The Founders' Product Marketing Guide: Part II

Part 1: Learn Your Customer

Part 2: Define Your Target Persona

Part 3: Master Your Position

Part 4: Launch it! - Test, Analyze, Rinse and Repeat (TARR)

Now, that you’ve done the nitty-gritty work of reading product reviews and interviewing with 5-10 potential prospective customers, it’s time to put your data and insights to use. Ideally, you’ve taken the appropriate steps to talk with a diverse group of potential customers to give your data and research more external validity.

For clarification, a target persona is the archetype of your ideal customer who will be using your product or service. I’m a big fan of using Linkedin social profiles and Sales Navigator tool to build “real” target and buyer profiles. It’s a quick, easy, and low-cost way of building a collection of realistic personas to target.

For these sample target personas and buyer profiles, I’m assuming that I will be creating a marketing automation tool.  

Sample Target Personas:

This may be the main “signer” of the actual contract along with the CFO or CEO.

This may be the main “signer” of the actual contract along with the CFO or CEO.

This may be the actual daily user of your platform.

This may be the actual daily user of your platform.

Buyer Profile

Screen Shot 2019-02-07 at 5.50.00 PM.png

A buyer profile is the type of companies who would be ideal for your product.
If you’d like to go further with your target persona creation, check out Hubspot’s “Make My Persona” website. I am a big fan of keeping things simple and leveraging LinkedIn’s massive database of users to build realistic profiles that can be handed off to an Account Executive to help them set appointments, track common objections and closing deals. Typically, you will be dealing with multiple stakeholders during the purchasing process of your product. I’ve seen upwards of 2-5 people involved in the sales process for a company.

PPC & SEO Competitive Analysis:

I would emphasize writing down your top 3 potential competitors and then reviewing their marketing collateral, landing pages, keyword strategy, and use their product if possible. Let’s start with the basics and review your competitors SEO and PPC strategy.

Spyfu:

Data Provided:

  1. PPC Budget - How much are they spending per keyword or phrase?

  2. Top Keywords (Organic and Paid)  

  3. Ad Copy

  4. Advertising History

  5. Top Backlinks

  6. Top Keyword Competitors

  7. Organic Ranking History

From here, you will be able to determine the highest performing keywords in your industry (or product category), then backdoor your way into finding their best-performing landing pages-product messaging and positioning. This will give you deeper insights into how your potential customers are searching for your product.

Similar Web

Data Provided:

  1. Traffic Volume

  2. Bounce Rate

  3. Traffic Sources

  4. Organic Vs. Paid Traffic Percentage

In their analysis, they found that most keywords are specific and unpopular-long tail keywords. This means that most people who are using Google or any search engine may not know exactly what they are looking for. For content marketers, this means, creating content geared around helping your target persona solve specific issues or provide them with how-to-guides is a great way to stay top of mind of your potential customers and grow the top of your marketing funnel. I will not be discussing in depth how to create a content marketing strategy, but just wanted to bring this to your attention.

With Similar Web, you will be able to get a “Google Analytics” type of view of your competitors’ website traffic. The key thing to pay attention to is determining which sites are driving the most traffic to your sites. This will add more color to your analysis for determining which websites (or channels) will be best for you to promote your product.


Usually, for early analysis, the free versions of Spyfu and Similar Web would suffice, however, if you want to get more data and insights I’d suggest upgrading to premium accounts. Also, keep in mind that Similar Web’s data is not always 100% accurate as most website owners have not connected their site to Similar Web’s API. Generally, I have found it to be a good starting point in analyzing competitors.

Come back next week for “Know Your Position” as I’ll discuss developing your product messaging and positioning strategy.

For a consultation, contact me directly blackchaingroup@gmail.com.


The Founders' Product Marketing Guide: Part I

Part 1: Learn Your Customer

Part 2: Define Your Target Persona

Part 3: Master Your Position

Part 4: Launch it! - Test, Analyze, Rinse and Repeat (TARR)

The purpose of this guide is to provide founders, product marketers, and entrepreneurs with a product marketing playbook for launching B2B SasS apps. Some of these strategies will work for B2C apps as well.

Every aspect of your company’s strategy should drive sales growth or revenue-generating efficiency. My first step is to create an effective business model is to MAKE SURE TO KNOW, UNDERSTAND, AND SATISFY THE CUSTOMERS CORE NEEDS. Once, that part is complete it makes positioning and lead generation 10 times easier. It’s important to spend an adequate amount of time researching your prospective customers’ core business and specific needs. It’s always tempting to just dive in and start selling your product before establishing a sound understanding of your customer. As a product marketer, it’s imperative that you spend an adequate amount of time understanding your customer. You need time to research, think, and strategize, in order to create and implement an effective product marketing strategy. If you aren’t being empowered to be thorough in your approach you may want to re-think working there or launching the new product. Product Marketing isn’t a golden pill-it’s a vitamin that you will need to take over time to see any ounce of sustainable impact.

If you don’t know your customer, how can you build them a product and convince them to buy it?

If you don’t know your customer, how can you build them a product and convince them to buy it?

You never want your prospective customer to feel this way when talking to you or your sales rep.

