Today the world of crypto is exploding and naturally with more adoption, comes more innovation, and more entrepreneurs looking to get involved.
After investing, building, and pushing adoption for ecosystems in crypto for the past 5 years, a lot of my friends and colleagues ask me:
“Hey Ash, I’ve got this idea, but what and where do I build?”
But the obstacle I see many face, is that they get what I like to call “lost in the sauce”.
And more times than none, this will stop you from building a truly successful project that will benefit users and our beautiful ecosystem.
Here is a fun fact:
There are currently around 7.9 Billion people in the world and according to Glassnode as of Nov 30th 2021, there are around 600,000 active Ethereum addresses.
This means that .0075% of the whole world is actively involved in literally the biggest smart contract protocol in history (based on traction).
And if I’m gonna take a guess, it is probably because most people still don’t understand crypto or how to get involved.
Here are some more fun facts
FAANG (Facebook, Apple, Amazon, Netflix, Google) are still the largest tech companies in the world with a combined user count of about 7.1 Billion users (and growing)
37% percent of the world still doesn’t have access to the internet
And globally, 30% of adults do not have access to basic banking
Are these random facts? Yes.
But the point I’m getting at is that sometimes, once you step into crypto, it is easy to get “lost in the sauce”.
So few people in the world are active on Ethereum.
So many people are still super active on the most centralized platforms in the world (fun fact: they know more about you than you know about yourself, and they make money off it and share nothing with you).
And such a large percentage of people still have zero access to innovation that can drastically increase their way of living.
So in my opinion, as an entrepreneur, your goal should actually not be to just create ideas and products that solve a Web3 problem, but rather, a Web2 problem.
For example, you probably will not get users to switch from Facebook or Instagram to your “decentralized social media platform” just because you offer them a few tokens.
Sorry to be harsh, but users do not give a shit. They don’t get it.
Ask yourself: Am I truly solving a problem here? Or am I just creating a problem in my head and throwing tokens at it?
So don’t get lost in the sauce. The sauce is deep and mucky, and sometimes doesn’t really connect to the recipe.
Okay, enough sauce puns. Let’s move on.
It also applies to very important business metrics.
Alot of times we get stuck in the beauty of tech and forget that there are still simple rules of business that still apply.
And that is where people fall into cracks that are very hard to get out of.
Building in the wrong place can drastically hurt you later on as crypto evolves.
Grants and connections are great but can lead to short-term results that can backfire long term.
Here are metrics and strategies to think about think can help entrepreneurs build for the long term.
Let’s start with your home base: L1’s (aka what blockchain to build on).
A Protocol’s Economic Flywheel
As said beautifully by the infamous a16z in their Crypto Startup School: what makes a smart contract protocol or blockchain valuable is its ability to bring all sides of the economic flywheel together.
You may ask “What in the name of Jebus does that mean?”
In plain words: this means how well a blockchain can bring all the different types of people in the community together.
Credit: Andreessen Horowitz Crypto Startup School
In order for a blockchain to build a successful and valuable network, it relies on:
End Users (+ Entrepreneurs)
Let’s break each one down quickly with some questions to ask for each (don’t we all love due diligence?):
As in any startup, do the founders of the protocol have what it takes?
Are they coachable?
Are they open-minded leaders or too stubborn for their own good?
Do they start drama and Twitter fights that could cause people to get emotional and sell their stake?
Believe it or not, the experience is just a bonus. Hustle and EQ are everything (in my opinion).
2. Investors — As with any project in crypto, people need to buy the token to get the ball rolling and keep buying it so supply/demand kicks in
If there are private investors, are these reputable investors
Will they help the founders with connections, mentorship, etc?
Who have they invested in previously?
What companies were successful?
Which weren’t and super important: why weren’t they?
This is generally hard to tell, but try to figure out a way to see if those inventors usually stick with the founders for the long journey, or they just dump all the tokens once they hit a certain price point (which will send the price shooting down, scare people away, and hurt the project).
3. Miners/Validators — Proof of stake is the standard and is no longer really considered a “competitive advantage”
Protocols need people to secure the network whether they are Miners (for Proof of Work) or Validators (Proof of Stake) who confirm transactions and vote for those that can’t on decisions regarding updates on the protocol. So is the barrier for entry too high for people to get involved?
Do people now need to spend a couple of thousands of dollars to get the necessary hardware to be able to start validating the network?
Do you have to be extremely technical in order to get involved?
In the case of proof of stake protocols (pretty much the standard these days), does the network punish the validator by taking his stake for a mistake? If yes, that can be very scary and a risk they are not willing to take.
4. Developers — Devs are debatably the most important piece of this puzzle.
Without developers building and auditing code and smart contracts, there is no adoption or products, so how easy is it for a dev to get involved?
