Token Growth Beyond 2024 (Part 1)
Everyone has a token now. What makes yours different? And why would it continue to be relevant beyond one cycle?
TL;DR
Token value is simply supply and demand. The tricky part has always been the demand side of the equation. This memo aims to explore my hypothesis for drivers of demand and how it’s changing.
By the end of this note, I want to convince you that we’re at a turning point for crypto tokens. The tactics which worked for 2017, 2021, and 2024 won’t be as impactful anymore. The reason is straightforward—there are too many cryptocurrencies all in similar sectors promising the same thing while the number of buyers stagnant. Exacerbated by fragmentation of capital with the rise of L2s, it’s harder than ever to attract money and ultimately… attention.
If you agree with that notion, then the next step is to find an approach that can differentiate a token in this commoditized market of cryptocurrencies. I find it helpful to learn from industries that went through this already like Fast Moving Consumer Goods (FMCGs) and entertainment. In a market where every product is essentially the same—soap, IP, content—brand is king. Stories make a brand real. Whilst differentiated products and features are ingredients to a good story.
A lot of tokens; not a lot of holders
The need to uniquely differentiate a token is more important than ever
There are more crypto tokens than ever. In 2024, the number of tokens in the market grew more than 3x which doesn’t include the 11,800 tokens produced every 24 hours from pump.fun alone. On the flip side, trading volume has remained stagnant.
In gaming, for example, there are about 400 tokens listed (coingecko). All of which are vying for the same set of investors, influencers, and holders. Everyone is a ‘universal game token’ that you should buy.
BEAM: Gaming chain token
RON: Token for EVM blockchain specifically forged for gaming
MON: Blockchain gaming ETF (source)
Not only are there more options, but capital and liquidity is now more fragmented with the rising popularity of generalized L2s and appchains. Just as TVL, and therefore capital for potentially growing a token, has steadily increased, so has the number of rollups and L2s. And that’s just looking at Ethereum. More L1s will continue to be funded. Solana is also looking to spin off L2s and appchains. There is a real risk that capital fragmentation will continue before consolidation amongst blockchains.
With the supply of tokens so high, it’s crucial to have a very good understanding of sources of demand and what it takes to attract them. At a high level, the approach for institutional versus retail demand will be different. But note that they are very interrelated: institutions will invariably consider if a token will eventually have retail demand and retail will want to know if a token can eventually picked up by institutions! Pick a starting point with a plan that affords tackling the other audience at some point.
Institutions typically have constrained investment criteria and mandates
First, it’s helpful to appreciate that there are a lot ‘institutions’—from pension funds to liquid funds. Most of the biggest institutions can’t buy tokens as a matter of mandate. Therefore, build a hitlist of funds that can invest into crypto.
Next, funds that invest in crypto also have liquid funds and non liquid funds. Liquid funds are typically the ones that buy into tokens. It’s crucial to acknowledge the objective of these funds—to lock in profits for the funds and its LPs (limited partners). That is, they will sell. Whoever tells you they will hold your token to the end of time is a liar. Profits are expected within a relatively shorter timeframe compared to venture capital deals.
An important criteria for institutional investors is trading volume. These funds need to know they can enter and exit a token position without (significantly) impact the price of the token. This means a minimum of millions in daily trading volume. This is often a deal breaker which must be solved as a matter of token health before you even start talking about the token with institutions.
To assemble retail, they need to feel they have a chance to win
Recent projects have been relatively down-only as compared to 2021. These launches adapted the same playbook from the last cycle by building a strong book of VCs and insider private rounds resulting in the low float and high FDV token launch pattern today. For example, EigenLayer’s pre-market has been down 50% from $8 (10 June) to $4 (10 Aug) despite its strong positioning.
As a result, retail is priced out of the upside by private rounds (source). Since the ‘mainstream’ has yet to arrive and save us all, token launches are down only. What remains of the retail market in crypto has moved to meme tokens because there they at least have a chance to catch the upside.
Teams need to step up their token game
Not having a unique narrative is a risk
Without a unique story, people won’t remember your project. That means it won’t get any attention and further eyeballs, user acquisition, and growth will plateau. This is apparent in DeFi DEXs and Gaming projects with tokens. They are all fundamentally the same products with similar tokens and tokenomics.
Your only hope would be if your particular sector suddenly becomes very popular and all the tokens within the vertical increases in value by association. This is exactly what we saw with DeFi summer and the era of Eth-killers. But as the high level narrative died down, so did the long tail of tokens which did not capture a unique position in the market. For example:
L1 Eth-killers: Solana—monolithic and high performance
L2: Blast—chain with native yield
DEX: Jupiter—aggregator and front-end of Solana
Stablecoin: Ethena—synthetic dollar and the basis trade
See below for popular narratives and trends today.
Relying on a single narrative is a risk
Layer1s and infrastructure have historically performed better from both a valuation perspective as well as performance (vs ETH). For example, Solana has had a stellar performance this past year, even bouncing back from its fall post FTX, despite its current profitability. This is despite the fact that DeFI protocols arguably generate more robust financial fundamentals like fees.
