VC Coin Airdrop and a Brilliant Technological Dream

Source: X, Rui@YeruiZhang

In the period from 2022 to the first half of 2024, the model of strong VC endorsement + large airdrop to the "community" + issuing coins first and then doing things has become the mainstream trend of the market. The ultra-high premium of terminal exchanges in TGE makes their preference determine that this is the most reasonable path. The PVP model of attention in the bear market cycle allows the issuance of large projects to suck blood from the entire market. From APT-SUI-OP-ARB, they are all terrifying monsters that have come out of this path. For these projects, they have gained short-term voice by throwing coins to the community. This is a path dependence, so the way to build an ecosystem is to throw money, to throw money to projects that hope to bring traffic (because they lack the ability to communicate directly with the community/traffic). So we can see that in the past two years, some applications invested by star VCs have been able to gain enough voice in these ecosystems.

Originally, this game of bullying will slowly fade away, and the altcoins will complete a dark-level reshuffle like the 18-20 year cycle. However, with the passing of spot ETFs, the market's money-making effect has returned. These projects continue to explore in their comfort zone, and the market will continue to pay. The two most interesting examples are Sei and Pyth. The runway of these two projects before going online should not exceed 6 months. After going online, good investment institutions + strong track benchmarking + airdrop effect = first launch of a large exchange + super high initial FDV. The former was shipped frantically in OTC after going online, and the latter set a new high after landing on Binance from OK. In essence, the market continues to strengthen the logic under the original valuation model, and as a result, it pushes them to a high position that should not be there. So the bear market in April came. In fact, the market had signs before the bear market. Starknet became the last "king-level project" that could maintain its market value after going online, and ZRO and Zksync became victims of the collapse of expectations and valuation models. Not only did the opening performances were very poor, but the airdrops were also reversed. In essence, the project side saw the decline trend of this gameplay and dared not give so many airdrops (the buying of terminal exchanges is limited). So the negative feedback continued to strengthen, and a vicious cycle began.

Where is the problem? Two superficial reasons are that with the emergence of MEME, retail investors can no longer focus on VC coins; and the increasing number and expectations of short hunters have led to everyone obtaining coins in the initial state through airdrops. No one opened the market to buy, and the project party’s favorable news did not get feedback from the buying side, which became a game of who can sell faster. But the deeper reason is that the terminal exchange found that it was impossible to obtain enough new users through strong VC-endorsed projects + large-scale airdrop activities. The existing situation could not provide enough trading volume.

As a result, there were very few VC projects that performed well in the second level from May to September. However, with Trump’s victory, things took a turn for the better.

There are two types of projects that have returned to the field of vision. One type is the project party that still uses traditional logic to do things. We have seen that APT and STX are still struggling on this path. Since November, they have been pushing good news desperately, moving closer to the mainstream, and spending a lot of money to incentivize the ecosystem (APT's TVL income leads the market, and STX gives a lot of incentives to new BTC). In essence, it is a traditional cycle of news-market buying-valuation benchmark-coin price increase, but unfortunately the market does not buy it. In fact, they are not doing badly. The same idea was very effective at the beginning of the year, but the current version is wrong.

The other type is the project party that combines work with market making. Sui and ENA are representatives. From 1U to 5U, no one knows what Sui has done, but the increase reminds everyone that Sui has done so many things. Ena is a clear card to absorb goods at the bottom of 0.2, and then issue rewards in the second quarter. The bull market has come, and the funding rate and coin price have both increased, resulting in the establishment of the Pendle YT-PT point pricing model, and the cycle of increased expectations in the third quarter-increase in TVL-increase in coin price has begun. This may be the mainstream version now.

Back to the perspective of new projects, when the channels for issuing coins are more diversified and exchanges are no longer the absolute terminal, the user's mental model becomes the new terminal. How to invade the user's mental model to build a buying order has become something that the project party needs to think about. There is no standard answer to this question yet. The most direct way is of course to build a community, but this is very difficult. Only a few projects such as Monad, Bera, and Megaeth have achieved it. A more advanced way is to achieve it through third-party tools such as Kaito and Echo or directly through KOL rounds. Kaito is the embodiment of the attention economy, and Echo gives retail investors hope for early participation. The KOL round is to fill retail investors with the simplest and most direct content. We have seen that Megaeth has built an extremely strong community through the Megamafia+Echo round, and we have also seen that Fogo, as a core circle project (founder of Crocswap), has transferred more shares to the Echo round, and a large number of Pre TGE projects have chosen to airdrop to Yap. Before there is a standard answer, everyone is trying.

From 21 to 23, technology is the primary productive force, and strong VC endorsement, good technology, and orthodoxy are the version answers (this is also due to the path dependence of the 21-year bull market cycle). But now with the change of wind direction, the relationship between technology and attention has been deconstructed, and the proportion of technology in the user's mental model is getting lower and lower (of course, from the VC perspective, it is another issue, which can be written in another article). Products are greater than technology, communities are greater than technology, and early chips are greater than technology. The narrative dominated by technology has become a gorgeous dream.

But is technology really useless? In fact, technology has always been the most important thing in blockchain. Technology determines decentralization, and decentralization determines the foundation for the existence of the blockchain industry. In the change of mental models from the last cycle to this cycle, the market has abandoned micro-innovation and small technological upgrades, and abandoned VC coins that only talk about technology and don't care about the market, but still look forward to Fundamental-level innovations brought by technology. Always have hope for Crypto.