There are two types of research you will need to be familiar with: First and third-party research. First party research is research developed inside your company from focus groups and customer interviews and third-party research is gathered by anyone outside of your company. In this guide, I will skip doing focus groups, as they can add a level of complexity which isn’t needed at this stage and they tend to fall to “group-think”.

Typically, I start my customer development process by reviewing third-party resources. The third party research sources I review are product discovery or review sites such as Product Hunt, Capterra, Trust Radius, Software Advice, social media comments, and independent research studies created by Juniper Research. I like to take the comments, common product review feedback, and put them into a spreadsheet so that I can do some data analysis and categorize areas of opportunities around features, customer support, general perception, pricing, and etc. After reviewing these third-party research sources, based on trends I notice, I create potential questions to ask prospective customers.

Here’s a sample spreadsheet. With this data in hand, you will now be better equipped to begin figuring out how to beat your potential competition.

Here’s What You Need to Know about Prospective Customers:

  1. Decision-Making process

  2. Job Title of Purchaser (s)

  3. Price paid for an existing solution (If they have an existing solution)

  4. Typical budgets

  5. Primary Sources of Information (Most Used Media Channels)

  6. Favorite Brands (and why)

  7. Company Size (or Team size)

  8. Competitor Products Used

  9. SaaS products used (For potential integration partners)

  10. Decision Makers’ Key Influencers

A few of these you may be able to determine from doing simple Google Searches, LinkedIn, or Wappalyzer-used to determine technologies used on their website. Now, that you have an understanding of what you need to know, let's go through some questions you could ask prospective customers. I would suggest talking to 5-10 prospective customers. After talking to at least 5 different prospective customers you’ll be able to see patterns and match them to potential product strategies.

Be sure to select prospective customers who are different in some kind of way-company size, sex, product type, business model, industry, & etc. At least half should be made from warm introductions and others from cold outreach. Often times, “warm” introductions can bring prospective customers who may give you bias information due to them waiting to support you versus giving honest feedback. Doing these things will give your data higher external validity and build a stronger argument to support your strategies.

With their permission, record the calls (or meetings) and take detailed notes. The goal of customer development is to find GOLD nuggets that will help you create a powerhouse product roadmap and marketing strategy, not to sell them anything just yet.

Questions to Ask:

  1. Why did you choose X over similar products?

  2. Walk me through your decision-making process for selecting and purchasing X.

  3. Whose was apart of the decision-making process for purchasing X?

  4. What’s one feature you can not live without with your current solution?

  5. How much are you paying a month for it?

  6. Would X feature cause you to switch another product?

  7. Can we add you to our beta list? (Make this the last question)

  8. How long did it take for your company to make a decision and then complete the purchase?

  9. Walk me through your on-boarding process. Would you change it? If not, why?

In my questions, I’m assuming the prospective customer is using an existing solution. If you are building a B2B app, your potential customers are using a product to alleviate their current issue. I have found that simple changes or discoveries could have a transformative impact on your product strategy. It could be repositioning your product’s value proposition to appeal to a specific demographic group, clarifying information on a landing page, or even finding a better channel to reach your target persona type. Also, be mindful of how your prospective customers view existing products on the market. This will serve as the basis for your SWOT analysis as well. With SWOT analysis, do not get too caught up in reviewing every single data point, focus on the customers’ perception of products on the market and use that to determine your product’s potential position in the prospects’ mind.

This is the end. Come back next week for “Know Your Position”.

For a consultation, contact me directly blackchaingroup@gmail.com.

Part III: Systematic Token Economic Issues

Part I: What is Token Economics?

Part II: Top Token Economic Models

Part III: Systematic Token Economic Issues

Part IV: A Guide to Creating a Token Incentives

The goal of this post is to give you a basic understanding of the above token economic issues plaguing Blockchain and DAG projects. Self-interests aren’t purely profit-driven. A person’s (or organization) self-interests could revolve around a social cause, spirituality (religion), personal ideology, or family. The reason world Superpowers trust the American Dollar, and Chinese Yuan as consistent stores of value, a financial commodity, and reliable medium of exchange is because they are both integral to interacting with the global financial system.

Let’s look at Bitcoin. It is the most trusted cryptocurrency on the market because it hasn’t fallen victim to a successful 51% attack, launched the entire cryptocurrency space and has multiple use cases: best “crypto” store of value for ICO projects and crypto investors, defacto medium of exchange on most (if not all) crypto exchanges and the interests of miners and cryptocurrency traders (big and small) align around it maintaining a healthy community and asset value.

Lack of Trust:
Trust is the currency of all relationships, households, organizations, businesses, and governments. Since we can’t touch trust, we have turned to money to represent it in the physical form. Having currency in a physical form is an inherent issue for crypto-currency because you can’t actually touch it. With the barrier of being non-physical money, cryptocurrency creators have to create real “use-cases” for their crypto-currency.

The lack of trust comes in due to Blockchain creators poorly explaining their technology into layman’s terms, poor token allocation, and inadequate separation of concerns and debugging practices. When you are creating a blockchain solution ask yourself: “How will my community feel if I own 60% of tokens?” or “If I guaranteed they would get a 10X return, will I reach my funding goal?”. Just be a human and think about how you would want someone to treat you if you were a potential investor, miner, or advocate.

