Your coin made some XXX? Don’t get too excited
By Olga Grinina
What is a successful blockchain startup? Startup economy / token value / token price — how do they really correlate?
How do you measure the success in crypto space?
This is surely an exciting time for entrepreneurs seeking to jump into the hottest industry tech. Yet, diving in too quickly is not always the best way to get started. With blockchain technology — that sentence can be scaled up to 100 times. In the age of pumps and dumps, how does one adequately measure success? Is it the token price at the exchange, the demand for the product or something else? How does startup business strategy correlate with token value? All these are the questions raised not only by post-industrial economists, but also by investors and CEOs who seek to build a successful strategy for newly-created ventures. Before building a business on blockchain, one should carefully consider how structural elements of a newly created enterprise would be working together being in sync enhancing and complementing one another.
Some common delusions
First common delusion is confusing token value and token price. Token value ultimately stems from the token economy model: why would users want to buy it in the first place? How does the token generate revenue? A startup integrating digital assets in their business model must be ready to come up with solid answers to that. The biggest concern of the project’s architecture is that ICO is a whole new system and investors are expecting an extremely high profit out of their contributions. Ideally, they would want the funds to be augmented by hundred times, which is completely incomparable with the profits on traditional markets. Why so? Well, because ICO in essence is a fast-growing business that is being developed at high speed and scaled to new markets. It is preferably be international and have some sort of innovation that makes it unique. That said, all economic interactions — or at least some of them — are described by limited amount of tokens, i.e. the emission of tokens is limited. Therefore, when the business is being developed, the mass of commodities is growing and — as a consequence — the token is significantly rising in price bringing the profit to the investor. So the profit is generated not by the business or the product itself, but rather by the unit of the ICO project that we call ‘a token’ and that corresponds to the business processes.
In ICO projects architecture it’s really essential to design business processes and sell the token so that it was attractive for investment and had both potential of its value growth at the external market and potential for its inner value growth when scaling the project. The project itself should be working and bringing some utility to the community, specifically performing the tasks that it was made for. In other words, tokens are the first key element and the project with its inner mechanics is the second element. And all we need to do is to make these two work together so that they had a solid common goal. It’s a huge task, I have to say! Not so many startups are capable of handling it: more often than not the business itself and the token are on the opposite ends. And honestly, there are cases when in fact the business would be operating so much better without introducing a token at all.
Okay, so what’s the difference between the asset price and value then?
Unlike the asset value, the asset price can be easily manipulated, and token price is no exception: it’s a purely speculative nature relies on market marking efforts and other subjective factors that have been dominating the crypto space so far. Of course, this has always been present at traditional markets too, with crypto — however — it has grown up to highly volatile landscape. Yet, it looks like the situation is about to change soon: after the winter crypto rally and further BTC correction, the ICO market is now a whole different place. Massive PR campaigns built on hype are not working anymore — most investors want to see at least a working beta. ICO market in reality is a fund-raising activity, not the actual realization of the project. It’s a marketing campaign and community management, etc. etc. Running an ICO is the task for PR and marketing people and the CEO who is actively drawing attention and investors to the project. The project itself is a product launched with the money raised at the ICO.
How do you know if the ICO is legit anyways?
An actual product development starts after the ICO, and that is the task for developers. I would distinguish between the success of fund-raising campaign and performance of the team on further project building — these are actually two different things. That is why to me the key to a successful ICO is, first of all, the maximum scale of PR-activities and community management. Second comes transparency and a quality project. Gone are the times when investors bought tokens only to sell them shortly after the tokens get listed on exchanges. To raise a soft cap, you would probably need to work your token economy back and forth. How is this platform to make money? Who is the target audience — it is a niche or mass project? These are the questions everyone is asking CEOs now.
Venture capitalist mentors argue that the biggest catch for a newly created startup is trying to fit into the over-enhanced market. There are obviously exceptions, but more often than not, timing is everything. Now we’re starting to see the same mimicking trend at the ICO market: shortly after the launch of notorious El Petro, United Arab Emirates have announced their own government-issued cryptocurrency. Before investing, any VC would look for a solid business model, a track record to show, and the ability to illustrate your thoughts on a product’s fit into the market. It takes a whole composite of professionals who contribute to the creation. Special care should be taken to establish trustful relations both with users and potential customers.
Building a win-win blockchain startup strategy is not easy. Nor is finding a good example of past ICOs to look up to. Yet, it looks like there is a recent attempt to build some sort of yellow pages on blockchain. Right now Revain is building the platform that accumulates reviews on latest blockchain projects and probably can help not only businesses and users (who appear to be the first-tier target audience), but also those trying to come up with a legit business model. Featuring latest information on the project’s team, communication process and overall progress would definitely contribute to learning from others’ mistakes, as well as understanding how token’s trade volume, initial price and current price ultimately correlate. Thankfully, we are finally seeing a new bunch of startups do exactly that, and that will not just provide opportunities for founders and VCs to make a bunch of money, but potentially some major advance for the whole industry.
