Guide for Crypto Startup How to Find the Intersection of Tokens and Market

Authored by: Mark Beylin, Boost VC
Translated by: Yangz, Techub News
In his article “Be Good,” Y Combinator founder Paul Graham outlined methods for startups to find the point of intersection between their product and the market, which involves creating something 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, although he acknowledges that creating value without worrying about capturing value is something only charities do. In the cryptocurrency field, we see the opposite situation: value is captured before it is created through the issuance of utility tokens that people must purchase before being able to use (sometimes years in advance). This may be why many successful cryptocurrency ecosystems in the early stages appear more like scams than charities, especially for those familiar with traditional startup building models.
Is it possible for cryptocurrency startups to find a match with the token market without worrying about creating direct value for token holders, as Paul initially suggested, and instead focus on capturing value through selling tokens first?
Tokens – Tools for Narratives
One of the most challenging aspects for early-stage startups that have not found the product-market fit is constant communication with customers to understand their interest in new products or features. Founders need to develop relationships with various stakeholders in the ecosystem, establish close feedback loops, and design solutions that fully meet market demands. The tighter the feedback loops, the faster the team can iterate to find the best solutions and test them in the market. However, scaling is not possible through only direct customer communication since there are only so many people willing to meet or talk with you… How do you connect with other customers?
When observing existing token projects, it is evident 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 launch of its own chain plan, or DEGEN raising prices in response to the launch of L3, we can see that token prices are highly sensitive to news about specific project future plans.
Tokens serve as a predictive market, predicting the collective interest of the population in a project moving in a specific direction and the likelihood of achieving this goal. The efficiency of this feedback loop is determined by the token’s liquidity; tokens with higher liquidity (such as BTC and ETH) will immediately react to news events, while smaller projects that 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 certain group in the future, even tokens with lower liquidity can attract new buyers. The significant increase in the valuation of AI tokens over the past six months is proof of this: although only a few tokens currently bring value to token holders, based on the immense value traditional AI startups have already created, the market has reassessed the expected value these ecosystems can create in the future.
The interesting thing about this process is that by launching tokens and attracting sufficient liquidity attention (to make people worth spending time/money trading on your news), teams may form extremely tight feedback loops around their future product releases. While engaging with users, cryptocurrency product builders can also perform temperature checks on their product decisions through iterative cycles until they find decisions that matter to the market (i.e., decisions that can significantly increase the value of your token). Once this situation arises, you can understand that you are moving in a direction that the market deems meaningful, allowing you to use the token price mechanism as a tool to discover the demand of the mass market without building anything in advance.
Tokens – Efficient Venture Capital Mechanism
A mechanism that allows people to buy tokens based on their belief in the project’s ability to meet future needs is at the core of venture capital. It typically uses the value creation premise described by Paul Graham, which is why founders have been following this approach technically.
Typically, startups raise venture capital because they have specific goals or plans that require new funding. This also provides founders with a feedback loop (if venture capital firms are not interested in your new plan, they will not invest), but this feedback loop is both exclusive and opaque, only appearing about every 18 months.
The emergence of tokens allows anyone to freely participate in funding new projects at any time, increasing the supply of funds available to buy into early projects in the market, thereby increasing the proportion of projects receiving funding. If a new proposal expands the market opportunities for tokens by offering new utility, the market will assign higher value to the project, and the diversity of tokens will expand accordingly. 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.
While venture capitalists like to express their love for tokens with long narratives, it is often overlooked that tokens and venture capital are direct competitors, serving as 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 appropriate amount of funding depends on the team itself and the market they are operating in, but I don’t think it should be zero for any project. During times when the public token market is dry, venture capital firms play a significant role in continuing to provide funding for early projects, often reaping huge returns by taking on this risk.
Surviving Market Cyclic Fluctuations
One drawback of tokens is that capital flows with the attention flowing in a specific ecosystem. Market participants are not all the same, and the attention of specific investors is related to their own beliefs. People constantly adjust their investment portfolios based on their latest views, so the intensity of the token cycle depends on its ability to continually attract the attention of market participants.
One way for founding teams to address this issue is through “narrative surfing,” constantly linking their project to the latest hot values in liquidity in the cryptocurrency market, hoping to maximize the value of their tokens by continually expanding the goals the tokens can achieve.
Another way for teams to stay fresh is to use memes: great memes generate reactions within the community, creating a snowball effect, and there is currently a fierce “meme war” between communities. Communities with a strong meme creation cycle can ensure that a significant amount of content about the project is constantly being created/shared on social channels, making their tokens the focus of attention. This is why memes are essential in maintaining sufficient liquidity for tokens and one of the reasons meme coins can continue to attract and retain liquidity. By getting the right people to join the ecosystem early on, they will have the intrinsic motivation to talk about the project and help it grow. If too many tokens are airdropped to those who are unwilling to continue sharing the project, it will be challenging to maintain long-term attention.
Avoiding Over-Financialization of Decisions
Imagine a world where the market is completely efficient, the price of project tokens is like a perfect oracle that can predict 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 various project updates and predict whether a project will succeed. Additionally, project teams solely 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 others in the token ecosystem serving as managers or trustees to help achieve market goals. But would 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 dislike being told what to do. They have a deep understanding of their market and their own views on the best course of action. Secondly, the best founders are often willing to accept opinions that deviate from mainstream consensus, and in fact, they often take pride in doing so. Importantly, these deviations are why they create such successful companies: every market misunderstanding is an arbitrage opportunity and a reward for the first person to dissent. The most successful companies of our time have gone through long periods of market devaluation before they were recognized, and it is their ability to resist this force that has enabled them to maintain value over 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. They ask questions that others have never considered, quickly switch between different concepts based on intuition in situations 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 teams collect valuable new data on undeveloped markets, 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 find it challenging to attract public market attention. However, they will benefit from attracting funds through private placements (private placement participants are screened and trustworthy) and 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 craft their narrative. Like previous product founders, token founders can quickly iterate the value proposition of their token based on the immense feedback provided by the token.
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 various opinions around them and understand why the market values each narrative. By continuously appearing in people’s focus through content and memes, people will not lose interest and will 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 teams can do this well, they can build a Hodl army that will not sell tokens and will promote them to new audiences.