Author: Matthew Dawson, Token Economics Design, Outlier Ventures; Dimitrios Chatziagnoustou, Head of Investment, Outlier Ventures; Jamie Burke, Founder and CEO, Outlier Ventures; Translated by: 0xxz@黄金财经
The Concept of Token Gravity
In the rapidly developing blockchain and cryptocurrency space, a powerful new force is emerging: Token Gravity. Token Gravity was first proposed by Outlier Ventures in 2017, and it has become increasingly important as the blockchain space matures. It started as a theoretical framework for understanding the integration of digital assets, and can now be observed in how capital and community dynamics affect the growth of tokenized ecosystems.
"Token Gravity" describes the gravitational pull that large, well-capitalized tokens exert on small tokens, attracting them into a unified orbit. Just as planets attract objects into orbit, large tokens attract small tokens through their economic scale, which includes liquidity, market presence, technological competitiveness, culture, and community participation. As these tokens grow, their gravitational pull becomes stronger, influencing smaller projects to align with or integrate into their ecosystem.
Token Gravity is driven by three main forces: capital - providing liquidity and stability; community - fostering network effects and brand loyalty; and technology - enabling value creation and growth. While capital often plays a leading role, the synergy between community engagement and technological innovation is what sustains gravity in the long term. This trend is unfolding in real time, as seen with the merger of the Alliance for Artificial Intelligence (ASI) in the Outlier Ventures portfolio. In this case, multiple projects unified under a single token, leveraging shared liquidity and market influence to create a stronger, more integrated and dominant ecosystem.
Token Supply Walls
The cryptocurrency market is facing a serious challenge: an impending oversupply of tokens that threatens to outstrip existing demand. This influx is creating a fierce competition for attention and capital between new and existing projects. With the barrier to entry for issuing new tokens lower than ever before, the market is experiencing a surge in token issuance. Thousands of new tokens, each with a unique proposition, are vying for the market’s limited attention and capital. In this crowded space, many projects are struggling to stand out, leading to a growing number of undercapitalized assets.
The surge in new tokens is creating a Darwinian rarefaction in the market. Projects with thin capital reserves, poor liquidity, and limited community support are under increasing pressure to stand out or face extinction. Only those with strong collaborations, capital support, robust infrastructure, and strategic alignment with the larger ecosystem will be able to withstand the forces of competition.
For new projects, survival depends on strategic choices. Many projects will seek to integrate with larger ecosystem players, leveraging their liquidity and infrastructure to gain a foothold in the market. Others may focus on building a niche community and developing unique technological advantages to differentiate themselves. In either case, dealing with this oversupply requires a careful balance between short-term growth strategies and long-term sustainability. By understanding these dynamics, founders and investors can better position themselves in a market increasingly dominated by large players. Recognizing the challenges posed by this wall of token supply is the first step toward prosperity in an environment where partnerships and strategic alliances have become critical to success.
The Rise of Category Tokens
As the cryptocurrency market matures, a new class of digital assets is emerging: Category Tokens. These are large-cap tokens that are de facto representations of entire industries and serve as anchors for liquidity, community engagement, and technological innovation. Category tokens provide a cohesive framework for smaller projects to build on, resulting in a more organized, integrated market structure.
Category tokens offer a more efficient way to centralize economic activity than hundreds of niche tokens competing for visibility and liquidity. They provide a strong infrastructure, including deep liquidity pools, a mature community base, and competitive technology, making it easier for smaller projects to integrate into existing ecosystems rather than building from scratch. Improvements in blockchain technology that have facilitated easier interoperability, such as cross-chain compatibility, are a driver of growth in merger activity.
Category tokens act as hubs that generate network effects, and the value of the network increases as more projects integrate. These network effects make it increasingly difficult for smaller tokens to compete independently, as aligning with a category token enables them to leverage a shared user base, liquidity, and market influence. Over time, this consolidation will lead to more efficient and interconnected market sectors. While consolidating smaller projects into category tokens can drive growth, it is not without challenges. Coordinating governance models, ensuring fair value for all participants, and maintaining technical compatibility can be complex. Additionally, some projects may resist consolidation in order to preserve their autonomy and the potential for token value growth, even if it means facing greater competitive pressure. Despite these challenges, the appeal of category tokens remains strong for those seeking faster access to liquidity and user networks.
Memetic value, the ability to capture attention and mindshare, has increasingly become a driver of a token’s success. In a market where differentiation is increasingly difficult, “everything is a memecoin to some degree,” as Jamie Burke, founder of Outlier Ventures, puts it. This means that tokens often rely on their ability to generate hype and momentum, which ideally would be supported by fundamentals, but which are often missing. Tokens also compete for attention among their peers, a battle driven primarily by community engagement and social visibility. In the absence of fundamental analysis, many investors will choose to invest in a token not because of its intrinsic value, but because they believe others will, too. This chicken-and-egg situation once again puts category tokens at the forefront, as projects require investment to prove their value, which can only come if there is widespread market interest. The speculative nature of the market therefore amplifies the importance of meme value, and tokens must not only have strong fundamentals but also successfully attract attention.
Token Gravity as a Strategic Moat: The Role of Capital, Community, and Technology
Token Gravity creates strategic moats in Web3, drawing projects into its orbit through a combination of capital strength, community engagement, and technological integration. These elements combine to transform larger tokens into powerful hubs that shape the dynamics of the crypto ecosystem.