Lack of Uses Cases:
My general rule of thumb is to avoid creating a token unless you have at least three “realistic” token use cases-which evolve around specific behavioral incentives. If you don’t have multiple strong use cases, your coin will only be good for two things: ICO pumping and dumping. Let’s look at Ethereum: Ethereum is used to pay gas fees (utility token), a store of value for ICO fundraisers, widely accepted wallet protocol, and an investment vehicle for crypto-traders.

NEO has multiple use cases as well: on-chain voting, smart contract execution, and an interest-bearing token giving you free NEOgas for holding. NEOgas is used for paying smart contract execution fees (utility token).

I know this looks pretty straight-forward. However, most newly minted tokens fail the use case test-MASSIVELY. To make sure you are producing a token with real value, write down all market participants who could benefit from your token and then list their adjacent self-interests-more is usually better.

Steps For Avoiding Poor Use Cases:

Step 1: Determine each party who would benefit from using the token

Step 2: Determine each parties’ self-interest which would drive them to use your token

Step 3: Determine how you would align each parties’ interest (Detailed explanation in next section)

Step 4: Determine potential bad token behaviors

Step 5: Determine how to stop bad token behaviors

Step 6: Determine how a blockchain or smart contracts could be used

Here’s an “fake” token called Supply Chain-Token:

Step 1: Supply Chain tokens’ interested parties are retail manufacturers and wholesalers, retailers, and retail consumers. I’ll make it simple.

Step 2: Retail manufacturers and wholesalers, retailers, all want profits, Retail consumers are driven by the “best deals” (value or low cost) or in economic terms, consumer surplus.

Step 3: Manufacturers, wholesalers, and retailers would be attracted to using the token for lowering transaction fees, reducing inventory turnaround time, inventory wastage due to theft, or undersold inventory. Retail customers would be attracted to lower transaction fees or “token discounts” for making purchases in native token.

Step 4: Manufacturers, wholesalers, retailers, and retail consumers could perform double spending attacks to reduce their distribution fees and retail consumer costs further. 
 
Step 5: The Delegated Proof of Stake model could be used to reduce the ability to perform 51% attacks (double spending) by requiring all master nodes to stake 10% of their portfolio for all transactions and are rewarded with more tokens for verifying legit transactions or lose their stake for verifying fraudulent transactions.

Step 6: A distributed open ledger of retail transactions across entire supply chain participants could be used to track inventory, provide data for improving supply chain management constraints. Smart contracts could be used to automate payment processes for bill payment between all market participants.

Misalignment of Self-Interests

Here’s where the rubber meets the road. When we look at the American Dollar, it’s been able to remain a dominant fiat currency because all parties’ (Federal Reserve, Banks, IMF, US and other governments, &, etc.) interests align on their dependence of the Dollar remaining valuable.

Let’s go with the example above-the Supply Chain token. How could we align the interests of retail consumers with the “profiteers.”

Ways to Align Each Party’s Self-Interests: 
1. Supply Chain management education for consumers
2. Lower transaction fees
3. Provide discounts for transacting in Supply Chain tokens
4. The blockchain is used to track counterfeit products 
5. 5% of all tokens in existence will go towards charity or social cause

What if retail consumers fully understood how applying blockchain tech to retail could lower their cost per purchase. This alone could align retail consumers’ interests to all “profiteers”.

Bitcoin Aligns Interest: 
1. A Bank replacement
2. Restricted currency supply
3. Borderless Monetary System
4. Immutable and distributed ledger
5. Traceable transaction history

If you notice, these interests are not “profit” driven but evolve a specific ideology of independence from government regulation. This is why the first users of Bitcoin were so small because it wasn’t made to appease everyone, only people who believed in the core ideology driving it. Aligning interests is all about creating a token with embedded interest alignment for all parties who will use your token.

In part four, I will walk you step by step behind creating a basic token economic model. If you have any recommendations on my analysis, feel free to share. I am not a financial advisor, and this is not investment advice. If you are interested in learning more about crypto. Subscribe to my newsletter here for latest crypto industry updates.

*This post was published on July 1st, 2018 originally but was accidentally deleted*

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Part IV: A Guide to Creating a Token Incentives

Part I: What is Token Economics?

Part II: Top Token Economic Models

Part III: Systematic Token Economic Issues

Part IV: A Guide to Creating a Token Incentives

The goal of this post is to walk you through an example of how to create token incentives with the desired end goal of initiating specific behaviors. In the previous posts, I provided a basic framework of how to conceptualize token incentive models to drive specific behaviors. In general, an incentive that makes your token as necessary to using your platform makes it a utility and any incentive that hints at an increase long-term value make your token a security. One security incentive can make your utility token a security in the eyes of the SEC. The SEC views most tokens as “penny stocks” which makes it illegal to pay any American in your token as a form of compensation.

Let’s drive into creating a token incentive for ending homelessness. We are calling this token the “H” token.

Step 1: Determine each party who would benefit from using your token.


