Token/Market Fit. What can we learn so far?

March 20, 2019
ethereum makerdao binance tokens bitcoin

Token/Market Fit. What can we learn so far?

The most important feature everyone missed about cryptocurrencies is the birth of economies outside of government control

Economies are going to start meaning something entirely different in the 21st century. They’re going to be physical (countries) or full digital (cryptocurrencies). In this post we’re going to be talking about the new digital economies, often represented through the use of a token.

Tokens are a fundamental innovation created by cryptocurrencies. For a lot of projects, the price of the token and the ecosystem built around it are extremely crucial since it’s usually the main “business model”.

Token/Market Fit

Token/market fit is the term used to describe tokens which have:

Failing to achieve token market fit often means the price of the token plummeting to extremely low levels which in turn can erode faith of early token holders, unless there are other factors such as a clear use case and a strong community.

One important thing to note is that token/market fit is different from product/market fit as shown through some examples later on in this essay. A product can gain traction in the crypto community but fail to capture the value created by it in the form of a token.


So how many projects have achieved this elusive goal? 4 exactly. Here’s a brief explanation of their histories and what qualifies them:

  1. Bitcoin: the first token (coin) to be ever introduced to the world. The use case for Bitcoin was clear: censorship-free digital money. Since its initial launch the price appreciated has appreciated from close to 0 to over $20,000 at its all time high. Bitcoin has an extremely large community of developers, users and investors globally who believe in the values represented by Bitcoin.
  2. Ethereum: the first fully developed, turing-complete scripting language on top of a blockchain. Ethreum enabled use cases which weren’t possible before it. As a result the native token Ether, has appreciated from $0.30 (ICO price) to over $1,000 at its peak. Like Bitcoin, Ethereum has a very strong community built around it and has spawned a new type of financial sector on it which is gaining traction. It’s also the native currency which allows other developers to execute computations and deploy custom contracts.
  3. MakerDAO: Built on Ethereum, it provides the need to transact in a stable-currency as dealing with Ether creates complications. Maker didn’t do an ICO and instead chose to gradually sell tokens over the past 3–4 years in private deals. In addition, the eco-system around MakerDAO’s stable coin is incredible. Everyone from wallet makers, financial companies, exchanges and protocols depends on their stable coin in their projects.
  4. Binance: Also built on Ethereum. Its initial use case was to subsidise trades on their central exchange if you held the token. Slowly Binance has built more use-cases into the token creating a healthy ecosystem around it. Since its ICO Binance has netted investors over 200x times their investment. Binance’s token doesn’t have as strong as an organic community compared to the other tokens but it has a lot of traders on its platform which in turn creates and retains the demand for the token.

What can we learn?

An interesting aspect to explore is commonalities, differences, challenges and degrees of centralisation all of these projects have. A lot of projects and investors in the space can learn a lot by studying these projects closely in my opinion.


Tokens and money are backed by one thing, and one thing only, people’s belief. It’s for this reason that a strong community or champions is crucial for any type of new currency. Bitcoin, Ethereum, MakerDAO have natural communities which have supported them over long periods of time while Binance has a strong, loyal customerbase. The communities which have now formed around these tokens are extremely loyal for two reasons: the value they’ve created and appreciation of the asset itself. A lot of people claim price should be a taboo topic but the reality is if any of these projects netted losses for their early investors they probably wouldn’t have the type of communities they’ve built up today.


What separates all of these projects you may ask? Well, they’re all radically different in how they launched. Bitcoin is the most “organic” of them all with Satoshi mining the first 5% himself and then leaving the project to be governed in a decentralised manner. MakerDAO is probably the next most organice launch as it didn’t do an ICO and instead chose to sell tokens under the counter and market-make their MKR token via their own DEX. Their token doesn’t trade on major exchanges as holding the MKR token has important governance consequences. Ethereum is more “centralised” in that regard with over 71% being pre-mined for investors, the Ethereum foundation and the team. However the inflation reduces this initial distribution and generated coins go straight to miners. Binance did an ICO and is the golden-child of the class of 2017 ICOs. They sold 50% of the supply publicly, 10% went to seed-investors and the remaining 40% is held by Binance. Binance is the most “centralised” out of all the coins.


Each model seems to have its own challenge associated with it with Bitcoin arguably having the hardest launch strategy as it was purely organic and selflessly motivated. Satoshi has never revealed himself since disappearing and his coins haven’t been spent. For him, Bitcoin was a political statement against the large banks and global financial crisis. Ethereum, Binance and MakerDAO were all started by entrepreneurs looking to bring their creation in the world but also be appropriately rewarded for it. Ethereum, like Bitcoin, was special in the regard it was a fundamental new paradigm shift. Rather than just keeping state of a financial ledger, you can keep state of computation. Ethereum and Binance’s ICOs were done at opportunistic times where markets were willing to purchase tokens. However, the challenges in launching a chain and token are worlds apart. The launch of Ethereum required an entire stack of technical tooling that couldn’t have been possible without the large organic developer interest. Binance on the other hand wouldn’t have been able to execute as strongly on their strategy if they weren’t one of the highest grossing exchanges in the 2017 bull run. The hardest bit in MakerDAO’s model, in my opinion, is finding token investors who are comfortable holding an illiquid token with high technical risk for a few years (Maker launched 3 years after its initial birth) .

Centralisation vs Decentralisation

Centralisation vs Decentralisation is a widely and fiercely debated topic. Ultimately it seems to be the wrong thing to focus on in currency/market fit evaluation. The two things we should be asking is their product market fit and does the appropriate token capture that value. Two projects which I’ve left out in this essay are 0x and Brave Attention Token. While both have outstanding product teams, both of their tokens fail to capture the subsequent value produced. Both tokens (BAT and ZRX) have given less than 5x returns to ICO investors (which is still good in absolute terms but not relative). Binance is probably the most interesting token as it only works on Binances’s centralised exchange and doesn’t fit the traditional ethos of crypto. However they created large amounts of value and captured enough value into the token. It’s also interesting because Binance is the first successful payment token. This makes me wonder whether utility tokens are actually dead or most were too early for their time in 2017. Maker is only centralised by it’s price oracles but for the most part is pretty “decentralised”. They have a similar burn and mint model to Binance where CDP fees are paid in the MKR token then burned. I expect this kind of “equity” buy-back token model to become ever more prominent.

Final Remarks

Each token is best thought of as an economy. Traditional economics has been very limited in experiments due to the costs of failure being famine, death and poverty. Tokens allow us to experiment with economies with capital being the only lost resource. 2017 was a very important year for crypto as it was the first appearance in mainstream media which led to a speculative craze. Most tokens were scams but that doesn’t mean they’re over. There’s still plenty more experiments and winners to see than the current 4.

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