What is a crypto project and token?
In Web3, companies are known as “projects”. This allows people to forget that they are running actual companies. What does this mean? It means you need to understand business, financials, legalities, operations, marketing, and everything in-between, just like in Web2.
One of the most common mistakes made by founders is the assumption that a token replaces the need for revenue. Tokens do not replace the need to generate revenue and merely act as an additional element of your business or as a method to capture revenue. You can learn more about tokens here: https://www.simplicitygroup.xyz/blog/token-utilities-explained
So, the first step in launching a token is having a business. Once you have that figured out, then you can move to step 1.
Note: although we put things in a rough order, it is important to mention that projects can begin looking for backers, development, and marketing almost from the very beginning if it makes sense.
Once you have a business, you need to visualise how the value flows within it. Do people pay you money for a product and that’s it, or can they interact with each other? Do users have multiple things they can spend money on? Are there loyalty programmes? Do you give users discounts? Do people need to deposit collateral to do stuff? All of these are value flows.
Next, consider which of these you can tokenize.
You can’t use the token to create a new value flow. I.e. if you’re not already rewarding users with something, you can’t start rewarding them with a token that isn’t used for anything. Read the token utilities article if you’re still stuck, or reach out to us.
Once you figured out what you’ll be using your token for, you need to find the right token standard for the utilities you have decided. For instance, a token used to transfer loads of data may be better as an NFT, whereas a medium of exchange can be a standard fungible smart contract or a new smart contract which gives the developers rights over transactions (could be useful for games.) For Ethereum, we have an article outlining the most common ones for your perusal, here.
Once you have that figured out, you move on to designing the token economy.
Note: your token purpose and corresponding utilities should be the foundation for your future token strategy. We’ll circle back to this topic in stage 7.
Now that you know what your token will be used for, you can derive some utilities from that. If you’re tokenizing discounts, then the token’s utility is “Holders get discounts”, plus whatever else you think would benefit users.
Then you move on to the economy. To read more about token economies, view are article here, but the TLDR is that you visualise how the value flows in your ecosystem by mapping out all the actors, their interactions, and what vehicle they’re using to transfer that value (token, fiat, action, etc.). This gives you an idea of who’s buying the tokens, who’s selling, who’s trading, who’s holding; combine this with your financials and you can estimate how much buy pressure the token will face.
Then, and only then, you move on to the tokenomics - the rules that govern the supply side of the token. To read more about how to create tokenomics view are article here, but a similar TLDR is that you want to unlock tokens at a similar or slower pace than you expect them to be bought up. On top of that, you need to factor in investor appetite, liquidity, and general industry standards and optics; all explained in the article.
Realistically, from this point on, you can start continuously reaching out to investors, advisors, and partners to keep progressing the company forward given your initial ideas are put onto paper for them to see.
Crucially, the equity valuations and tokenomics are likely going to be adapted due to progress in the development of the product (more information on your users, new utilities leading to new tranches, etc.) as well as due to change in the appetite of your backers. This means your first set of tokenomics is likely going to change, and that’s okay. Just make sure you’re not peer pressured into changing tokenomics detrimentally - for instance, if VCs are asking you to shorten vestings that are already short per your financials, find new VCs if you can.
With your tokenomics and token economy designed, you are ready to move on to the legal elements surrounding your token. This is typically done via a legal opinion from within a particular jurisdiction of your choice. A legal opinion does two things:
Jurisdiction
Your tokens do not need to be issued under the same company that everything else is operating under. You can create a new entity known as a Special Purpose Vehicle (SPV) or other synonymous term in a legally-loose jurisdiction like the Cayman Islands, Seychelles, British Virgin Islands, or whatever else, which will be the entity that is legally responsible for the token.
The legal opinion needs to be issued by a law firm within that jurisdiction. However, and you need to speak to lawyers about this, the location of potential token buyers is also very important: if you’re targeting Binance US and Coinbase US, but your token issuance entity is based in Cayman, you still need legal opinions from American lawyers because that’s where the buyers are.
Once you get the legal confirmation that your token economy is fine, you can start building parts of your project that are intertwined with the token - such as liquidity pools, bridges, etc. It is nearly always important to have someone tech-savvy on the core team, and projects can either scale their internal teams or outsource to external agencies.
Furthermore, at this point, you need to get a smart contract audit. This audit will confirm to you, your backers, and your community, that your token contract is safe from external and internal threats and interference.
You can begin marketing and community building sooner as we mentioned before, but now that everything is in order, you can take it up a gear.
Marketing for crypto projects is a multifaceted endeavour, where traditional advertising blends with innovative strategies tailored to Web3. With monthly expenses sometimes reaching hundreds of thousands of dollars, it's crucial to invest in tactics that not only reach but also resonate deeply with your target audience. For this, you need to be in tune with who your users are going to be, which is why step 1 is so important.
