Guide for Cryptocurrency Startups How to Find the Intersection Between Tokens and Markets

Article by: Mark Beylin, Boost VC
Translated by: Yangz, Techub News
In his article “Be Good,” Y Combinator founder Paul Graham outlines how startups can find the intersection between product and market, 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?
Graham’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. However, in the cryptocurrency field, we see the opposite: value is captured before it is created through the issuance of tokens that people must purchase before using (sometimes years in advance). This may be why many successful crypto token ecosystems in the early stages appear more like scams than charities, especially for those familiar with traditional startup models.
To find cryptocurrency startups that match the token market, is it possible, as Graham initially suggested, not to worry about creating direct value for token holders but instead focus on capturing value through token sales first?
Tokens – Tools for Narratives
For early-stage startups that have not found product-market fit, one of the most challenging aspects is continuous communication with customers to understand their interests 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 these feedback loops, the faster the team can iterate to find the best solutions and test them in the market. However, just communicating with customers does not scale, as there are only so many people willing to meet or talk on the phone… how do you reach other customers?
When observing existing token projects, it is evident that there is a feedback loop between token prices 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 launching its own chain, or DEGEN raising prices in response to launching L3, we can see that token prices are quite responsive to news about specific project plans.
Tokens act as a forecasting market, predicting the collective interest of people in a project’s development in a specific direction and the likelihood of achieving that goal. The efficiency of this feedback loop is determined by the token’s liquidity – tokens with higher liquidity (such as BTC and ETH) immediately react 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 audience, even tokens with lower liquidity can attract new buyers. The significant increase in the valuation of artificial intelligence tokens over the past six months is evidence of this: although currently only a handful of tokens bring value to token holders, based on the substantial value traditional AI startups have already created, the market has revalued these ecosystems’ future potential value.
The interesting part of this process is that by launching tokens and attracting sufficient liquidity attention (to make people willing to spend time/money trading on your news), a team may form an extremely tight feedback loop around its future product releases. While engaging with users, cryptocurrency product builders can also test product decisions through iterative cycles until they find decisions the market values (i.e., decisions that significantly increase the value of your token). Once this occurs, you know you are moving in a direction the market deems meaningful, allowing you to use the token price mechanism as a tool to discover mass market demand without needing to build anything beforehand.
Tokens – Efficient Venture Capital
Mechanism, enabling people to purchase tokens based on their belief in the project’s ability to meet future needs, is at the core of venture capital. It typically operates under the premise of value creation through the pattern described by Paul Graham, which is why founders have been following this approach technically.
In most cases, startups raise venture capital because they have specific goals or plans that require new funding. This 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, and it only appears about every 18 months.
The emergence of tokens allows anyone to participate freely in funding new projects at any time, increasing the supply of funds available for early projects in the market and thereby improving the project’s chances of securing funding. If a new proposal expands the market opportunities for the token by providing new use cases, the market will assign a higher value to the project, and the scale of token diversity will also increase. With tokens, the market becomes a direct financing mechanism for innovation, which is the core of tokens becoming a powerful tool for expanding human potential.
While venture capitalists often express their love for tokens in long essays, what is often overlooked is that tokens compete directly with venture capital and serve as alternative products. As a former founder turned venture capitalist, I believe venture capital has a moderate amount that is useful and necessary for all founders. The appropriate amount of capital depends on the team itself and the market they operate in, but I don’t think it’s zero for any project. In times of depleted public token markets, venture capital firms play a crucial role in continuing to provide funding for early projects, often receiving huge returns for taking on such risks.
Surviving in Market Cyclicality
One drawback of tokens is that capital flows with the attention in a specific ecosystem. Market participants are not identical, 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 strength of the token cycle depends on its ability to sustain the attention of market participants.
One way for founding teams to address this issue is through “narrative surfing,” continually linking their projects with the latest popular value propositions in the cryptocurrency space, hoping to maximize the token’s value by expanding the goals the token can achieve.
Another way for teams to maintain freshness is to use memes: excellent memes create a buzz in the community, generating a snowball effect. The current “meme wars” within the community are quite fierce. Communities with a strong meme creation cycle can ensure that a significant amount of content about the project is being created/shared on social channels, making the token 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 bringing the right people into 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 unwilling to continue sharing the project, it becomes challenging to maintain long-term interest.
Avoiding Over-Financialized Decision-Making
Imagine a world where the market is entirely efficient, and project token prices are like perfect oracles, able to predict whether a certain action plan is optimal. Perhaps the market is filled with AI agents that can trade tokens based on various project updates and predict whether a project will succeed. And the project team only takes 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 ecosystem merely serving as managers or custodians 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 it. Importantly, these deviations are what enable them to create successful companies: every market misunderstanding is an arbitrage opportunity, a reward for being the first to dissent. The most successful companies of our time have all gone through long periods of market devaluation of their work, and their ability to resist this force is what allows them to maintain value in the long run.
Great founders are visionaries who do not optimize around local minima like others; they explore new areas, hoping to discover opportunities that others believe do not exist. For this reason, 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 competitors, win the market, and create valuable ecosystems out of thin air.
If a team collects valuable new data on untapped markets, the last thing they want to do is share this data publicly. However, the most exceptional founders can 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 we truly find the intersection between tokens and the market?
Returning to our initial question, we believe tokens are a powerful tool that teams can use to discover market demand and find a narrative that suits them. Like previous product founders, token founders can quickly iterate their token value proposition based on the massive feedback tokens provide.
To keep this feedback loop vibrant, teams should strive to continuously attract investors’ attention on social platforms. They should have a deep understanding of the various narratives surrounding them and understand why the market values each narrative. By consistently appearing in people’s focus with content and memes, people will 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 funding and support. If a team can do this well, they can build a Hodl army that will not sell tokens and will promote the token to new audiences.