Dialectical relationship between tokens and project value: Don’t treat tokens as equity

Original author: Xia Ke Zhang

Original source:Uncertain thinking

Today I saw the news that uniswap started charging, and I felt a little cold.

The main reason is that they directly announced events that have a major impact on the agreement without community governance.

Many users have analyzed whether this means that uniswap labs believes that only the protocol layer belongs to the community, while the front-end applications and mobile terminals belong to the project side.

I think they didnt think about these things at all, and voting governance was just a bland acceptance. In essence, they still take the equity entrepreneurship route, or they have not thought clearly about the use of tokens.

Uniswap is the most innovative application in my opinion, but a good application does not necessarily mean that the token is good. Sometimes we subconsciously think of governance tokens as equity.

The first rule of value investing is to buy a share of the ownership of a company.

In the crypto market, buying a token is not equivalent to buying a part of the project ownership. In this market, tokens have more of their own utility.

1. Most tokens have no equity value in the long run and are just amplifiers of emotions.

Good projects do not equal good tokens. Uniswap is definitely a first-rate project but a third-rate token model.

In the traditional business world, if you are optimistic about the long-term development of a company, the way to participate in the secondary market is to buy its equity.

In the crypto world, if you are optimistic about the long-term development of a project, should you buy its tokens directly and hold them for a long time?

The answer may vary from person to person. My current thinking is to look at it dialectically, and the core depends on its token supply and demand structure.

For example, uniswaps token model is issued in large quantities every year on the supply side, but can only be used for governance on the demand side, which is relatively inefficient.

If it is this kind of model, its price trend is most likely related to only two things, one is the fluctuation of the general market, and the other is driven by project-specific events (such as what good news is released).

If this is such a price fluctuation model, then why not buy Ether, which is more robust than it?

2. The utility of tokens is varied, so you must clearly see where its value comes from.

In todays market, there are many projects that still have not issued tokens. For example, Coinbase has an exchange and a base chain, and adopts a traditional equity model. If you want to share its growth income, just buy coin stocks.

Holding protocol tokens like curve and gmx can earn you a share of the protocol revenue, and their utility is very obvious.

There are many applications where tokens are mainly used for cold start, but after the start, the value plummets. For example, various early uniswap imitation disks and various open secondary pools fall into this category.

Some tokens that have no application at all, such as various meme coins, are mainly used for emotional catharsis and speculation, which is also a kind of value.

Like Opensea, it separates governance rights and tokens, so it initially wanted to go public, but users quit, and it didnt go public in the end.

More applications use tokens as a cover for PUA users to use, but behind the scenes they are seeking real money from user fees.

Different values ​​actually correspond to different fluctuation curves, which is the value discovery cycle. If you dont see the value behind the token clearly and only use a buy and hold strategy, you may sometimes be trapped miserably.

3. The blockchain network has its native currency.

If we compare different blockchain networks to different countries/cities, each country has its own currency, and its role is daily circulation, settlement and value storage.

According to this model, both Big Pie and Ethereum are the settlement currencies of their respective network countries, and they follow the logic of monetary value.

There is a wet market in this country with a wide range of products. Does this wet market have to issue currency/tokens?

This is like the early uniswap, which still ran well without tokens, giving birth to the entire liquidity mining boom.

4. Applications built on these blockchain networks do not actually have their own tokens.

But when they develop and grow, they will inevitably want a way to realize value, and issuing tokens is the most direct model.

It’s just that the design of this token model is very critical. For example, uniswap is very worried about supervision, so it doesn’t dare to share the profits, but direct charging has nothing to do with the token, so it dares to do it.

Today there is still no metamask for tokens, the protocol fees are quite high, and many people use it.

Some applications only need to use ETH as the settlement currency and do not need their own token empowerment. The core is that they have found their own product positioning and have rigid needs.

5. Not all blockchain networks need to issue tokens.

There are more than 180 currencies in the world, but after deducting fixed exchange rates, there are only more than 130. Among them, not all currencies can retain their value all the time. For example, the Turkish lira has been on a downward trend relative to the US dollar.

This is like a block volume network. There are many L2s that can directly use Ether as the base currency. Their own tokens are more like Happy Beans, and the value requires additional mining.

Not all applications need to issue tokens.

There are probably more than 40,000 listed companies in the world, and there are 170 million registered domestic companies, of which 114 million are self-employed.

In other words, the number of actual business entities that can share corporate dividends through equity is very, very small.

Just like many blockchain applications, as long as they really meet user needs, people will naturally use them and they can also generate revenue.

For those applications that issue tokens, you must clearly understand its utility, its economic model and supply and demand relationship when purchasing.

Remember, a good application does not mean a good token.