Enhance your research with a VC-grade evaluation framework.
Discover the four crucial factors that drive startup success in Web3 ↓
Four main pillars of success:
• Product-market fit (PMF): Building a product that meets a strong market demand.
• Cultivating a strong community.
• Implementing sustainable tokenomics.
• Timing it right: Launching the protocol and token in a suitable market.
Arguably the cornerstone of protocol success in Web3, Product-market fit (PMF) refers to developing a product that resonates profoundly with market demand.
It encompasses several key indicators:
• High market demand signifying the product's necessity
• Consistent user retention reflecting ongoing value
• Organic growth through word-of-mouth
• Sales ease indicating a compelling value proposition
• Positive market feedback leading to manageable improvements
• Scalable delivery maintaining quality
• Profitability with a clear pathway
• And a distinctive competitive advantage.
An exemplar in this domain is Friend Tech, which brilliantly captured its niche.
By offering opinion leaders a platform to compete and earn, it propelled an organic, cost-effective Twitter campaign, underlining the essence of PMF.
Another example is Blast, love it or not, with already 355K+ bridged.
Such cases, however, are rare exceptions.
Often, new protocols aim too broadly or mimic existing models without a distinct PMF.
The key lies in pioneering a sector or improving established players' offerings, targeting specific unmet needs within a niche user base.
Typically, each industry has 3-5 prominent protocols that are either deployed within different networks (such as Opensea and Magic Eden) or offer distincy user experiences and feature sets (like dYdX and GMX).
Once an industry is established and the dominant players are determined, capturing a significant market share becomes incredibly challenging.
Becoming a leader within a blockchain ecosystem? It's possible, unless the current market leaders decide to scale in the same direction.
Conquering a narrower niche and tailoring the product for a specific user segment (like Penpie's relation to Pendle)?
Way better.
However, most protocols that launch have much bigger ambitions.
Let's summarize the product-market fit part.
A project has a high chance of success if:
• They are pioneers in an industry or one of the first players to release a strong product in a specific sector.
• Rather than aiming for a large market share in a big industry, they focus on improving upon the offerings of established market players (LSTfi, Yield Vaults).
• They target a niche user base with unmet demands.
Now, let's delve into marketing and community building.
Effective marketing and community engagement are pivotal. However, these efforts yield only short-term gains if the product lacks novelty or long-term appeal.
The key lies in strategic incentive programs, active social media campaigns, and unique events like tournaments and contests. When combined with a distinctive product, these tactics can significantly enhance user retention and create a loyal, active community.
Here are some key things to watch:
• Incentive programs aimed at attracting new audiences and enhancing retention within the existing community.
• Ongoing awareness campaigns on Twitter, establishing long-term partnerships with bloggers, and implementing ambassador campaigns.
• Regular retention events such as tournaments, bounty hunts, and creative contests.
• Short-term vampire campaigns that target a competitor's audience.
All of these tactics work best when the protocol offers something truly distinctive.
What's next? Tokenomics.
In Web3, not every service necessitates a token.
Tokens should be more than fundraising tools; they must offer real value, like governance or actual yield. A poorly conceived token can be detrimental, leading to user loss and negative sentiment.
Successful tokenomics require thoughtful design, ensuring the token adds real competitive advantage and aligns with the protocol's core functions.
A poorly designed token has the power to ruin everything.
And finally, let's talk about timing.
Timing is critical in the Web3 space.
Building during bear markets and launching marketing efforts during bull markets is a golden rule.
Many protocols fail by mismanaging this aspect, either by prematurely launching token sales or slowing down development.
The key to success is rapid development, strategic launch timing, and a robust funding strategy.
I hope this post has provided you with some valuable insights and helped you identify key elements to consider when evaluating a new protocol.
If you would like me to provide a more in-depth explanation of any specific aspect, pls let me know!
t.me/muur_posts