If you’re targeting degen traders, your marketing tactics should be aimed towards them. For example, you need to target Telegram, use guerrilla techniques like airdrops and community-invading campaigns, and put a brand focus on earning capital.
If you’re targeting the unbanked in an inflation-rampant country, you need to target local newspapers, use techniques like PR and founder brand image, and put a brand focus on the legal safeguarding you took.
You need to consider each element of the token launch, and then decide on the optimal launch strategy. Once the strategy is in place, begin reaching out to the necessary parties.
You have to consider the exchanges, the release onto the market, and subsequent entities.
a. Exchanges
DEXs or CEXs? Age-old question. Depends on many factors, but the high level is this: do you have enough liquidity to warrant a CEX? CEXs charge money for listings, and have stipulations such as, “Falling below launch price for 3 months will get your token delisted.” is your token ready?
Benefits of launching on a CEX: easier for your users to trade the token, extra marketing and clout, and legitimises the token.
Benefits of launching on a DEX: no fees, no stipulations, and no market makers with their own agendas (will touch on this later).
b. Release onto the market
How are your tokens hitting the market, and more importantly, your users? Are you planning on airdropping the tokens to users, or directly listing them on exchanges, or selling the tokens directly to the users, or any combination of these strategies?
Furthermore, if you’re planning on selling the tokens, are you going to conduct an ICO (sell from your own website), or an IDO/IEO (sell via an exchange), or are you going to go through launchpads (which are basically escrows/community VCs), or all at once? They’re similar, but with slightly different implications; read more here. To add to this, the tranche that governs this public-facing token sale doesn’t have to be static, which can add extra factors to consider for launch; read more here.
The answers to these questions depend on, you guessed it, your business and token economy, as well as the legalities (discussed in the strategy section below).
c. Subsequent entities
We already mentioned launchpads above, but there are also market makers and token management entities.
Market makers (MMs) are entities that, well, make the markets - they own the order book and connect the buyers and sellers. They come in different varieties. Given DEXs are built upon AMMs (automatic market makers), MMs used to be used only for CEXs, but nowadays there are some MMs on DEXs that help facilitate specific liquidity strategies if you want to take a more advanced approach to DEXs.
Token management entities allow projects to distribute/vest tokens without trusting the tokens with anyone else via smart contracts, or by acting as a custodian. They enact the distribution of the tokens based on the allocations and vestings, as well as generally help you manage the token allocations. This adds legitimacy to your company by adding a layer of relative trustlessness since a third, unbiased party, now manages or holds the tokens. However, equally, a smart contract audit can facilitate this level of trust if there are no backdoors within the code, or if vestings are coded in.
Your business, token economy, and legal opinion should give you an understanding of how to take your token to market. Fundamentally, just think logically about what makes sense, and speak to your token economists and lawyers.
a. Business
As mentioned in the marketing section, depending on your business and its goals, your token launch should be in line with your users. If you’re targeting Web3 degen traders, then it makes sense to go for top-tier launchpads, get influencers onboard, and try to get onto a popular CEX.
b. Token economy
Your token utilities and economy will determine your launch strategy also because some utilities require particularities. For example, if your token acts as tokenized equity, and you’re open about it being a security, you need to launch on KYC exchanges (nearly all CEXs and some DEXs) and will likely need a licensed custodian. This also means you likely can’t use launchpads as the retail buyers are not accredited investors.
Also, it depends on whether you’re fundraising with your token or are creating it purely for the benefit of your community: if the former, it makes sense to have an ICO/IDO/etc. to raise more capital, if the latter it makes more sense to directly list on a DEX and let natural buying and selling occur.
c. Legal opinion
If your token could be considered a security based on the American Howey Test, you can’t launch on a US CEX like Binance US without the necessary documentation; a non-KYC DEX may be better.
Similarly, if your token can be considered a security in the UK, using an FCA-regulated custodianwould be necessary.
Ensure you keep an eye on your liquidity, token price, and overall economic health. Enact changes as you see fit; for instance, utilising economic levers like taxes, fees, redistributions, rewards, penalties, and other stuff, to incentivise ideal behaviours. If your liquidity gets low on one exchange, consider moving liquidity from elsewhere or delisting to prevent high slippage.
Moreover, effective treasury management post-launch is key to maintaining financial stability and ensuring the longevity of your project. This involves strategic allocation of funds, risk management, and possibly reinvestment strategies to support ongoing growth and stability.
We understand that each of these sections goes much, much deeper, but we hope this high-level overview provided a sufficient guideline on how to approach the journey of your token from ideation to launch. If you need guidance at any stage, reach out to us on Telegram - Alex or Daniel.
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