Tokens are products, but how do you create tokens people actually want?

Author: Mark

Compiled by: TechFlow

In Paul Graham's famous article Be Good, he outlines how startups can find product-market fit: build something people want. If we treat our token as a product, then the remaining question is: how do we build a token that people want?

Paul’s first piece of advice is not to worry too much about business models at the start—though he acknowledges that creating value without capturing it is charity. In crypto, we’ve seen things reversed. By issuing utility tokens that users must buy to access functionality (sometimes years in advance), value is captured before it's created. This may be why many successful crypto token ecosystems resemble scams more than charities in their early days—especially to those familiar with traditional startup models.

Could it be possible, in the spirit of Paul’s original advice, that for crypto startups seeking token-market fit, they shouldn’t worry about creating immediate value for token holders at all—but instead focus on capturing value first through token sales?

Tokens as Narrative Discovery Tools

One of the most challenging aspects of building an early-stage startup—one that hasn’t yet found product-market fit—is the need to constantly talk to customers to gauge interest in potential new products or features. Founders tirelessly reach out to various stakeholders within ecosystems, hoping that close relationships will create tight feedback loops enabling them to design solutions that precisely meet market needs. The tighter the loop, the faster teams can iterate and test optimal solutions in the market. However, customer conversations don't scale—there are only so many people willing to take your call or meeting request... what about everyone else?

When we observe existing crypto projects with their own tokens, we see another kind of feedback loop: between token price and the market’s expectation of the future value of the token ecosystem. Whether it’s Uniswap’s token rising due to a fee switch proposal, Vitalik selling MKR amid plans to launch his own chain, or $DEGEN rising on news of an L3 rollout, we see token prices react sharply to announcements about a project’s future plans.

Tokens, in a sense, predict the market—they reflect the crowd’s collective interest in a project moving in a certain direction, and the perceived likelihood of that outcome occurring. The efficiency of this feedback loop depends on token liquidity: highly liquid tokens like BTC and ETH react instantly to news events, while smaller projects attract fewer speculators trading on such updates. Yet even less liquid tokens can draw new buyers if there's strong narrative appeal—that is, if people believe the described solution will someday be valuable to someone. The massive valuation expansion of AI tokens over the past six months is clear evidence: despite few AI tokens currently generating value for holders, markets have reassessed their potential future value based on the immense value already created by traditional AI startups.

What makes this process fascinating is that by launching a token and attracting enough liquidity and attention (so people are willing to spend time/money trading on your news), teams may establish an extremely tight feedback loop around future product launches. Beyond human conversations, crypto builders can use token price reactions as a temperature check on product decisions—iterating one decision at a time until they find the one the market values most (i.e., the one causing a sharp rise in token price). Once this happens, you know you're building in a direction the market finds meaningful—and in doing so, you've used the token’s pricing mechanism as a tool to discover mass-market demand, without having built anything yet.

Tokens as Efficient Venture Capital Instruments

A mechanism allowing people to invest in a project based on their belief that it will eventually satisfy demand is at the core of venture capital. It’s also one of the prerequisites for creating value in the way Paul Graham describes—which is why tech founders have long engaged in some form of this practice.

Typically, when startups raise venture capital, it’s because they have specific goals or plans requiring fresh funding. This gives founders a feedback loop (if people dislike your new plan, they won’t invest), but it’s both exclusive and opaque, and the cycle repeats roughly every 18 months.

Tokens allow anyone to freely participate in funding new projects at any time, increasing the pool of available capital for early-stage ventures and improving the odds of funding success. If a new proposal expands the token’s market opportunity by introducing novel use cases, the market assigns higher value to the project, and the treasury grows accordingly. In this way, the market becomes a direct financing engine for innovation. This is precisely where tokens become powerful tools for expanding human potential on Earth.

