The (Eco)System is Broken
L1 ecosystem communities, wtf incentive structures, and some maybe solutions?
Some questions going into this:
How organic are these new alt-L1 ecosystems
Does it matter (I think so?)
What are the underlying incentive structures and how are they impacting the overall ecosystems
How are these communities being constructed and how does that impact ecosystem growth and sustainability
^Can we make a simpler framework/way to look at this
How do we improve all of these incentives because current structure is obviously flawed
A lot of hate on VCs lately, need to examine more objectively
As usual, minimal editing on this post, literally banged this out in one random burst of late night inspiration. So would like to say ahead of time that Iām just spitballing a collection of meandering ideas and do not apologize if you get lost. Keep up or ngmi. Enjoy.
Idk how to start so will just dive right in:
Token is part of the product
Almost or just as important as the actual protocol/app
Tokenomics donāt necessarily make a project succeed, but can absolutely break down even the best projects and their communities
These are not original ideas, pretty consensus at this point, but important to reiterate
This might sound obnoxiously profit-maxi but the reality is itās extremely difficult to build a community or maintain trust among investors if your token is a dumpster fire rolling to zero
Think about token as your best marketing tool
token up = more attention
attention = more speculators
more speculators = more liquidity
more liquidity = token up
Etc.
The first and main reason people are here is to make money
You can dance around this topic as much as you want, but the majority of your investors/community members are here to speculate and make money
Yes, a portion of your investors are here āfor the techā but they sure as hell arenāt there to intentionally lose money either lol
In my uneducated opinion, the way to build sustainable community is make them rally around something else in tandem, ie. tech, ideology, etc.
Bitcoin and Ethereum survived for this long because of this
To be seen whether other ecosystems can sustain once mercenary capital leaves
Which brings me to another topic
Mercenary capital is not necessarily a bad thing
Yes its speculative and extractive to varying degrees but you would not have ecosystem growth without them drawing attention and bringing liquidity early on
Yes Iām biased as a rotatooor and degen speculator but arenāt we all or were at some point?
In any ecosystem you will have 3 general types of participants in an ecosystem
Builders - they build the actual apps that everyone use and get to speculate on
Mercenaries - the degens and speculators aping in for the profits
Investors - community members and long term investors there for the tech
Also some subcategories:
Mercenary builders - builders who fork basic projects to capture early market share
Mercenary investors - an oxymoron lol, but usually VCs that are just aping in fundraises for pure profit (technically long term since tokens locked, but provide low value add past unlock)
You can think what you want about any of the groups, but the fact of the matter is you have to cater to all 3 to varying degrees
Too many resources and attention to one category is detrimental to other participants
Top focus obviously should be attracting builders since they build the actual products and services that will make the ecosystem thrive long term
However, too much focus on builders without focus on attracting mercenaries through marketing or ponzi games leads to no actual users
Plenty of ecosystems that have great tech but no community
No one starts off as a community member/investor
Builders might hate mercenaries but the way you should be thinking about them is you have to attract mercenaries first in order to convert a portion to community members
Too much focus on attracting investors leads to ecosystem being extractive of participants as VCs get in before everyone else at much lower valuations and then dump without actual need to contribute value
Itās all a balance
Some cool stuff is happening in some new ecosystems with community building
Cosmos ecosystem project airdrops
Fantom fair launches and ve(3,3) hype
Some of the more organic ecosystem growth weāve seen with communities prioritized over VCs
To be seen how sustainable this is over time as demographic of the participants shifts towards more mercenaries
Some incentive models in play
OHM inspired liquidity bonding
ve token model
New airdrop pre-requisites to target specific users
Stakedrops
Delphiās new lockdrop mechanism (to be seen how effective)
A bunch more cool stuff Iām forgetting
Some fundraising methods in play
Majority VC raises
DAO, guild, and angel only raises
Ecosystem fund grants
Fair launch
Bottom line is, builders want and need to be paid, and how they get paid is the root of the incentive system
Ecosystem grants only go so far
Best way to get huge fundraise is to get private funding from VCs mainly due to regulations
So of course you end up with these juiced valuations at launch and VCs with such a big part of the token supply
Many mercenary VCs inevitably end up in these fundraises and dump
These bad VCs dumping starts negative feedback loop of other VCs, even good ones, being forced to dump to lock in profits
There are good VCs and bad VCs. Most are somewhere in between.
Not a good use of time or energy hating on VCs when the incentive system pushes founders to raise from them, they are not the source of the problem
Most participants donāt have access and thus get left out of this early entry
This is the main problem and really not anyoneās fault except regulators
A potential solution?
Ecosystem seed fund/incubator arm, by the ecosystem.
Funding/building infrastructure and projects as public goods for the ecosystem
Invests in promising early projects and gets portion of tokens to be airdropped to stakers or something like that
Makes the network even more aligned and benefitting from the success of its own eco projects
Maybe this makes it too centralized? Since it gives the ecosystem itself the power to select who gets early funding/advantage, so idk, can develop more nuance to the set up and funding governance process prob
Either way, sounds better than giving PnD VCs allocation lol
Other ideas, some already being implemented
Protocol to protocol airdrops
Protocol to protocol fundraising
Protocol/protocol acquisitions/mergers
Projects incubating their own ecosystem projects
These ideas can be applied to the different alt-L1 ecosystems. And as you might have noticed, Iām not going to spell them out the analysis of each ecosystem for you, thatās the underlying alpha for you to interpret and dig for. Hope this sparks more thinking and helps develop more nuance in thinking about the space (which Iām still working on myself). Discussion and constructive critiques encouraged, just hmu on twitter.
*Disclaimer: Nothing in here is financial advice. No one will believe you anyways if you tell them you lost money after listening to an anime character for (NOT) financial advice.