Bootstrapping Web3 Networks: The Limitations of Token Incentives

Web3 changes the whole approach to bootstrapping new networks, since tokens offer an alternative to the traditional approach to the cold-start problem. Rather than spending funds on traditional marketing to entice and acquire potential customers, core developer teams can use tokens to bring in early users, who can then be rewarded for their early c... See more

Web 3 introduces a powerful new tool for bootstrapping networks: token incentives.The basic idea is: early on during the bootstrapping phase when network effects haven’t kicked in, provide users with financial utility via token rewards to make up for the lack of native utility.

Incentive DesignTokenomics are a tool for aligning the incentives of participants in a network. It is extremely important to identify what behavior is required from each participant in an ecosystem in order for the network to achieve a virtuous cycle. Equally important is designing suitable token incentives that encourage the desired market behavio... See more

I often hear people in the blockchain space assert some form of the following argument: if a platform creates a native token, such as a utility token that can be used to purchase services provided on the platform, the creation of the token by itself will align the incentives of users to act in the best interests of the platform. For example, someon... See more

Social tokens have shown their efficiency to incentivize individuals to share their skills with others. Well-designed incentives are more than crucial as they can make your project tremendously grow. Social Tokens are best used when they scale or incentivize coordination and engagement between community members. Incentives are ideal when it's mutua... See more

Blockchains break network effects. Why? Because token upside is inversely proportional to network effect. You can now give early adopters a karma-like stake in the network to reward them for inviting others.

Tokens can be useful in capturing user attention and bootstrapping initial adoption, but they need to be coupled with strong product-market fit—solving a widespread need for users—in order to sustain usage.