The key stakeholders here involved in homelessness are the homelessness population, land developers, politicians, tourists, and local residents (with housing).


Step 2: Determine each parties’ self-interest which would drive to use your token.
Homelessness — Consistent food, shelter, and personal dignity
Land Developers — Turn a profit on flipping land and real estate properties
Politicians — Re-election and positive recognition
Local Residents — Cleaner streets.
Tourists — Have a fun and safe experience 

Step 3: Determine how you would align each parties’ interest.


This is the tricky part. How do you align self-interests of two (or multiple) parties which are dynamically opposed to each other. Give them an extra reason to agree and it will be easier for them to align their interest.
If the token increases in value, the homeless population will have more money to spend to take care of their basic needs.
Land Developers can receive payment in the H coin and wait for the value to increase for later day cash out as well as save in transaction fees for using a digital currency.

Politicians can show that their efforts to get specific bills passed have helped provide the local government with an effective ROI in regards to reducing the homeless population.


Local Residents will have cleaner streets because the homeless population now has an asset they can leverage to lift themselves out of poverty
Tourists want to be able to keep collectible items from places they’ve traveled. 

Step 4: Determine potential bad token behaviors
A “bad” token behavior is one that is opposite of your desired token incentive. The goal of the H coin is to end homelessness. Potential bad behaviors would be pumping and dumping schemes, and collusion between parties to manipulate token prices.


Local residents, politicians, land developers, tourists may work against the homeless and make it harder for them to gain tokens and lift themselves out of poverty.


Step 5: Determine how to disincentivize bad token behaviors
One way to beat this is to provide reverse lock-up periods for token-holders. A reverse lock-up incentive is when you reward token holders for holding on to your token for specified periods of time. It’s called a “reverse” lock-up period because token holders aren’t required to hold on to your token. 
We could create a NEOgas inspired incentive which gives token holders more tokens on at daily accrual basis with monthly payout (last day of the month) to stop any collusion among different stakeholders.


Local residents, politicians, tourists, and land developers could receive extra tokens because the overall network becomes more efficient at lifting people out of poverty. The would be a “collective” network bonus.


Step 6: Determine how a blockchain (distributed ledger) or smart contract could be used.

A distributed ledger could be used to record how many homeless people were able to lift themselves out of poverty by recording their tokens awarded for meeting various benchmarks set by local residents, land developers, and politicians. Smart contracts can use to automate payouts to specific parties for meeting various benchmarks. For example, if a homeless person lands a job, they could unlock a token bonus. 
Extra Steps:

Step 7: What is the current state of the crypto market?

In a bull market, we can create incentives to boost the top of the “marketing funnel” to attract retail investors. For example: If you tweet or share our article, we’ll give you some tokens.


In a bear market, we would create incentives to attract stakeholders who would be lower in our marketing funnel-i.e more likely to be loyal and retain H tokens for extended periods of time. For example: If you able to attract more homeless people to use our token and they use our service actively for 3 months, we’ll give you a payout as a referral fee.


Your token incentive plan should work in a bull or bear market. In a bear market, a majority of crypto retail (or hype) investors have left the scene because short-term gains cannot be realized. In bull markets, like in 2017, ICO bounty programs were geared for “attracting” more hype around their tokens. These types of incentives do not work in a bear market. The good news is that in bear markets, the people interested in using distributed network technology-dApp developers, enterprise companies, strategic institutional investors are still interested in using this type of technology because they see the long-term potential. With this in mind, your token incentives must emulate the current state of the market and move downstream on your marketing funnel and focus on creating incentives to drive long-term adoption and loyalty.


See the difference?


Step 8: Is my token a utility or a security?

This is a very sticky question. A Utility token is integral to using your platform. For example, Bitcoin is a utility token because it is a “monetary currency” and is used to settle payments between parties. It’s wasn’t a security because it wasn’t issued like a typical ICO token and it was released after or at it’s Token Generated Event.


A Security token is a token whose current value is not realized or whose value is based on another asset. It may not be realized because it’s valued represents a physical asset or the token generated event hasn’t occurred yet. For example, EOS was a security token prior to its main net launch because you couldn’t use it’s token to process transactions on the EOS network.


Step 9: Respect the SEC
I strongly advise reading SEC filings against suspected scam tokens to learn how the SEC is defining the space. The goal should be to stay out of jail first and make money later. :-)


Suggested SEC readings:
Tomahawk Cease & Desist Order

Howey Test 

Regulation A

Regulation A+


Regulation D

Regulation CF

Not an SEC reading but also suggested: 
Civil ICO Launch

In most cases, blockchain foundations, are going the route of avoiding the security classification at any cost because it lowers their liability and legal fees. The SEC hasn’t provided a clear “blueprint” to how they are governing token assets.

This was the last post in my four-part series and I want to thank you for taking the time to read each article. If you have any recommendations on my analysis, feel free to share. I am not a financial advisor, and this is not investment advice. If you are interested in learning more about crypto.

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Part II: Top Token Economic Models

The goal of this post is to walk through different token incentive models and consensus protocols which do a great job of balancing each separate stakeholders’ (miners, token holders, end-users & etc.) interests and  incentivizing positive behaviors.

