Author: Dovey Wan, Founder of Primitive Ventures Source: medium Translation: Shan Ouba, Golden Finance
Tokens represent a financialized belief system, where volatility is the most powerful market strategy. Many founders new to crypto adopt a bottom-up, milestone-based mentality similar to that of tech startup founders, believing that as long as meaningful value is created, prices will eventually rise. However, the growth trajectory of successful crypto projects often follows a different sequence:
Price leads emotion.
Emotion leads narrative.
Narrative leads cognition.
Cognition leads community.
Community leads adoption and protocol market fit (PMF).
Dumbbell Distribution and the Sunk Cost Fallacy
Crypto embodies the intersection of financial populism and technological libertarianism. The optimal distribution strategy for tokens is a dumbbell distribution, targeting the two extremes of the user spectrum - core users and fringe users, from IQ 150 to IQ 50. This approach constitutes the upper funnel of belief formation. Many founders try to limit the initial token supply to avoid "selling pressure", but usually fail to achieve growth in the upper funnel. One must first successfully attract one end of the spectrum before expanding the dumbbell.
In its early days, Bitcoin served either core users (cypherpunks, miners, and billionaires seeking to avoid wealth redistribution) or fringe users (ordinary people in a broken local currency system or those who want to circumvent sanctions or capital controls). Early DeFi also followed this pattern, best serving crypto-native core users (self-custody enthusiasts, whales seeking transparent transactions, massive long-tail asset issuance) or marginal users (those without good access to centralized exchanges or financial infrastructure, driven by the "price increase" narrative). The vast middle group remains apathetic or poorly incentivized due to high psychological and product switching costs.
For core users, the opportunity cost of not adopting crypto is too high. For marginal users, the opportunity cost is small, so they are more likely to try.
In the token economy, most "miners" are highly mercenary in nature, influenced by their level of sunk costs. The higher the sunk costs, the closer they are to core users. Pre-ASIC Bitcoin miners rarely retain coins because there are no substantial sunk costs to recover. Post-ASIC miners retain coins to cover their sunk costs and operating expenses. PoS stakers hold coins as an opportunity cost of capital. The less productive a PoS coin is, the harder it is to build a strong core user base. Locked airdrops (including TVL locked airdrops) and airdrop farming are the worst forms of token distribution. The sunk costs of these actions are often proof of meaningless work, it is difficult to assess the "cost", and they fail to attract core or fringe users.
Active circulation through volatility
Multiple turnovers through market cycles are the best breeding ground for belief systems and a touchstone for founders' adaptability and commitment. In crypto, these cycles are greatly accelerated, five times faster than traditional finance. This dynamic acts as a natural selection process, with enthusiastic advocates who hold tokens early amplifying the message and spreading it like a mental virus. This shift transforms the environment from player-versus-player (PvP) to player-versus-environment (PvE).
The key to this shift is strong leadership, a positive feedback loop of delivering on promises, and healthy engagement with key members of the upper funnel. This effectively transforms the funnel within crypto. Certain sectors, like memes and NFTs, require even greater attention and mental agility, five times faster than the already accelerated crypto cycle and 25 times faster overall.
For the founders of memecoins, this is a statistical game with a very low hit rate, akin to a roulette wheel spinning wildly. Memecoins play a role in the history of financial populism: they are not the product of financial nihilism, but of financial absurdism and populist movements. Camus said it loud and clear a hundred years ago. Cultural fluidity, identity crises, the twin deaths of traditionalism and modern liberalism, all contribute to a loss of meaning for the modern lonely monkey. Various trends, narratives, and products, from consumerism to internet tribalism, have emerged to fill this void.
So now the narrative and identity alignment within each token becomes a new means of expressing meaning and connecting with like-minded people - similar to how those normally introverted and socially quiet cat lovers in the early days of the internet finally found a way to post photos of their beloved cats. Memecoins, unlike major or VC tokens, which may cling to some grand vision and brand legitimacy, offer a refuge for those who don’t care about “long-term significance”. Only the most ridiculous, short-lived, yet intense dopamine hits can retain this group of warriors who have no other wars to fight (but must release their ADHD energy somewhere). This is a great market fit in crypto, and fits perfectly with its culture of depravity.
This environment is characterized by survivorship bias and extreme power-law distributions, and users and traders are inherently fickle. This is why most tokens have only a 1-3 month lifespan in terms of liquidity and volatility, and very few are able to remain relevant after a cycle. When a token has no liquidity, it dies. Information is entropy, attention is currency. Liquidity is the heart rate variability (HRV) of a token.
Make the Firm Holders Rich
Reward early loyalty generously and build a momentum-driven system to reinforce commitment in this belief system funnel. Imagine a pyramid where the width of its base determines its height; committed holders form the foundation upon which high market caps are built. Price always leads narrative.
Failure to enrich committed holders naturally invalidates the conversion path of this belief funnel, which then becomes PvP instead of PvE. The rewards are not limited to financial gains, but also include identity enhancement, enhanced self-esteem. As a token community rooted in a belief system, you provide social and psychological value by fostering a shared identity among holders. The decline of traditionalism and modern liberalism has left a huge existential void for today's keyboard monkeys. Trends, narratives, and tokens become vehicles to fill this void, providing a sense of meaning and connection: similar to the early days of the internet when normally introverted and socially quiet cat lovers finally found a way to post photos of their beloved cats.
Determined holders are not only for the wealth effect, but also for cultural and belief identification. Wealthy committed holders will further enhance the overall cultural influence of the token, strengthening the belief system and making it more self-actualizing.
Ultimately, tokens represent a financialized belief system where market dynamics, human nature, and psychological biases are not just obstacles to overcome, but fundamental building blocks for growth and adoption. Understanding and leveraging this belief system is critical to navigating and succeeding in the crypto ecosystem. I am always looking for founders who have solid technical capabilities and a deep understanding of human nature. Crypto entrepreneurship is a process that requires a complete mastery of the capital market game, cultural developments, and technological advancements.
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