Some protocols will argue that it is okay that they are using a complicated language because it is “more secure” but creating something secure can be done in many ways. The only thing you are preventing with your complicated language is adoption. Few have the patience to sit down and learn for weeks or months when they can start getting the hang of other languages in a week or two.
Is it truly open source, aka does it let devs fork (copy) each other’s code from apps, instead of starting from scratch every time?
As an entrepreneur, take a look at Reddit and see what developers are talking about and what their frustrations are in terms of their experience coding.
This is a bit harder to tell but try to take a look at the projects Stack Exchange and Github/Gitlab. Are there a lot of forks (aka people building)?
All this is important because if the language and dev environment is easy, then more devs will be prone to building there, and for entrepreneurs looking to hire devs, the supply and demand will be easier. If there is a lack of devs that are able to develop on a protocol, then they will obviously be a lot more expensive than the devs of other protocols that are easy to develop on, which in turn will force entrepreneurs to go build elsewhere.=
In addition to that, the easier it is to develop, the faster things will be built, both in terms of your startup and in terms of the ecosystem. The more projects there are the more adoption there is. And in terms of any startup, whether yours or the ecosystem, we know speed is super important. Get that shit to market. Fast.
5. Entrepreneurs + End Users
As said before, are there a lot of devs that entrepreneurs will be able to work with? For example, if an entrepreneur wants to build on Protocol XYZ and a dev who knows how to develop there will cost him $150k, but on Ethereum, or another EVM compatible blockchain,a Solidity dev will cost him 50k, why would he spend an extra 100k? There are so many more expenses involved in a startup, why spend so much on development from Day 1?
Are the platforms that end users interact with associated with the protocol like wallets, staking platforms, voting, and more, clear and easy to use in terms of UX/UI?
When a blockchain is able to easily connect all these players in the flywheel in harmony, it is truly a valuable platform to build on.
We live in a world where today, you can make friends online in seconds and online communities are at an all-time high.
Go to a few meetups and join the discord/telegram and see how supportive the community is.
Are there a lot of people answering questions or are there just a few?
This type of support is crucial in building in the world of opensource and also shows you how much people believe in the project. People are usually pretty helpful when they are motivated to help the project grow because they see a future and want to see their stake grow.
This also applies to NFT’s by the way. The stronger the community, the higher chance that collection ends up being worth something.
Take a look at Bored Ape Yacht Club, their community is super strong and has done a number of amazing partnerships, and because of it, their NFT’s have some decent prices.
In fact, recently Eminem recently* purchased *one for 463k!
Foundations are an interesting phenomenon. In fact, they can make or break a project.
A foundation is essentially the investment arm/ board of a project that will oversee funds like grants, and push adoption. Just like any organization, it can range from anywhere from 10 or more people.
The reason projects have foundations, is usually to separate the development of software, from a possible security asset. By making this separation and becoming a non-profit, they decrease their vulnerability to attacks from the SEC or other governmental authorities.
So a foundation can be a super powerful tool in the growth of an ecosystem.
But the issue is when the foundation is the only entity that controls the funds, including the funds that go on the support any project or entity that is in the ecosystem pushing adoption.
That my friends, is not a decentralized ecosystem. It is a boardroom.
It is the exact thing that we are building to fight against. We do not want a small group of people holding all the power.
If a small group of people has all the power to decide whether or not something is worth funding, then the rest of the ecosystem has no choice but to play by their rules.
This means that their opinion is the only thing that matters.
And that is the furthest thing from our ethos in the crypto community.
(Side point: in my opinion, this is where DAO’s come in. A community should have a say in calling the shots of funds for adoption and not 10 people in suits. In the future, foundations will cease to exist and DAO’s will be the new foundations, but that is for a separate article).
So as an entrepreneur or investor, take a look at the foundation.
See how they are structured. See who they are.
Are they all white-collar ex-corporate individuals with little to no crypto experience?
Do they communicate and are they transparent with the rest of the community on their decisions or keep everything behind the curtain?
Do they treat other people in the ecosystem with respect and appreciate the work they do?
Or do they throw them out with no remorse if they do not abide by their opinions?
Crypto or not, if you do not treat your community and people right, you will not go very far.
This is extremely important. You want adoption. Not an ego contest.
In addition to that, a grant is great. But do they just write a check and leave? Or do they actually stick around and have a team that will continue to connect you, advise you, and support you (you can also get support from the community in the telegram/discord)?
You want smart money. You are a startup. It is easy to get money. Hard to get smart money.
Smart money is much more valuable than money.
Even if that means “paying” a little more for it. For instance, if you have a grant for 75k from a grant with a foundation that will support you and connect you vs a 100k grant from one that will write and check and leave- take the 75k and figure it out (#notfinancialadvice).
