Incentivizing users through tokens is much easier than spending actual dollars when startups need funding the most, helping to address the dilemma of early development.

Author: DeFi Cheetah

Compiled by: Deep Tide TechFlow

The First Issue - Inconsistent Incentives

For many founders, their ultimate goal is to get the token listed rather than to launch a great product. This is because a token listing can bring immediate financial rewards. While this approach may maximize profits in the short term, it is inconsistent with the long-term health and value creation goals of the industry: the personal incentives of founders are at odds with the long-term development of the crypto industry.

An increasing number of founders pursue quick profits, setting a bad precedent that success is determined by token listings rather than product quality. This creates a negative feedback loop that attracts those who only want to make quick profits rather than drive meaningful innovation. This is also why some founders or early industry leaders exit the field, and why the crypto industry is often stigmatized in other technology sectors, especially AI.

When projects fail to deliver on their promises due to weak or nonexistent underlying products, it leads to disappointment among investors and users. Over time, this undermines trust in the entire industry, making it harder for legitimate projects to gain support and for the industry to mature.

The Second Issue - Resource Mismatch

Many crypto venture capital firms are purely speculation-driven, focusing more on whether a project can create market hype (which significantly affects the token price at launch) rather than the actual utility of the product. Resources that could have been used to improve technology, enhance security, or expand product features are instead used for marketing, creating hype, and boosting token value. This resource mismatch hinders value creation in the industry, driving out good projects.

I believe it is entirely reasonable for venture capital firms to pursue profits, as they need to serve the best interests of their limited partners (LPs); they are not engaged in charity. In fact, venture capital firms face significant challenges: in most cases, due to the long lock-up periods of tokens, they cannot exit during market hype and are often mistakenly seen as scapegoats for falling token prices. (In any case, this is another topic that I may discuss later.)

The Third Issue: Value Creation Does Not Always Reflect in Market Capitalization

This means that crypto venture capital firms investing in hardcore technology may struggle to deliver good returns for LPs, reducing the incentive for other venture capital firms to make similar investments, leading to the previously mentioned second issue. In particular, projects that do not align with current market trends find it difficult to gain attention in the community. Why is that?

As @cobie once said, "Most people in crypto cannot adequately assess a project's technical and fundamental merits on their own. Instead, ordinary investors rely heavily on signals and social validation in their decision-making." Since the market is primarily driven by ordinary investors, this leads to inefficiencies in the market (though this is favorable for finding investment opportunities), with many valuable projects being undervalued, their valuations far below those of meme coins!

More specifically, the value creation of protocol development and builders takes years, while traders in a crypto bull market typically focus only on periods of weeks or even shorter. As a result, the performance of project token prices is almost entirely determined by market attention. The outcome is that many projects spend more on business expansion and marketing than on R&D, and attention-seeking behavior is common.

Despite these issues, I remain optimistic about the crypto industry! The crypto industry has at least three value propositions that present significant market opportunities and will have a profound impact.

First, the ability to issue non-custodial assets (such as tokens, rather than bank-held fiat currency) attracts a large number of talented founders.

Despite the negative reputation of the crypto industry, raising funds in this field is often easier, and due to the higher liquidity of tokens compared to stocks, valuations are also higher. Tokens allow founders to raise funds globally without geographical restrictions and gain support from any investors with a higher risk appetite. The prosperity of the crypto industry is largely due to the ease of fundraising in the early stages, attracting a large number of talented builders.

Second, blockchain eliminates many intermediaries and reduces associated costs by allowing people to collaborate without the need for trust.

For example, traditional exchanges need to share costs with parties responsible for brokerage, margin, risk, settlement, custody, user interface, APIs, etc., while crypto exchanges do not incur these costs. Therefore, consumers can pay lower fees because service providers can reduce their rates, and service providers can still earn more because the cost savings exceed the price reductions! As a result, the total utility of the entire economic system is enhanced, increasing the surplus for both consumers and producers.

Finally, blockchain can use crypto tokens as a medium for value transfer.

Incentivizing users through tokens, whose value depends on people's perceptions of the project's future prospects, is much easier than spending actual dollars when startups need funding the most. This helps to address the dilemma of early development.

More importantly, users can transfer and exchange value that current network infrastructure struggles to handle. For example, some people earn token rewards by completing tasks (such as verifying transactions or providing computing power for decentralized networks). Through the blockchain as a replicable state machine, these processes can be carried out more smoothly. New methods of value transfer can give rise to new business models to meet previously unmet needs.

I write this because I understand that many people are facing the same struggles. Open discussions may help more people realize that they are not alone—many share the same feelings, and I believe this also marks the budding stage of new technology.

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