This is a great reflection of how the market approaches token valuations. It’s less about fundamentals, although that is important as a proof point, and more about the narratives a token can represent. When you buy SOL, you buy into the belief that meme coins are a great bet. Or even more true, if you’re paying attention to meme coins then you probably can’t go wrong holding SOL. (Similarly, RWAs equal to ONDO, PYTH, MKR)
Relying on just narrative is also a risk
Apecoin had a $5.5B market cap at its peak in 2022 which is now down to ~$400M despite pulling out all the stops including an Apechain, Apechain Telegram, and various partnerships not to mention the project’s pedigree.
Zilliqa $ZIL rode the L1 Eth-Killer craze in 2021 reaching a $2.6B market cap at mid 2021 but fell to ~$250M without a recovery. They followed the playbook by launching an L1, using buzzwords like sharding, and deploying DEXs as well as DAOs. But without owning a unique positioning with winnable proof points such as Solana, it wasn’t able to sustain its position.
Similarly, in the equity markets, GameStop's meteoric rise was fueled by a social media-driven narrative of a short squeeze and grassroots investor rebellion, rather than the company’s actual financial health.
You can get a surge of attention and token value for the same amount of time your narrative is relevant. However it will be difficult to sustain a stable upwards trajectory without real proof points to carry the token to the next narrative and another hype cycle.
Winners are emerging from tokens with a healthy mix of fundamentals and narrative
Positioning and building community. Solana has been winning. In fact, the pre-FTX and post-FTX performance of the token is a good example of how narrative could pull up and dramatically pull down a token. Importantly, the recovery of SOL is a prime example of fundamentals backing a token when narrative breaks down. Their investment early on to build a unique enough positioning amongst L1s (monolithic + developer centric) and strong fundamentals paid off. An example of investments early on are expensive community building initiatives such as hacker houses and global conventions. This drove attention, education, and eventually evangelism and a subculture around Solana’s tech which bred new projects and activity.
Flexible and composable product targeting the degen audience. Pendle’s market cap grew from <$20M in 2021 to $500M in 2024. At its height it was worth $1.6B. The team built a product over the years which could ride most of the narratives that emerged from DeFi and collaborate with big projects in the truest sense of composability. Targeting specifically the yield optimizing degen audience of web3, Pendle became relevant for many narratives such as Real yield, RWAs, staking, liquid staking, and native yield. Today, Pendle integrates with most Eth-based DeFI yield programs along with a ~$3Bn TVL which is just behind Uniswap V3.
Celestia was able to own ‘modularity’. This is a great example of building a great narrative: look for strong narratives today and own the contrarian view. That is, the only thing that’s just as popular as the hero or main character of the story is the villain. In the case of Celestia, it was monolithic vs modular and this was the simple movement and narrative they pushes throughout their campaign.
It’s a new era for token marketing
The token market in 2024 and beyond is a different playing field:
The supply of cryptocurrencies have drastically increased
While demand for tokens has remained stagnant
With the rise of L2s, capital and buying power has become fragmented
Retail gambles on meme coins instead of projects
Therefore
Grabbing and retaining attention of the limited set of investors is key
Which is why brand and market positioning is crucial
Target the degen and crypto curious audience, not the mainstream
Be flexible and composable to afford many narratives
Align and deliver on metrics that matter (users, TVL, fees—pick one!)
At this point, all tokens look very similar, especially within sectors. The tokenomics, taglines, and target market follow the same playbooks. From an extreme perspective, tokens have commoditized. If we take that view, it’s helpful to get lessons from businesses which have to market similar looking products such as P&G with fast moving consumer goods.
Take laundry detergent as an example. Surely the underlying product and technology of soap is not that different. And yet the sales of Tide is double that of Ariel despite being owned by the same company. The former is positioned more economically while the other is more ‘premium’.
If you’re a tech snob and don’t like your ‘disruptive product’ being compared to physical goods, that’s okay. There are many examples in tech where technology is no longer a moat—payment getaways, CRMs, calendars, and the list goes on.
Obviously there are big differences between a token and soap. However, this highlights the tools we can leverage the current web3 token playing field. Positioning can be different with otherwise similar underlying products. Here’s a great thread on crypto branding from Dragonfly Capital: https://x.com/hosseeb/status/1748107497070793002.
Swarming the team around positioning and differentiation
So that was a lot of complaining and not a lot of doing. It’s fair as a reader to now demand solutions to this high supply and low demand problem for tokens.
We’ll get there! This article is already quite long, so I’ll leave it here so we can focus on the problem at hand first.
If we can just align that unique and ownable positioning is the root cause of token problems (I’d dare say it’s a problem that pervades projects and products as well), then that’s half the battle!
In my next post, I’ll suggest how I think a project can tackle this problem effectively.
Spoiler alert: Relying on just marketing won’t save the day. The entire company, from product to sales, needs to make trade offs and radically focus.