30.3.2022

The Problem of "Brand" in Decentralized Communities

Note: This was written for ConsumerDAO's Newsletter #4. A version of this is published on the ConsumerDAO website.

Decentralized communities have a unique characteristic compared to regular communities. They almost certainly have a deterministic component and a probabilistic component. The deterministic component stays constant no matter what - it's the mission/vision of the community, and the primary reason for why everyone has gathered. The probabilistic component is what evolves - the thing that grows with the community's participation. Together, they form the “community,” which is probably the largest piece of a decentralized community’s brand identity.

I like to come up with visuals for everything as a mental framework. I see this model as an egg: the yolk = the deterministic component. No matter how you crack an egg, if you do it right, the yolk’s shape holds constant. The egg-white = the probabilistic component, and can spill in whatever shape it pleases. Together, they make the egg, and if done so correctly, it should be recognizable as an “egg” despite its changing form.­­

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For builders, the problem here is two folds:

  • One, some decentralized communities don’t even have a deterministic component: they don’t know who they’re serving, what they’re building, or why they’re doing it, beyond wanting to “make something.”
  • Two, out of the ones that do, they struggle to manage the probabilistic component: people come and go every day, meaning the entire community could look different by the time they ship a product or feature.
  • And then "value" or “utility" comes into question… utility is subjective, and chances are, you'll need a great idea of One and Two before you're able to build a brand that can last decades.
  • Let's use NFTs as an example, because most are more familiar with their go-to-market strategies. But broadly speaking, the issues highlighted here apply to any decentralized community.

    The Deterministic Component­

    Usually, the strategy for an NFT launch is: build hype → sell out NFTs → form a DAO, then decide what happens. Most of the time, the proposed roadmap includes something like a second drop, an attempt at making their own game, or a merch drop. More ambitious projects might have a "white-paper” that, in today's market, is usually just a more articulate version of the website with more detail.

    Doing some quick math, if a project sells at 0.1 ETH and sells 8,000 NFTs, that's 800 ETH in income. At $3000 USD/ETH, that's a whopping $2.4M raised before the community even knows what they're doing. How many companies do you know raise $2.4M before even having an idea, and actually manage to deliver a good product post-raise? None that I know of.

    Anecdotally, these projects make up 90% of the market that casual NFT-buyers will come in contact with because they’re effective marketers. But the projects will probably fade out of existence within the year. And just by sheer chance and the sheer volume of NFT projects on the market, perhaps one or two will figure out their mission/vision and make it to “blue-chip” status and prevail. These projects will now face the issue of dealing with the probabilistic component.

    The Probabilistic Component

    In the next phase, brands that don’t have a clear idea of who their building for will struggle to deal with the ebb and flow of the changing community. At its peak, on May 2, 2021, Bored Ape Yacht Club saw 2,365 transactions happen in a single day, out of a collection of 10,000 NFTs. And it’s worth noting that Yuga Labs or Bored Ape Yacht Club had no control over who enters or leaves the community. The market decides!

    At the current stage, most “communities” in the NFT space are only token-gated, meaning if you go onto a secondary market, and can afford the lowest-priced token listed, then you’re eligible to participate in a private chat with other people who own the same NFT collection. The only “filter” here is wealth, which is hardly how great communities are built in real life.

    And while most NFT teams would hope that people buy their NFTs because they believe in their vision and ability to execute, other common reasons include FOMO / fear of missing out, or greed. Short-term holders will always look for instant-gratification events that drives up price for a quick exit. Examples include a second art drop, or merch. But allocating resources, especially early on to these products, will usually end up tying up the bandwidth needed to build something truly worthwhile for the community and the brand.

    So… how does a team ship a product that solves a specific pain point for an ambiguous, and ever-changing customer?

    Potential Solutions­

    Have a plan.

    Have a plan about what you're doing, as if you're launching a business. Another way to think about this is: why this, why now, and why you? I think great teams should understand their “fiduciary duty” to token holders before selling anything.

    A top-of-funnel filter.

    Put what you’re doing front-and-center in advertising and branding, so those who disagree with your principles or your vision leave before even clicking on your website. Realistically speaking, you might lose potential minters, or not build up hype as anticipated, or “mint out” slower, but that's better than having an entire community of people who don’t care about what you’re doing.

    A bottom-of-funnel filter.

    Have an application or listing process! Make someone work for their spot. If they're not serious, I doubt they'd put in the time, given that most professional traders are probably prospecting dozens of projects at once.

    More intentional design.

    There are different ways to discourage people from “flipping” tokens early on. A more extreme example would be non-transferrable tokens, which have been explored a lot more only recently. Other examples include a mint cap, delayed reveal, or a prolonged reveal process, so traders are discouraged from participating and having their cash tied up.

    Run a Census!

    Understand who your community is. If you’re a more traditional brand strategist, maybe an internal brand discovery sprint might sound more familiar. But I like the analogy of the US Census because it was originally introduced under very similar contexts where it was becoming impossible to make informed policy decisions about the country when there isn’t a clear picture of who the average “American” is.

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