Post #1: What is Token Economics?

Post #2: Top Token Economic Models

Post #3: Systematic Token Economic Issues

Post #4: A Guide to Creating a Token Incentives

Below I will go in-depth about Storj, NEO, Steemit, and Bitcoin’s token models. Now, these Blockchains do not have perfect token incentive models, however, they are doing a great job of raising the standards for creating token incentive models.  

download.png

Consensus Model: Proof of Retrievability  

Number of tokens: 1

Voting Token: None

Transaction Token: 1

Block Reward: None

Transaction Fees: Yes

Storj is one of my favorite blockchain projects because it’s solving a systemic Blockchain issue, data storage-which is their key economic incentive. Saving data on the Blockchain is very expensive and costly. Storj’s goal is to be the Dropbox of the decentralized web. Storj’s consensus model  is proof of retrievability. Unlike, proof of work or proof of stake consensus models, which require specialized mining ASIC chips-storage blockchains, only require consistent internet connection and available storage on your laptop or PC to host data files from their network. Once, decentralized storage become more popular, specialized equipment may be needed.Their consensus model,Proof of Retrievability, double checks and makes sure that all storage nodes on the network, are honest about their data space availability. The data stored on the network is encrypted and sharded-each node will not know exactly what and whose data they are holding.  

download-1.png

Consensus Model: Delegated Proof of Stake - Byzantine Fault Tolerance

Number of tokens: 2

Voting token: NEO

Transaction token: NEOgas

Block Reward: No  

Transaction Fees: Yes (Extremely Low)

NEO is an infrastructure blockchain. NEO’s team wants to support a smart economy and solve on-chain governance issues, and throughput limitations (faced by Ethereum and Bitcoin). They do this by instituting a delegated proof of stake model where NEO holders are able to vote for the most trustworthy block miners and hard forks are not allowed. They only have two tokens and NEO, the main token, is used for voting on major issues with the blockchain. The main token is not a transactional crypto-currency. Their NEOgas token is an "interest-bearing" token and is earned by holding onto NEO token longer. Token holders are notorious for not being loyal-do you blame them? With NEOgas, token holders are incentivized to build a trust filed network. Token holders and nodes are incentives are aligned and are incentivized to make decisions about NEO’s future could make the underlying technology better and crypto asset values more stable (and valuable).  

 

steemit (1).png

Consensus Model: Delegated Proof of Stake

Number of tokens: 3

Platform Token: STEEM  

Transaction Token: Steem Dollars

Voting Token: Steem Power

Block Reward: None

Transaction Fees: No

Steemit, a social network similar to reddit, accounts for one of the biggest majorities of Blockchain transactions. It lives on the application layer. As mentioned before, the application layer token incentive models, usually differ from industry (and even dapps) due to the complexity of end-users’ specific behaviors. The best aspect of Steemit, is that it has a token called Steem Power, which is a voting token, and isn’t represented as an actual token. Sorry for the confusion. Token holders of STEEM are given more Steem Power, voting rights, the longer they hold their main STEEM token. This incentivizes all key stakeholders to be more loyal and gives the most loyal token holders a stronger presence on dictating Steem’s long term strategies. As a result, Steem attracts token traders who believe in their platform and makes it’s token value a stronger store of value than most tokens.

untitled-1_1x.png

Consensus Model: Proof of Work

Number of tokens: 1

Transaction Token: 1

Transaction Fees: Yes

Voting Token: No

Block Reward: Yes

Transaction Fees: Yes

Bitcoin, has the best incentive model. Even though, the major benefit of the platform is felt and realized by miners-Bitcoin birthed the entire Blockchain and DAG industry. One thing that’s interesting about their token economics is that it’s the gift that keeps giving. Bitcoin has and will continue to have a huge amount of hard forks and the beauty of this is that it has single-handedly on-boarded more people into the crypto-currency space more than any other crypto-currency. It does have some huge fallacies in that the miners dictate all the software updates and are keeping the block size small and hence, keep Bitcoin’s value inflated.

In part two, I will discuss my favorite token economic models and why. In part three, I will discuss systemic token economic issues. I would like to thank Blackchain for proofreading this post. If you have any recommendations on my analysis, feel free to share. I am not a financial advisor, and this is not investment advice. If you are interested in learning more about crypto. Subscribe to my newsletter here for latest crypto industry updates.

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Part I: What is Token Economics (Tokenomics)?

The goal of this four-part series is to give you a standard framework for analyzing and creating token incentive models. You will gain a basic understanding of token economics’ major components (or value drivers) for crypto assets.

Part I: What is Token Economics?

Part II: Top Token Economic Models

Part III: Systematic Token Economic Issues

Part IV: A Guide to Creating a Token Incentives

200.gif

You DO NOT have to be like this guy, above, to be able to understand and create the basis of your token model. You need to understand the major areas that will impact your community's long-term growth and crypto asset values.

What is Token Economics? Before I answer that, you should know B.F. Skinner, former Harvard University Psychology Professor,  and his Token economy theory.

His Token economy theory was the basis for me defining the field of Token Economics.

Ok...What is Token Economics?