Capital is the cornerstone of Token Gravity, enabling tokens to secure deep liquidity pools, attract institutional investors, and fund strategic partnerships or growth through mergers and acquisitions (M&A). This financial strength enables tokens to create a flywheel effect, where greater liquidity and investment attract more users and investors.
Culture is a force that sustains and amplifies a token’s gravity. As Vitalik said, “Culture has a similar effect to incentives — in fact, culture is part of the incentives. It influences who is attracted to an ecosystem and who is repelled”. An active and loyal user base is not only a source of network effects, but also a driver of organic growth. These communities unite around tokens, creating a sense of belonging that attracts new users and projects. For smaller projects, aligning with a strong community can be the difference between obscurity and accelerated adoption.
Technology is the backbone that enables seamless integration and enhances interoperability within a token ecosystem. Tokens with well-developed technical frameworks can make integration easier, but these technical advantages must be matched with capital to foster growth and community support to maintain user engagement. Projects often face trade-offs, and technically superior protocols can lose out to well-funded competitors with larger communities, highlighting the need for a balanced approach.
The real strength of Token Gravity lies in the synergy between capital, community, and technology. When these elements come together, they create a self-reinforcing ecosystem that attracts new projects, fosters innovation, and drives long-term growth. This dynamic enables smaller tokens to gain access to liquidity and infrastructure, while larger tokens solidify their roles as foundational pillars of the decentralized economy and shape the future of Web3 through strategic M&A.
Institutional Shift
As token consolidation reshapes the market, demand is shifting from retail-driven speculation to strategic, long-term investments by institutions. Institutional capital is flowing into tokens with deep liquidity, strong governance, and stability, qualities that make category tokens a desirable target. Institutional investors prioritize deep liquidity, a secure investment environment, and consistent market depth, seeking assets that can accommodate large trades without significant price impact. Unlike retail investors, who are often attracted to speculative tokens, institutions focus on assets that offer long-term stability and growth potential, making category tokens their preferred choice. This shift creates a feedback loop: as institutional capital flows into category tokens, it deepens their liquidity and increases their market value, further enhancing their appeal. This growth attracts more investment, solidifying their dominance and expanding their influence across the market.
Category tokens have the potential to operate like index funds in traditional markets, providing a simple and efficient approach to sector allocation. As categories mature, the leading tokens in these sectors become increasingly representative of their entire niche market, much like an ETF or index. For institutions, investing in category tokens can streamline the investment process. Rather than trying to pick individual winners in sectors where liquidity and maturity risk is higher, institutions can allocate capital to tokens that capture the economic activity of the entire category. While many tokens are caught in a race for meme value, we believe certain categories will break free of this dynamic because of their connection to a real-world data component (i.e., DeAI, DePIN, and RWA). These categories have a stronger connection to tangible, measurable data and use cases, which will increasingly attract the attention of retail and institutional investors. Token Gravity Case Study: ASI Merger As the world’s oldest, most active, thematically aligned accelerator, Outlier Ventures has seen the dynamics of Token Gravity unfold firsthand. A notable example in OV’s portfolio is the ASI merger, where fetch.ai, SingularityNET, and Ocean Protocol merged into a unified token, making ASI dominant in its category. This merger is just the beginning, and ASI will continue its merger strategy with the addition of CUDOS.
The merger with ASI illustrates the power of Token Gravity in the real world. By pooling resources, capital, and market influence, ASI is evolving into a category token, attracting smaller projects into its ecosystem and solidifying its leadership in the space. This trend is not limited to ASI. We observe similar consolidation patterns in sectors such as DeAI, DePIN, and Real World Assets. As these sectors mature, the gravitational pull of well-capitalized tokens will continue to grow, driving further consolidation, integration, and industry growth.
The Future of Token Mergers
The future of the token economy is being influenced by Token Gravity. As the market matures, a few dominant category tokens will continue to attract capital, projects, and users, resulting in a more stable and interconnected ecosystem. This shift presents opportunities for both established players and new entrants, but it also requires strategic adaptation.
Capital liquidity is a major component of Token Gravity. Listing on a major exchange can be prohibitively expensive and take years to achieve, a timeline that will only lengthen as exchanges become more selective. This creates a significant barrier for new entrants, even if they have superior technology. No matter how innovative a project is, it takes considerable time to build the necessary infrastructure, exchange listings, liquidity pools, and partnerships. Institutional investors require deep liquidity and reliable infrastructure. With this in mind, new entrants face an uphill battle to gain a foothold in the market. They need time to build the capital, community, and liquidity to compete with larger, more established category tokens. Token gravity, therefore, benefits incumbents who already have the necessary moats that allow them to continue to attract attention and capital over time.
For larger tokens, the focus should be on leveraging their gravity to drive growth and absorb innovation. At the same time, new projects must navigate the complex landscape by either integrating into an existing ecosystem or building a unique value proposition and culture that can thrive on its own. Understanding these dynamics is critical for both founders and investors. Those who can align their strategies with emerging consolidation patterns and adapt to the changing market will be best positioned to thrive in the next phase of the decentralized economy.
In upcoming posts, we will dive deeper into the practical aspects of Web3 M&A, examining the latest trends and strategies from the perspectives of both established players seeking to drive growth and new entrants aiming to carve out a niche in the space.
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