Does Your Project Need A Token?
Short Answer? No.
The Long Answer
We consulted with a startup that issued a cryptocurrency token that allowed a holder to participate in governance, earn fees from the protocol and use the tokens to use the product they built. Did this sound familiar? I’m pretty sure it was. Since this represents 99% of all blockchain startups out there. Your startup could be one of them.
Many of these startups could have succeeded. Their token could have 100x in 1 year. Maybe everyone who bought the token got rich out of it. Does this mean this is a sustainable method? NO.
The Token Paradox
Tokens in these projects fail for a simple reason, they are a paradox. These tokens promise that they would be a currency for the protocol and also promise that they are a store of value for initial investors. Unfortunately, these two never can never co-exist. Did you ever buy 50 dollars in expectation of the amount to go up in value? Probably not. Then why would it make sense for a cautious investor to purchase your tokens that are a currency for your protocol/blockchain to go up in value? Or why would a user spend your tokens if it is expected to go up in value.
This is the reason why Bitcoin failed its initial goal of becoming the currency used for transactions: if its rare and in-demand, why the hell would you even use it? This is why Bitcoin is now the “decentralized gold” and other cryptocurrencies (such as stablecoins) are used for daily purchases.
If a person aims to appreciate the value of their money there are 3 methods: Buy shares, buy assets that appreciate or lend the money.
If you had a certain coin that I told you was going to double in value tomorrow, would you spend it on a bag of chips?
What You Can Do Instead?
Do you want to create a token that investors, users and everyone would value? Think of them as shares of your protocol/blockchain. Each token represents a percentage of the protocol revenue and gives them access to governance (if you deem necessary). This means that your protocol should have a revenue stream that can scale the project and allow it to grow. This also means that the initial ICO should use the funds for the development of the project according to what governance deems necessary (even if it was private). That way your startup would look more like a decentralized company than a scam looking to pump coins to make a quick bag.
For using the protocol, you could either create a token that is used to access the protocol which is different than the initial token (not possible to appreciate in value) or use another cryptocurrency such as a stablecoin.
Personal Opinion
This will be the final form for blockchain projects that will represent decentralized companies with a good business plan and a goal to scale over a period of time.
All others will be going to 0, mathematically.