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

Written by Mark Beylin, Boost VC
Translated by Yangz, Techub News
In Paul Graham’s article “Be Good,” the method of how startups can find the point of intersection between products and markets is summarized, that is, 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, although he acknowledges that creating value without worrying about capturing value is something only charities would do. In the field of cryptocurrency, however, we see the opposite situation: value is captured before it is created through issuing utility tokens that people must purchase before using (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 business models.
To find cryptocurrency startups matching the token market, is it possible, like Paul’s initial suggestion, not to worry about creating direct value for token holders at all, but instead focus on capturing value first through selling tokens?
Tokens – Tools for 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, establish a close feedback loop, and design solutions that fully meet market demands. The tighter these feedback loops, the faster the team can iterate to find the optimal solutions and test them in the market. However, just communicating with customers is not enough to scale, as there are only so many people willing to meet or talk on the phone… how do you connect with other customers?
When observing existing token projects, it is easy to see a feedback loop between the token price and market expectations of the future value the token ecosystem will create. Whether it’s Uniswap raising token prices in response to its fee conversion proposal or Vitalik selling MKR in response to Maker’s plan to launch its own chain, or DEGEN raising prices in response to the release of L3, we can see that token prices are quite sensitive to news about specific project plans.
Tokens act as a prediction market, forecasting collective interest in the direction a project is headed and the likelihood of achieving its expected goals. The efficiency of this feedback loop is determined by the token’s liquidity, with tokens with high liquidity (such as BTC and ETH) immediately reacting to news events, while smaller projects attracting fewer speculators (trading based on news events). However, if new buyers are interested in the narrative the project is building, that is if they believe the solution outlined by the project is valuable to a certain group in the future, even tokens with lower liquidity will attract new buyers. The significant increase in the valuation of artificial intelligence tokens over the past six months is evident: although only a few tokens currently provide value to token holders, based on the tremendous value traditional artificial intelligence startups have already created, the market has repriced 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 worthy of spending time/money trading on your news), teams can form extremely tight feedback loops about their future product releases. While engaging with users, cryptocurrency product builders can also test product decisions through iterative cycles until they find decisions that matter to the market (decisions that significantly increase the value of your tokens). Once this scenario occurs, you will know that you are moving in a direction that the market finds meaningful, allowing you to use the token price mechanism as a tool to discover mass market demand without needing to build anything in advance.
Tokens – Efficient Risk Capital
Mechanism, allowing people to buy tokens based on their belief in the future needs the project can meet, is at the core of venture capital. It usually utilizes the pattern of creating value described by Paul Graham, which is why founders are technically acting in this manner.
Typically, startups raise venture capital because they have specific goals or plans that require new funds. This also provides founders with a feedback loop (if venture capital firms are not interested in your new plan, they will not invest), although this feedback loop is both exclusive and opaque, and only appears about every 18 months.
The emergence of tokens allows anyone to participate in the funding of new projects at any time, increasing the supply of funds available for early projects in the market, thereby increasing the proportion of funds obtained by projects. If a new proposal expands the market opportunities for tokens by offering new use cases, the market will assign higher value to the project, and the diversity of tokens will increase accordingly. With tokens, the market becomes a direct financing mechanism for innovation, which is the core reason why tokens are powerful tools for expanding human potential.
While venture capitalists like to express their love for tokens in long speeches, what is often overlooked is that tokens compete directly with venture capital, as they are substitute products. As a former founder and current venture capitalist, I believe that venture capital has a moderate amount, which is useful and necessary for all founders. The appropriate amount of capital depends on the team itself and the market it operates in, but I don’t think it’s zero for any project. In times of public token market downturn, venture capital firms play a crucial role in continuing to provide funding for early 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 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 whether it can continue to 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 popular value propositions in the cryptocurrency market, hoping to maximize the value of the token by continually expanding the goals the token can achieve.
Another way for teams to stay fresh is to use memes: excellent memes generate reactions in the community, creating a snowball effect, and the current “meme wars” between communities are quite intense. Communities with a cycle of excellent meme creation can ensure that a significant amount of content about the project is consistently created/shared 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. If the right people are brought into the ecosystem early on, they will have an innate drive to talk about the project and help it grow. If too many tokens are airdropped to people unwilling to continue sharing the project, it will be challenging to maintain long-term attention on the project.
Avoiding Over-Financialization of Decisions
Imagine a world where the market is entirely efficient, project token prices are like perfect oracles that can predict the optimal course of action. Perhaps the market is inundated with AI agents that trade tokens based on updates from various projects and can accurately predict whether a project will succeed. And 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, helping achieve market objectives. But does this 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 have their own insights into the best courses 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 why they create such successful companies: every market misconception is an arbitrage opportunity, a reward for being the first to dissent. The most successful companies of our time have gone through long periods where the market actively devalued their work, and it is their ability to resist this force that 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 new opportunities that others believe do not exist. To do this, they ask questions that others have never considered and, with little data, switch rapidly between different concepts based on intuition. 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 about untapped 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 struggle to attract the attention of the public market. However, they will benefit from attracting funds through private placements (where participants are screened and trusted) and finding crazy investors who can see the vision and think intuitively like them.
How can we truly find the point of 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 demands and narratives that suit them. Like previous product founders, token founders can quickly iterate the value proposition of tokens based on the tremendous feedback they provide.
To maintain the vitality of this feedback loop, teams should strive to continuously attract the attention of investors on social platforms. They should have a deep understanding of the various claims around them and understand why the market values each narrative. They should keep appearing in people’s focus through content and memes so that people 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 funding and support. If teams can do this well, they can build a Hodl army, who will not sell tokens and will promote tokens to new audiences.