This aritcles is from Jon which contains a lot of insights and alphas. If you like the post please give him a follow.

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 I’m 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 don’t 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 it’s 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 “for the tech” but they sure as hell aren’t 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 I’m biased as a rotatooor and degen speculator but aren’t 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
• It’s 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 we’ve 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
• Delphi’s new lockdrop mechanism (to be seen how effective)
• A bunch more cool stuff I’m 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 don’t have access and thus get left out of this early entry
• This is the main problem and really not anyone’s 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, I’m not going to spell them out the analysis of each ecosystem for you, that’s 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 I’m 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.

This aritcles is from Jon which contains a lot of insights and alphas. If you like the post please give him a follow.