Using DeFi Operations for Sustainable Token Optionality & Growth
This is Part Eleven in an 13-part Alpha Growth series breaking down the problems every blockchain project has and needs to solve to grow and scale. New to the series? Start here.
At this point in the life of your blockchain project, if you’ve followed the path laid out in this series, here’s what’s happening. You have:
- Picked a problem to solve
- Created a narrative around the solution to the problem
- Secured initial investors
- Started building a team
- Built a community
- Established an events strategy
- Picked a chain and gotten grants
- Raised more money
- Launched your first public sale
If your team has executed well on the above, your community will be excited.
They will clamor for more ways to participate. Wen airdrop? Where can I buy token? Now that you’ve got their attention, your next step is giving all these excited people a place to buy your token.
But because you’re net new, you’re not going to be able to secure centralized exchange listings right out the gate. That’s just not how it works anymore. And this brings us to the next problem every blockchain project will face as it aims to grow and scale:
Problem 11: you need DeFi operations.
First, what are DeFi operations? DeFi operations are the strategic mechanisms through which you sustainably grow optionality for your token. Executed well, they will create liquidity and increase buy pressure on your token. This will help to stabilize your project.
Your DeFi operations will fall into different buckets that are sequenced out as you continue to grow your community. The reality is that DeFi operations start as soon as your first public sale, so your first DeFi operation is typically the public launch itself. This happens after you pick your chain and decide how to release the first sale and create price discovery for your token.
To find a good first launchpad, choose one that:
- A good success ratio of selling all the availability for past projects
- Strong social metrics and audience engagement
- Proven experience helping blockchain projects launch
But as soon as you launch with your first partner, pretty quickly you need to give your community more ways to access your token. It’s true you can use the launchpad strategy multiple times — there’s no rule that you have to choose just one. In fact, each new launchpad should expose you to different audiences and help diversify your reach. How many launchpads you pursue should depend on your community and how much demand they are creating for your token. Can’t sell out? Stop.
Boom. You’ve distributed the first part of the token.
Next, you need to build on your initial distribution with DeFi operations. At a high level, these can include:
Creating scarcity to drive demand
After launching on several launchpads, it’s likely time to put control mechanisms in place to help drive outsized demand in order to sustain your token price over the long term. You can do this by limiting the number of places people can buy your token.
Airdrops
While most of the time we don’t recommend airdrops to Alpha Growth clients, airdrops are ways to get certain audiences engaged and grow your community. While airdrops are useful, they should be considered as a marketing expense to target and engage very specific audiences. You need to be extremely intentional about why you’re choosing to airdrop and who you are targeting. Otherwise, you will end up with holders who will just dump at any moment.
They also need to be structured strategically. For example, when you airdrop, you don’t just blankly airdrop to wallets. To airdrop effectively, you need to have people come through a claim process. This makes it possible to market to them again when they come to claim and increase their connection to your community by encouraging them to stake or participate in another of your ponzi games.
Liquidity Bootstrap Auctions
If you have enough capital, a liquidity bootstrap auction is a DeFi mechanism that allows you to generate liquidity for your token without having to partner with an outside platform.
Why is this attractive? Think of it like this: leveraging a launchpad is like hiring an outside broker. Partnering with a launchpad is an option many projects choose when they want to fair launch or don’t have the capital to use a more complicated mechanism like the liquidity bootstrap auction.
DEX listings
Getting your token listed on one or more DEXs is not only a way to increase liquidity, but also to stabilize token price by pairing with another currency. Let’s be very clear about this point: where you list and what you pair with are extremely important. If you pair with a devaluing currency, it will bring your token price down. If you pair with a token that has far more optionality, yours is likely to get dumped. It’s a symbiotic relationship. Choose wisely.
As long as they have the float to support it, most token projects initially aim to get listed on as many DEXs as possible. But there is a tipping point: once you’re well capitalized enough, it will strategically make more sense for you to build your own DEX and manage your liquidity there instead of paying fees and losing revenue to third parties. This is admittedly not common, but it has been a very successful strategy for a number of projects, including DFK.
At this point, you’ve established the foundation for your token’s DeFi operations. As you move forward, you need to progress towards the next phase: offering liquidity as a service. To get there, you will need to get your token listed on bridges and create a Uniswap V3 pool. As you have more and more float of the treasury and are creating protocol-owned revenue, you can start to play some liquidity-as-a-service games.
The above tactics are 4 of 10 of the Defi Operations and tactics we utilize at AlphaGrowth.
Next up in this series, we’ll dig deeper into the importance of liquidity as a service and, in particular, vaults. See you next week.
If you’re interested in learning about more growth strategies for your project, we encourage you to connect on Twitter @bryancolligan. Join our Telegram for members-only alpha on projects we’re watching and DYOR resources for creating growth, credibility and engagement for your project.