‪Token economics is the allocation of tokens to modify (or incentivize) specific behaviors to create strong communities with the underlying goal of creating a valuable crypto asset(s).‬

Anything that impacts crypto asset values falls under token economics.

Key Areas:

  1. Team

The people are the most important part of an ICO project. The team behind the project is key to determining if their coin has a chance at gaining wide adoption. The team should have domain expertise in on the solution or problem and have previous successes in their career. Be sure to look for teams that have at least a 1-to-1 ratio among team members and advisors. Ideally, a project (or foundation) should have more team members (working on the idea full-time over “part-time” advisors.

OmiseGo:

Screen Shot 2018-05-01 at 9.58.04 AM.png
*This is not the entire team. I was not able to fit the entire team on this page.*

*This is not the entire team. I was not able to fit the entire team on this page.*

*This is not the entire team. I was not able to fit the entire team on this page.*

*This is not the entire team. I was not able to fit the entire team on this page.*

Screen Shot 2018-05-01 at 10.05.45 AM.png

You’ll notice that they have an “all-star” legal team who are crypto-asset. Cooley is representing Tezos’ Founders in their legal battle. This shows that Bitclave’s team is thinking long-term and are taking pivotal steps to being legally compliant (internationality).

 2. Application Interaction Layer

Most Blockchain applications sit at the lowest interaction layer, the application layer. Some tokens such as monetary coins like Bitcoin or Monero will include all layers of interaction with exception to the application layer. Popular Decentralized applications (Dapps) like Brave, Bitclave only sit on the application layer. For detail on interaction layers, read David Xiao’s post: “The four layers of Blockchain”.

“The first four layers encompass what we think of as the Blockchain, while the application layer allows for overlays, APIs, applications, etc.” -David Xiao

“The first four layers encompass what we think of as the Blockchain, while the application layer allows for overlays, APIs, applications, etc.” -David Xiao

Typically, the most diversified interaction layer is at the application layer. The four core layers are standard ,and most innovations will occur in the application layer because this deals with the end user. An incentive model for a decentralized Airbnb, Bee Token, looks a lot different than Dash, which uses a Masternode incentive structure for attracting miners.

Consensus - The basis for creating new blocks or making changes to the blockchain

Mining - Where new coins or tokens are minted in a proof of work or stake models

Propagation - Determines how information is transmitted between nodes in the network

Semantic - The transferring of crypto-assets to different nodes

Application - Front facing application for end-users

Once, you’ve figured out which interaction layer your Blockchain apps touches-this will put you in a better position to understand which behaviors to incentivize. This has a direct impact on the incentive models you select.

     3. Token and budget allocation & fundraising goal:

I decided to lump these three areas together because it's easier to discuss them as one. Below I have included rough percentages of what I’ve seen with tokens distribution strategy and use of funds.

Token Distribution:

Founding Team: 15% - 25%

Reserve for future use and staff: 20% - 30%

Private and/or Public Sale: 25% - 50%

Community Management (Airdrops/Bounty Programs): 10% - 15%

Budget Allocation:

Research and Development: 30% - 60%

Sales and Marketing: 15% - 20%

Network Costs: 10% - 15%

Operations: 10% - 15%

Accounting, Legal & Compliance: 2.5% - 5%

                                   *These are rough ranges and you should do your own research*

An ICO’s fundraising goal should be attainable in bear or bull market. In early 2017, ICOs had lofty fundraising goals north of $50+ million. In 2018, ICOs that tend to have the most successful raises are between $15 million or less. The key is to have all key stakeholders’ (community, foundation, and personal) interests when allocating tokens and budget.

Also, is there a lock-up period on the tokens given to the team and advisors? Long-term thinking projects tend to have founders, employees and advisors commit to a 6-12 month token lock-up period and 4-year equity-vesting periods.

Other key questions:

  1. Will the coins be pre-mined?

  2. Will you have an unlimited token supply?

  3. Which exchanges will sell your tokens?

  4. Will your team and advisors have a token lock up period?

  4. Community Management (Public Relations & Branding)

Many projects with strong technical teams, often lack community emotional intelligence and empathy and proper storytelling techniques for building long term trust. Some very promising projects have forgotten about PR and never focus on controlling the narrative around their brand. ICO projects are technology branding projects. Projects with the strongest communities tend to have more stable and crypto asset values. My biggest pet peeve is to see community managers and founders show week emotional IQ when dealing with social media interactions.

One question I like to ask: “Would they talk to their mother that way?”. If the answer is no, then they are most likely going about it wrong.

Many projects with strong technical teams, often lack community emotional intelligence and empathy and proper storytelling techniques for building long term trust. Some very promising projects have forgotten about PR and never focus on controlling the narrative around their brand. ICO projects are community building projects. Projects with the strongest communities tend to have more stable and crypto asset values. My biggest pet peeve is to see community managers and founders show week emotional IQ when dealing with social media interactions.

    5. Product and Business Model

How will this company make money? Projects that are off the test nets and have a working prototype have higher chances of being more valuable in the short and long-term over projects with no usable prototype. This section is self-explanatory.

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Storj’s business model is to sell cloud storage space to consumers and compensate storage renters (who offer up storage space to the network) for free.