While VCs love writing long essays about their affection for tokens, it’s obvious that tokens directly compete with venture capital—they are substitute products. As both a founder and now a venture investor, I believe some level of VC funding is useful and necessary for all founders. Having exceptional team members is a huge unlock, especially when they actively help grow your ecosystem. Depending on the team and market, no one needs zero VC funding. VCs also play a crucial role in continuing to fund early projects when public token markets dry up, often earning rich returns for taking on that risk.

Navigating Market Cycles

Tokens have an unfortunate downside: capital flows in and out as market attention shifts. Market participants vary widely, and their attention spans correlate positively with investment sophistication. Because people continuously rebalance portfolios based on evolving views, the token value loop depends on whether the project can sustain engagement from market participants who dedicate effort to trading activity.

One way teams address this is through “narrative surfing”—constantly linking their project to the latest hot value propositions in crypto to attract liquidity. They aim to maximize token value by continually expanding what the token enables.

Another method for staying fresh is using memes: great memes gain momentum by resonating across communities, and meme wars between communities are especially powerful. Communities with strong meme creation cycles ensure constant content creation and sharing on social platforms, keeping their token top-of-mind. This is why memes are essential for maintaining sufficient token liquidity, and why they continue to succeed in attracting and retaining attention. If you let the right people join your ecosystem early enough, they’ll have intrinsic motivation to talk about your project and help it grow. But if you allocate too much of your token supply to people unwilling to consistently share the story, it will struggle to maintain visibility over time.

Avoiding Over-Financialization of Decisions

Imagine a world where markets are perfectly efficient—a project’s token price acts as a flawless oracle determining which actions are optimal. Perhaps the market is filled with numerous AI agents trading tokens based on project updates, accurately predicting whether specific initiatives will succeed. Imagine a team fully relying on this feedback loop—only taking actions validated by external market participants as worthwhile. If someone asked, “Who’s in charge here?” the correct answer would be the entire market (via token price), with everyone else merely serving as stewards or custodians fulfilling the market’s will. But would this governance model actually achieve more than other systems?

I believe the answer is no.

First, the best founders in any industry hate being told what to do. They possess deep market understanding and have strong convictions about the optimal path forward. Second, top founders are often comfortable deviating from mainstream consensus. In fact, they frequently take pride in it. Crucially, these deviations are exactly why they build such successful companies: every market misperception represents an arbitrage opportunity, rewarding the first person brave enough to dissent. Today’s most successful companies endured long periods of active market dismissal—their ability to withstand these forces is precisely what made them so valuable in the long run. They won by telling the entire market, “You’re wrong.”

Great founders are visionaries who don’t chase local optima like others, but explore uncharted territory to uncover opportunities thought not to exist. They win by asking questions no one else considers, relying on intuition to rapidly shift concepts in the absence of data. This allows them to reach product-market fit (PMF) faster than competitors, dominate markets, and build valuable ecosystems from nothing.

If a team uncovers new data about a valuable untapped market, the last thing they’d want is to publicly share that information so all competitors immediately see it. Through strategic secrecy, elite founders might struggle to attract public market attention, but they can secure funding via private rounds with carefully selected, highly credible participants. They also benefit from finding investors who understand their vision and possess the same intuitive leaps—the kind of crazy-smart partners who think just like them.

So What Does True Token-Market Fit Require?

Returning to our original question, we see that tokens are powerful tools teams can use to discover precisely which market demands and narratives they align with. Like previous product founders, token founders can rapidly iterate on their token’s value proposition based on the broad feedback signals provided by the token itself.

To keep this feedback loop alive, teams should strive to maintain sustained attention on social platforms. They should deeply understand the various narratives surrounding them and grasp why the market assigns value to each. They should use content and memes to stay within people’s attention span, avoiding loss of interest and portfolio rebalancing. Most importantly, they should focus on attracting high-value contributors—those who believe in the mission and are willing to support it with both capital and energy. If done well, teams will build an army of supporters who never sell their tokens and continuously evangelize the token to new audiences.