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We should not underestimate the power of narratives in the blockchain space. So much so that it has almost assumed a “chicken and egg” dynamic, where project teams seek to captivate the public’s imagination with a company vision to attract investment and adoption before the product is developed. It is more prevalent during bullish market phases, marked by an influx of investor funding, euphoria, and substantial price appreciation based on preliminary valuations.
When a narrative eclipses actual product development, it often results in disappointment and economic downfall, as evidenced by many blockchain projects during the late 2021 crypto bull run. Nobel laureate Daniel Kahneman, a leader in behavioral economics, warns that a compelling narrative creates an illusion of inevitability, underscoring its psychological impact. The story’s craftsmanship can lead individuals to perceive events as almost predetermined.
The critical question is, will founders learn from their predecessors’ mistakes and avoid hyping up their narratives in the next bull run? You would certainly hope so, but you’d be hard-pressed to speculate. For example, with the SEC’s recent approval of 11 spot Bitcoin ETFs coinciding with the next Bitcoin halving, historically a precursor to market upswings, it might be hard to avoid a supercharged hype cycle. It is all the more critical that startups keep their feet firmly on the ground.
Despite the current demand for narrative-driven strategies seen in the popularity of memecoins and the resurgence of web3 verticals like socialFi and LSDfi, the concerning gap between hype generation and tangible product delivery can result in a misalignment. This misalignment may lead to products that fail to meet customer expectations, lack genuine value, and, in the long run, result in high churn rates and a damaged reputation.
A good narrative is essential but not as important as having a great product and user experience with token utility. Attention span is short, and switching costs are low in crypto. So, fundamentally sound products and constant innovation by a team are what matters. Web3 and blockchain projects must recalibrate to attainable product timelines and lessen their grandiose narratives so that regular people can get behind them.
Blockchain and web3 startups can sometimes seem more preoccupied with overemphasizing the possible buildup of wealth rather than product functionality and material benefit. It unwittingly comes across as some sort of ‘get rich quick’ speculative venture.
Instead, startup leadership should aim to cultivate the right community behind them, demonstrating the utility and benefit of what their product will achieve. This approach can also foster an enthusiastic community.
In awe of the possibilities that the web3 frontier presents, many projects try to solve too many problems at once—which strains resources, introduces complexity, impacts user experience, and raises execution challenges. To navigate this landscape effectively, a multi-pronged approach is necessary:
- Returning to basics and core principles while ensuring the product is suitably built to serve its intended target audience and their specific needs. For example, in the case of liquid staking derivatives, Lido built a rebasing mechanism so that one stETH is always one ETH. Despite the complexity of implementation, the merits of this solution were well considered from the long-term perspective of a user.
- Being laser-focused on a niche or even a hero product enables projects to deliver maximum value, establish their brand identity and deep expertise, and ultimately differentiate themselves in a saturated market. This type of focused approach becomes a powerful tool for differentiation, thereby attracting users who resonate with the specialized solutions provided.
- Prioritizing product development aligns with the ethos of decentralization in crypto and web3. Emphasizing user-centric solutions, transparency, community engagement, tangible value, and sustainable growth allows these technologies to realize their true potential. This approach fosters trust, positions projects for sustainable growth, and ensures meaningful contributions to technological advancements with a lasting societal impact, moving beyond mere hype.
- Strike while the iron’s hot. When your project’s ‘hot narrative’ is in the limelight, double down on marketing and education while ensuring that everyone knows that you own a piece of this narrative. You’re much more likely to get amplified coverage through earned media and community engagement.
In the pursuit of mass adoption, companies must find a balance between crafting a compelling product narrative and prioritizing a value-based product. While a well-crafted narrative can generate initial interest, sustained success relies on the intrinsic value of the product. A value-based product not only meets immediate user needs but also builds trust, loyalty, and a robust user community, forming the foundation for sustainable growth.
What we know with certainty is that the next blockchain bull run holds promise for a future of sustainable growth and technological integration, paving the way for a lasting societal impact.