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Binance’s business model is to use their coin to facilitate crypto-currency trading (i.e. lower transaction fees) on their platform. Most ICO projects will not have a usable product after launching their ICO. Some projects such as EOS or Cardona need a year or more to develop due to the scope of the problems they are trying to solve. A project with a usable product, will have stronger communities long term who are more engaged. Your community will be able to show others and get more people involved in the community.

   6. Real World Use Cases and Strategic Partnerships  

How will your coin be used on your platform? Can your platform be used without a coin? What are the incentives for someone to hold and spend your token in the short and long-term?

The promise of a crypto asset increasing in value over time is a worn out use case. Your token must strike a balance between providing short and long-term incentives for using their coin. The strategic partnerships created by ICOs gives more context and will make ICOs’ potential use cases, REAL. Ripple loans or discounts their XRP token to exchanges and banking institutions as a way to drive up their adoption.

      7. Legal

The SEC and other government agencies have been busy this year (2018) with sending out subpoenas and shutting down scam ICOs and unregistered tokenized securities. Your ICO project should be doing everything in your control to be as legally compliant as possible. Hire a law firm or SEC law specialist and work with them to make sure you are legally compliant.

In part one, I discussed the key components of token economics. In part two, I will discuss my favorite token economic models. I would like to thank Blackchain for proofreading this post. If you have any recommendations on my analysis, feel free to share. I am not a financial advisor, and this is not investment advice. If you are interested in learning more about crypto. Subscribe to my newsletter here for latest crypto industry updates.

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Why So Volatile?

Everyone knows that crypto prices are volatile. But why?

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Exchange, Software, Human & Government volatility triggers are the triggers that influence the movement of the Information Curve (i.e., price movements).  In this post, I will go into detail about how each volatility trigger causes crypto asset prices to have volatile downward and upward swings. All volatility triggers have both positive and negative impacts on crypto-asset prices.

4 Volatility Triggers Categories:

  1. Exchange Volatility Triggers
    1. Forced stoppage - When an exchange is unable to support trading demand or supply, they will limit transaction volume.
    2. Transactions fee - Crypto-exchanges use this as their main or even revenue generating
    3. Withdrawal minimums - They are used to keep crypto-exchanges’ liquidity high and stable
  2. Software (Blockchain or DAG) Volatility Triggers
    1. Blockchains’ (or DAGs’) maximum amount of transactions per second-Crypto traders are unable to get their transactions verified and could lose their coins under certain circumstances.
    2. Transactions fees - Used to incentivize miners to verify transactions for “Proof of Work” consensus Blockchains. In Bitcoin’s case, it was cost prohibitive. Bitcoin fees reached $50+ during it’s Dec. 2017 price peak.
    3. Hard Forks - The offshoot of an existing crypto-currency and it’s underlying blockchain. For example, Bitcoin Cash is a hard fork of Bitcoin. Most hard forks are done by miners to make more money with a new coin with less mining competition (i.e. they can make higher fees or mine newer coins for profit, quicker)
    4. Soft Forks - Infrastructural improvements to an existing Blockchain (or DAG) that are backward compatible
  3. Human Volatility Triggers
    1. Human errors
      1. Emotional Trading - A majority of crypto traders trade on pure emotion. When they see “extreme” price movements, they act on it without adequate short & long term investment strategies.
      2. Misplaced private keys - Private keys can be lost if they are printed out, and you forget where you saved the physical copy of your private keys
      3. Failure resetting hard wallets - Hard wallets such as the Ledger, should always be reset to factory settings if you purchased a used one. It’s always safer to purchase a new hard wallet directly from the manufacturer.
      4. Bot Trading — Automated put, sell clauses used to minimize losses and maximize trades

    2. Hacking
      1. Phishing attacks -Hackers purchase a dummy URL (Hackers purchases Bitcin.org vs Bitcoin.org) setup a fake version of an ICO’s website and ask crypto investors to submit cryptocurrencies to their wallet.
      2. Phone porting attacks - Hackers steal your mobile phone number and use it to gain access to crypto-assets via mobile apps.
  4. Government Volatility Triggers

1. Laissez Faire Regulation - Regulation that protects all vested parties from fraud or increases adoption and usage of blockchain and cryptocurrencies.

2. Extreme Regulation - Regulation that hinders blockchain and cryptocurrency adoption.

Examples of Each Crypto Volatility Triggers:

  1. Crypto Exchange Breaker  

    Positive Price Swing - In December 2017, Binance, Coinbase, Gemini, and other exchanges, either froze new user registrations or had extended periods of delayed KYC processing. This was due to them not being able to efficiently process requests as well as not having proper fraud detection systems in place. This added to the feverish popular sentiment that drove FOMO and caused the crypto market to jump close to $900 Billion market cap. I felt it would be useless to show the same graphs over and over again. Suppressed demand will always produce more FOMO and drive crypto prices up.  
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                                    On January 7th, the peak crypto market capitalization was $813+ Billion

Negative Price Swing - On Wednesday, December 20th, 2017, Coinbase halted Bitcoin Cash (BCH), a Bitcoin hard-fork. Coinbase was unable to handle the huge trade volume and decided to pause BCH trading.

