The Token Sale of the Future: It’s Not About the Money
How to Use the ICO to Drive Real Engagement
At this very moment, teams across the globe are having tough conversations about what an ICO means in the face of new SEC regulatory pressure. My personal hope is that teams at the application layer will use this inflection point to work harder at getting tokens into the hands of future users versus speculative buyers — and giving them valuable ways to utilize them.
This is about using a public token sale not just for fundraising, but to seed network effects — and to drive token velocity. These two core elements have been overshadowed by an obsession to rush to ICO and raise millions quickly, before buyers become more skeptical — and more sophisticated.
Why are network effects and velocity so important?
A network effect occurs when a product or service becomes more valuable to users as more people continue to use it. Network effects are a key driver of successful token models — if few people accept a currency, it is therefore not very useful.
Velocity is a key signal of the “health” of an economy. We are still in the infancy of designing token economic models, and understanding the “sweet spot” for velocity. But in simple terms, velocity is the number of times a token exchanges hands every day between participants in a monetary network.
Today, few tokens can actually be spent on anything, so velocity is driven largely by speculation. For the long-term success of a token economy, velocity will need to be driven by real activity on the network. End users (consumers and other members of the ecosystem) need to be introduced to the token, find it worthwhile to spend time and effort to get more token, and find services or products that they want to acquire by using said token.
That’s quite a long way from where ICOs are now.
Where do teams that want to seed network effects and velocity start?
- Focus relentlessly on quickly developing valuable ways for audiences to earn and spend your token — whether inside the product or within a broader, interoperable ecosystem.
- Push themselves to leverage the excitement around the token sale as an opportunity to connect more directly with people who will then be future users of the product.
What does this mean for the future of the ICO?
Developing network effects and velocity is much harder than rushing to an ICO. It takes much longer. But it will play a huge role in who will win when the dust settles. It means:
- More products, fewer “projects”: Teams will need to time the token sale more closely to the release of real products that users can interact with in a way they find valuable. This means we may see more teams turn to seed funding or pivot an existing product by building a token economy on top of it.
- Product/Market fit will no longer be ignored: Network effects and velocity simply cannot be achieved without deep knowledge of both your market and your future users (whether they are consumers, businesses, or other members of the ecosystem). Teams will more thoughtfully model the needs that can be addressed and the opportunities unearthed by the introduction of a token.
- Better token design: Token design is an emerging profession, and even though it builds on the backs of deeply studied models, it is still in the early days. As the market matures, we will see more tokens that are extremely well designed, with rich, value-added, and token-fueled interactions built in to incentivize spending.
- Functionally diversified teams: Today’s teams tend to lack deep marketing, finance, economics, and business development skill. However, these critical disciplines are needed to help connect more directly with future users, and to develop a vibrant ecosystem and economy.
- Focus on addressable market size: Success requires a large market, ideally one with highly-connected communities that can accelerate adoption. We will see more teams thinking about how to strategically expand their markets by on-boarding new niche audiences to crypto.
- Strategic educational campaigns: The smaller the overlap between the crypto-savvy and your audience, the more work you need to do to educate your audience. As the market matures, we will see more audiences be introduced to crypto via an ICO that interests them.
The whole concept of marketing a token sale will shift from fanning speculative frenzy, to connecting tokens to audiences that are closely aligned with future users.
Token sales of the future will be nail-biting experiments in springing a functioning economy from birth — and are not for the faint of heart.
It’s one thing to create buzz for a broad airdrop in a community of speculative investors (a tactic that has been losing favor because of airdrop “fatigue” and regulatory concerns). It’s quite another to make future users understand how your token makes their lives better, especially if they are new to cryptocurrency. When we start seeing examples of teams seeding network effects and velocity, we’ll know the space has taken a great leap forward.
Two dynamics that will impact how quickly the space moves in this direction are:
- The risk of waiting: Massive fundraisers such as Filecoin raise so much money that it’s hard for similar players to overtake them. Filecoin moved quickly and they moved big, and that gave them funding to endure big bumps in the road ahead. While funding of this magnitude is still the exception, we are likely to see more large coffers driven by private pre-sales, such as in the rumored Telegram ICO.
- The user experience (UX) hurdle: The smaller the overlap between the addressable market and the audience that understands crypto, the bigger this hurdle. Most of the population doesn’t hold it and doesn’t understand it, and the UX in this space is downright terrible. It’s a long journey to broad adoption. Our first big breaks will come from huge markets with tight overlap — and more will emerge as UX evolves.
There is so much mind-blowing innovation in this space. But it is those innovators that are moving with a deep understanding of their end users that will ultimately win their respective markets.
Let’s work harder to develop tokens that add real value to someone’s life experience — and use the token sale as an important step for developing a long-term, sustainable business.
What do you think?
What matters most for the token sale of the future? How would you like to see teams being more thoughtful as they prepare an ICO?
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Follow me on Twitter @unblockedfuture or learn more on LinkedIn. A social scientist by training, I’ve devoted my career to driving behavior change in new technology markets. I believe that blockchains and a decentralized future represent an opportunity to remake foundational systems — and with that opportunity comes great responsibility. I write to encourage thoughtful strategy and conscientious execution in these critical early days of crypto technology.
Edited by: Steven McKie (PS: This was amazing Alison)
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