It’s a better long-term move to have connections and support.
Foundations, if not structured correctly, can be the death of projects, which brings us to our next metric:
Take a look at the ecosystems organizations all around the world, make sure they are actually doing something.
What are they doing?
What is the point of what they do?
What progress have they made?
Sometimes, just like a bank or any corporate, saying that they have a presence in certain places, is only to make stakeholders happy, but if you actually remove the curtain, there is actually nothing going on.
If you hear that project has international entities, go on Twitter, their website, Medium, etc, and see if they are actually doing anything that will bring more investors, devs, or entrepreneurs, to the ecosystem, or if they are just a pawn that gets paid.
Gas is a very sensitive topic and funny topic.
Everyone in crypto always complains about it but yet, we still keep paying for it. Part of the reason we keep paying for it and barely feel it is probably similar to the same reason we swipe credit cards so recklessly sometimes.
It doesn’t “hurt as much” and paying with cash hurts more, plain and simple. This is part of the cons of doing any digital transaction.
But in the crypto community, we pay for it without blinking twice.
The bigger issue is when more and more non-crypto people start getting involved. It does and will matter even more.
But, the bottom line is that people are still using ETH and the hope is that it will be fixed (interoperability might not let it).
As an entrepreneur, today, have to choose whether you want to allow your users to be able to use interact, buy, and sell their NFTs on the biggest marketplaces and games or do you want them to save hundreds of dollars on their gas fees?
This one is for all the people who are concerned about the environment.
The idea that mining is horrible for the environment is just another marketing method.
Can it be better? Yes, and there are some great companies working on a more sustainable crypto world, like my good friend Elliot David with Carbonbase, but so can all of our washing machines in our house as well as our dryers.
Here is an article to read.
Please do your homework :)
Ethereum currently has about 2600 Dapps built on it. It is a clear leader in adoption in the market. In the world of crypto, think of Ethereum like Facebook. It’s almost inevitable.
So many projects have taken the “if you can’t beat em, join them” approach, by becoming EVM compatible.
EVM stands for Ethereum Virtual Machine. It is essentially the “master computer” of the Ethereum network, which completes all types of tasks on Ethereum.
But to keep this more business-related and less technical, EVM compatibility essentially means that Ethereum smart contracts can be deployed on another compatible chain.
There are key advantages of a project being EVM Compatible for both devs and users.
For users, it becomes considerably simpler and easier for users to switch from Ethereum to your chain. Think in the future, your NFT’s can work on other chains smoothly and will not limit you to only having it on the chain it was minted on.
In turn, the chain increases its usability and overall added value.
This is why there is so much work on rollups being done now and I think they at the speed we are going now, rollups will be at a much better state then they are at now.
For developers, they can now get more involved and have an easier transition. EVM compatibility lowers the barrier of entry to a new smart contract platform because devs can leverage their existing knowledge and skills rather than learn something completely new.
This in turn will also motivate them to build more because they will have a larger audience.
All of this is great for an ecosystem looking to gain more adoption and transaction on their chain.
A great example of success is the Binance Smart Chain, which got very big pretty fast, partly because of their EVM compatibility.
This brings us to another point…
It is clear from what we just spoke about that one blockchain will not rule them all. Yes, Ethereum is huge, but other projects like Solana are great and with the development of rollups coming up, there is still room to play.
On top of that, it’s important to understand if the projects on that blockchain are interoperable, which means they can interact with each other.
This now brings us to our final metric:
There is an old saying in startups “You can have the best tech in the world, but if you can’t sell it, it ain’t worth shit”.
The same applies here.
Today, the market is so competitive, that in a way, how much better one blockchain is technical than another does not truly matter.
Ethereum is still switching from mining to ETH 2.0, while so many chains out there are already using Proof of Stake.
In addition, it has some of the highest gas fees in the market.
So one could say “Ethereum has worse tech than other chains”.
But as we saw, Ethereum is the giant in the market and so this proves that adoption rules all.
We also see this concept of adoption with other blockchains that are partnering up with huge organizations like Flow, who partnered up with NBA Topshop and the NFL. There is still room to play.
There is also an aspect of adoption in terms of Global Adoption.
For instance, in Asia, the Klaytn Blockchain is very strong and is EVM compatible. If you are taking a look at another market besides North America, perhaps it might benefit you to take a look at other blockchains and their adoption in the region you are targeting.
So bottom line: adoption is stronger than tech.
If the chain you are building on has a massive chance of adoption from its flywheel, to its adoption, then feel comfortable.
I am sure this was a lot of information to read. It is a lot to think about. I hope this helps you and your journey to build in Web3. So congrats on coming this far.
Now take the leap and start building.
As one of the role models, Gary Vaynerchuk said, “Regret of not trying is the most painful kind of regret”.
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