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The BCH popular sentiment dropped by 78% after Coinbase paused BCH trading

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At peak price on GDAX (Coinbase), BCH was listed at $8500 which was three times higher than other exchange. On January 8th, 2018,  BCH’s price fell by $591.89.

  1. Software (Blockchain or DAG) Volatility Triggers

Positive Price Swing - Coinbase and Bitfinex implemented the Segwit update. Segwit is supposed to lower BTC transaction fees and processing times. For those benefits to be truly realized, 95% of BTC transactions must come from Segwit activated BTC wallets. This has contributed to BTC gaining more dominance, which shows how much of crypto-asset market capitalization is attributed to BTC market cap.

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Since, their announcements on February 20th, 2018, BCH price has fallen by 8% or $116.04, and BTC’s dominance has increased to 39% up from 37% as of January 1st, 2018. This means crypto-traders are transacting in BTC more readily.

Negative Price Swing - Since, the Coinbase and Bitfinex announcements, BCH price has fallen by 8% or $116.04. BCH was created because the Bitcoin Core group could not agree on the best implementation of faster transactions. This soft fork has the potential to continue lowering the value of BCH as it takes away the main reason to use BCH, cheaper transactions. In the short term, I see it being used less (and becoming cheaper). Both Litecoin (LTC) and BCH were created to allow for cheaper transaction fees. With the Segwit update, from a technical standpoint, it makes them less viable. The drop in their individual domainances rates, shows they are being used for less (fewer or higher value) transactions.

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Both LTC and BTC’s popularity as shown on Google Trends has been on a downward spin. On January 1st, 2018, BCH’s dominance was 6.83%, and now it sits at 4.85% dominance. Which is a signal crypto-traders are using it less to move their money.

  1. Human Volatility Triggers

    Positive Price Swing - Coincheck was hacked, and hackers stole $650 million worth of NEM. Afterwards, Coincheck contacted NEM developers, and the NEM developers developed a color-coding mechanism for tracking and identifying lost or stolen NEM.
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Surprisingly, after looking at the price data, it shows that crypto-investors started to purchase more NEM. I guess that some savvy investors purchased NEM as it’s price dipped, increased “popularity” caused new investors to buy more NEM or lastly, NEM’s newly created tagging system caused the short-term trust to increase a (“positive” swing in sentiment) hence, driving up NEM’s value up momentarily.   

Afterward, NEM’s popularity and prices started and continued to decrease in February 2018.

Negative Price Swing - Coincheck, a Japanese crypto exchange, was hacked for $650 million worth of NEM. As a result, Coincheck, froze withdrawals, an exchange breaker, to limit more NEM from being stolen or lost and to limit a “bank run,” and as a result, NEM’s price was $.81 on Friday, January 26th and as of Thursday, February 15th it is $.57.

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NEM’s popularity increased after news broke out about Coincheck being hacked. After analyzing the negative price movement, it shows that the increased popularity was “negative” (investors looked down on NEM) causing crypto-investors to sell off or avoid buying NEM. Crypto-exchange hacks rarely involve the underlying crypto-coins’ blockchain or DAG being damaged, however, most crypto-market participants do not understand the underlying Blockchain technology, causing irrational price swings. After February 3rd, 2018, NEM’s popularity decreased down to a 33%.

  1. Government Volatility Triggers

    Positive Price Swing - Venezuela launched Petro, the first state-sponsored security token backed by their oil deposits. Venezuela’s president, Nicolas Maduro, announced that $5 Billion worth of Petro had been sold during their pre-sale. The coin has not been listed on any crypto-exchanges, and there is no information about prices on Coinmarketcap.
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The popularity of the coin peaked the 3rd week of February-the middle of their pre-sale. This was driven by popular media coverage (outside typical crypto media outlets): BBC, CNBC, Reuters and The Washington Post. I am expecting the Petro to retain at least 50% of it’s pre-sale value and we may even see a 300% - 400% uptick in price, as new ICO coins tend to be “pumped and dumped” by strategic investors.

Negative Price Swing - South Korea’s plan crypto-currency trading, caused the crypto-markets to lose value. It is widely known, South Korea along with Japan and China are the biggest drivers for crypto-asset markets, driving up the value of the entire market.

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After the announcement, BTC’s popularity and total crypto asset market cap both fell by almost 50%.

Observations:

  1. Higher BTC dominance is analogous to altcoins becoming bargain buys. Strategic investors are consolidating their profits into BTC.

  2. Lower BTC dominance is analogous to altcoins being better bargain buys. Strategic investors are keeping their altcoins bets in place.

Prediction:

Decentralized exchanges will increase price volatility because more trades will be tracked and triggering more emotional (or reactive) trading.  If you have any recommendations on my analysis, feel free to share. I am not a financial advisor, and this is not investment advice.

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I would like to thank Kingsley and Blackchain for proofreading this post. If you have any recommendations on my analysis, feel free to share. I am not a financial advisor, and this is not investment advice. If you are interested in learning more about crypto. Subscribe to my newsletter here for latest crypto industry updates.

Donate to help fund further crypto-economic analysis:

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