The community, as a unique feature supporting the development of Web3 projects, has always played an important role in the entire industry. This is also an essential aspect that many traditional internet product managers or traditional financial institutional investors cannot understand.
I once heard a phrase: Traditional internet has users, but no community. It can be said that this "community as shareholders" approach is the core difference between Web3 and Web2, and between crypto finance and traditional finance.
However, as the industry develops and matures, institutions formed by industry OGs and traditional finance have begun to participate deeply in the initial construction of the industry. Therefore, in the distribution of token economics, institutions seem to be in stark contrast to the community.
From the perspective of interest distribution, prioritizing institutions may lead to less emphasis on the community, while prioritizing the community may make a project lack institutional support.
These two business models form the two sides that analysts currently consider when analyzing a project's token economy: which is better, institutions or the community?
However, it is certain that it is challenging for a project to excel in both aspects and have both at the same time.
1.The significance of token economics
The significance of token economics is a characteristic that runs through the entire cryptocurrency industry, which directly sets Web3 products apart from traditional internet products.
Furthermore, because of tokens, industry participants have more opportunities to invest, participate, and share in the development dividends of the industry, rather than having these dividends controlled by institutions or early investors as in traditional internet industries.
Returning ownership to the community is the right granted to the community by token economics and blockchain, and it is also a more free economic model that changes production relations through potential incentive mechanisms.
Incentives and ownership are the core of token economics and also one of the topics discussed in this chapter: the game between community and institutions。
2.The ecological niche of institutions
With the continuous development of the industry, various projects are emerging in the industry, and the industry's native narratives are also constantly enriching. If we rely on the traditional ICO model and only do public offerings, the launch cycle of many projects will be greatly extended, thus limiting the overall development of the industry.
Therefore, early investment institutions have become an important role in supporting and promoting project development. It can be said that behind the mainstream narratives and projects in the industry, there are shadows of institutions.#DeFiChallenge
There are also distinctions among institutions, mainly composed of three types: traditional financial institutions, industry-native institutions (exchanges/project parties, early investors dominate)#Tokenomics
Traditional financial institutions: They are engaged in investment business in traditional finance, such as a16z, Sequoia Capital, etc.
Exchanges/project parties: These are some investment institutions that occupy the main discourse power in the industry. Because they can continue to generate cash flow in the current industry, they can be regarded as "continuous gold diggers" in each development stage, such as Binance Labs, OP Crypto, etc.
Early investors: Refers to some early industry veterans and OG investors, who almost ate up the early dividends of the industry, and their early accumulation continued to grow in the later development. Investment institutions dominated by them are still active in the industry. They can be regarded as "trendsetters" in the industry development cycle, such as IDG, Distributed Capital, etc.
With the continuous expansion of market share, institutional investors also play a cornerstone and stable role in it. However, one of the major characteristics of cryptocurrency, the community, will inevitably bring impact to the investment interests of institutions.
After all, in the traditional investment paradigm, there is no such role as the community. However, in Web3, project parties even have to allocate a large part of the project to the community in order to support the sustainable development of the project in the industry.
3.The importance of the community in cryptocurrency.
The importance and core of the community in cryptocurrency can be summarized as 'everyone is a shareholder', which is believed to be one of the main reasons that drives many people to enter the cryptocurrency market.
Governance and ownership are two manifestations of the combination of token economics and community. The reason why cryptocurrency often triggers FOMO in the market is that many people can get very cheap chips in the early stage and obtain actual large profits in the development of the project.
In addition, the community also plays an important role in the spread of the project in the industry. I recently expressed a view: a project without issuing tokens is a sin in cryptocurrency, and deserves no market attention.
Of course, this statement is a bit extreme, but it is also very realistic. At the same time, it should be supplemented that this also depends on the stage of the project. To extend it, it can be said that a project that has been in the market for a long time without issuing tokens deserves no market attention.
Whether a project has short-term financing needs or may not have reached that stage yet, if it wants to continue to receive sustained attention in cryptocurrency in the future, it has to issue tokens.
Why is this so? Because although issuing tokens is a double-edged sword, at least it is a sword. There is a difference between having a sword and not having a sword.
Regardless of the price of the token, the number of people criticizing or praising it, there will be at least some voices and attention. I can even say that the more holders there are, the more dispersed they are, the more attention the market may have.
Therefore, it brings us back to our topic, whether the community or institutions dominate in the token economy.
4.Community vs institutions
My view is that early project parties need institutional funding, but in the development stage, they need the promotion of the community.
Therefore, the community is the key to deciding how a project can be sustainable in the future. Narratives, market trends, and other factors may only determine the performance of a project in a certain period.
Otherwise, institutions can exit early in the development stage, or the main part of the token economy can be allocated by the community, which will be more sustainable!
However, the same problem is that the exit of institutions involves the issue of who will take over.
This may require more reasonable supply and demand design, that is, to create the actual value of the token to digest the market pressure brought by institutions from the demand side.
The community is also the same, designing other pledge mechanisms to further reduce supply (the project party's share usually has a lock-up mechanism).
Institutions are also unlikely to deeply enter the community in the development stage, after all, capital is profit-driven. We cannot ask the community to take over the "hot potato" of institutions, nor can we do without institutions.
Therefore, we need to work on the demand side and further reduce the release of supply to balance supply and demand as much as possible.
In summary, institutions cannot occupy too much proportion in a project, and they need to constantly exit in the development stage. At the same time, the community needs to lead the development, which is a more benign design for a project
