venture capital firms play an important role in continuing to provide funding for early-stage projects, often reaping huge returns for taking on this risk.
Surviving Market Cyclic Fluctuations
One downside of tokens is that capital flows with the attention in a particular ecosystem. Market participants are not all the same, and the attention of specific investors is related to their own beliefs. People will adjust their investment portfolios constantly based on their latest views, so the intensity of the token cycle depends on its ability to continue attracting market participants’ attention.
One method that founding teams use to address this issue is “narrative surfing,” constantly linking their projects to the latest hot value propositions in cryptocurrency that attract liquidity, hoping to maximize the value of tokens by expanding the goals they can achieve. Another way for teams to stay fresh is to use memes: great memes generate community responses, creating a snowball effect, and the current “meme wars” in the community are quite intense. Communities with excellent meme creation cycles can ensure that there is always a lot of content created/shared about the project on social channels, making their tokens the focus of attention. This is why memes are a necessary factor in maintaining sufficient liquidity for tokens and one of the reasons why memecoins can continue to attract and retain liquidity. By getting the right people to join the ecosystem early, they will have intrinsic motivation to talk about the project and help it grow. If too many tokens are airdropped to people who are not willing to continue sharing the project, it will be challenging to maintain long-term attention for the project.
Avoiding Overly Financialized Decisions
Imagine a world where the market is entirely efficient, and project token prices are like perfect oracles, predicting whether a particular action plan is optimal. Perhaps the market is filled with a large number of AI agents that can trade tokens based on updates from various projects and predict whether a project will be successful. Furthermore, project teams only take actions that external market participants believe are worth taking. If someone asks, “Who calls the shots here?” the correct answer should be the entire market (through token prices), with other people in the token ecosystem merely acting as managers or custodians to help achieve market goals. But does this organizational governance system actually achieve greater success than other models?
I believe the answer is no.
First, the best founders in specific industries often hate being told what to do. They understand their market very well and have their own insights into the best course of action. Second, the best founders often accept opinions that deviate from mainstream consensus, and in fact, they often take pride in doing so. Importantly, these deviations are the reasons why they create such successful companies: every market misunderstanding is an arbitrage opportunity, a reward for the first person to dissent. The most successful companies of our time have all gone through long periods where the market actively devalued their work, and it is their ability to resist this force that has allowed them to maintain value in the long term.
Great founders are visionaries who do not optimize around local minima like others but explore new areas, hoping to discover new opportunities that others believe do not exist. To do this, they ask questions that others have never thought of, relying on intuition to switch rapidly between different concepts with minimal 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 on an untapped market, the last thing they want to do is share this data publicly. But if they keep their cards close to their chest, even the best founders will struggle to attract public market attention. However, they will benefit from attracting funds through private placements (participants in private placements are screened and trustworthy) and from finding crazy investors who can see the vision and think intuitively like them.
How can you truly find the intersection between tokens and the market?
Returning to our initial question, we believe that tokens are a powerful tool that teams can use to discover market demand and their preferred narrative. Like previous product founders, token founders can quickly iterate on the value proposition of tokens based on the massive feedback provided by tokens.
To maintain the vitality of this feedback loop, teams should strive to continuously attract investors’ attention on social platforms. They should have a deep understanding of the various narratives around them and why the market values each narrative. They should ensure that content and memes continue to appear in people’s attention, so they do not lose interest and rebalance their investment portfolios. Most importantly, teams should focus on attracting high-value contributors who believe in the project’s vision and are willing to provide funds and support. If the team can do this well, they can build a Hodl army that will not sell tokens and will promote tokens to new audiences.