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

Authored by Mark Beylin, Boost VC
Translated by Yangz, Techub News
In his article “Be Good,” Y Combinator founder Paul Graham outlined how startups can find the point of intersection between their product and the market, creating something 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, although he acknowledges that creating value without worrying about capturing it is something only charities would do. In the cryptocurrency field, however, we see the opposite situation: through token issuance, where people must first purchase tokens before using them (sometimes years in advance), value is 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 construction 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 for Discovery Narratives
For early-stage startups that have not found the point of intersection between their product and the market, 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, establish close feedback loops, and design solutions that fully meet market demands. The closer these feedback loops are, the faster the team can iterate to find the best solutions and test them in the market. However, communicating with customers alone does not scale, as there are only so many people willing to meet or talk on the phone with you… how do you connect with other clients?
When observing existing token projects, it is easy to see a feedback loop between the token price and the market’s expectations of the future value the token ecosystem will create. Whether it is Uniswap raising token prices in response to its fee conversion proposal, Vitalik selling MKR in response to Maker launching its own chain plan, or DEGEN raising prices in response to launching L3, we can see that token prices are quite sensitive to news about specific project future plans.
Tokens act as a predictive market, anticipating the collective interest of people in a project moving in a specific direction, as well as 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 (who trade 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 will attract new buyers. The significant growth in the valuation of AI tokens over the past six months is evidence of this: although only a few tokens currently bring value to token holders, based on the significant value traditional AI startups have already created, the market has revalued the expected future value these ecosystems can create.
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), teams can establish an extremely close feedback loop for their future product releases. While conversing with users, cryptocurrency product builders can also take the temperature of their product decisions through iterative cycles until they find the decisions that resonate in the market (i.e., decisions that significantly increase the value of your token). Once this occurs, you can be assured that you are moving in a direction that the market deems meaningful. In this way, you can use the token price mechanism as a tool to discover mainstream market demand without needing to build anything in advance.
Tokens – Efficient Venture Capital
Mechanism, allowing 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 usually relies on the pattern of creating value 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 and only occurs every approximately 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-stage projects in the market and thus increasing the likelihood of projects obtaining funding. If a new proposal expands the market opportunities for the token by offering new use cases, the market will assign a higher value to the project, and the diversity of tokens will also increase. With tokens, the market becomes a direct financing mechanism for innovation, which is the core of tokens becoming powerful tools for expanding human potential.
While venture capitalists like to express their love for tokens in long essays, what is often overlooked is that tokens compete directly with venture capital and are alternative products. As a former founder turned venture capitalist, I believe that venture capital funds have a moderate amount, which is useful and necessary for all founders. The appropriate amount of funding depends on the team itself and the market they are in, but I don’t think it’s zero for any project. During times when the public token market is drying up, venture capital firms play a crucial role in continuing to provide funding for early-stage projects, often reaping huge returns for taking on this risk.
Surviving Market Cyclicality
One disadvantage of tokens is that capital flows with the attention in a particular ecosystem. Market participants are not the same; 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 continuously attract the attention of market participants.
One way for founding teams to address this issue is through “narrative surfing,” constantly linking their projects to the latest popular value propositions in the cryptocurrency market in hopes of maximizing the value of their tokens by continuously expanding the project’s goals.
Another way for teams to stay fresh is by using memes: excellent memes generate reactions in the community, creating a snowball effect. Currently, there is intense competition among communities for memes. Communities with excellent meme creation cycles can ensure that a significant amount of content about the project is created/shared in social channels, keeping their tokens in the spotlight. This is why memes are a necessary factor in maintaining sufficient liquidity for tokens and why memecoins can continue to attract and retain liquidity. By getting the right people to join the ecosystem early, 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 can be challenging to maintain long-term attention for the project.
Avoid Over-Financializing Decisions
Imagine a world where the market is entirely efficient, and project token prices act as perfect oracles, predicting whether a particular course of action is optimal. Perhaps the market is full of AI agents that can trade tokens based on various project updates and predict if a project will be successful. In this world, project teams would 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 others in the token ecosystem 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 understand their market very well and have their own ideas about 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 this. Importantly, these deviations are often the reason they create such successful companies: every market misunderstanding is an arbitrage opportunity and a reward for being the first to dissent. The most successful companies of our time have gone through long periods when the market actively devalued their work, and it was their ability to resist this force that enabled them to maintain value over the long term.
Great founders are visionaries; they do not optimize around local minima like others but explore new areas, hoping to discover opportunities that others believe do not exist. In doing so, they ask questions that others have never thought of, relying on intuition to quickly switch between different concepts in situations of minimal data. This helps them achieve product-market fit faster than their competitors, capture 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 information publicly. However, if they keep their cards close to their chest, even the best founders will struggle to attract public market attention. Nevertheless, they will benefit from attracting funding through private placements (where participants have been screened and are trustworthy) and from finding crazy investors who share their vision and think intuitively like them.
How can you truly find the point of intersection between tokens and the market?
Returning to our initial question, we believe that tokens are powerful tools that teams can use to discover market demand and a narrative that suits them. Like previous product founders, token founders can iterate quickly on the value proposition of their tokens based on the significant feedback they receive.
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. They should ensure that content and memes continue to appear in people’s focus so that they don’t 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 teams can do this well, they can build a Hodl army that will not sell tokens and will promote tokens to new audiences.