Bootstrapping with aligned economic incentives between products & users
Bootstrapping is domain agnostic and recently we’ve seen this in play within the blockchain sub-domain of decentralized finance or DeFi. Over the last year, we’ve seen projects hit key metrics far quicker than what would normally be expected of them. Part of this success is what I believe to be part of the next evolution of bootstrapping; building aligned economic incentives between products and their users directly into the user experience.
Examples of this are already live. When Compound Finance launched their V2, the team announced an incentivization plan for users to be rewarded for borrowing and lending on the Compound protocol. 4.5 million COMP (current market value of ~$500,000,000) was initially set aside for usage incentive rewards with just under 10% having already been distributed to-date. These incentive rewards, denominated in “COMP” or Compound’s native protocol token, are liquid and freely tradeable on a number of centralized and decentralized trading venues for fiat. This means that Compound is literally paying early users of their protocol in an asset that increases in value as the usage of the protocol itself increases. This incentivization program, among other things, helped drive the market capitalization of COMP to over $1 billion+, revenues to $68 million (annualized), and total borrowing levels to $1.7 billion. This level of success leads me to strongly advocate for further exploration into these types of incentive mechanisms and their applicability to early-stage startup teams outside of just the nascent crypto domain. At scale, these mechanisms have the ability to establish and anchor economically aligned incentives between platforms and users by creating a value flywheel, where growing platforms compensate active users proportionately in a fiat-convertible product-native asset that can increase in value as the product itself does.
Of note in the above example is how the users
were incentivized and what other options exist.
The COMP token is representative of
proportionate control in a decentralized
autonomous blockchain protocol. This means
that the more COMP you own, the more say
you have in the future direction and
development of the project. Additional value
accrual, like cash flows, is a matter of
continuous discussion on the basis of securities
regulation. The compound protocol decentralized
and handed control of the product to COMP
holders (mainly users and investors), who then
accessed or created markets which allowed the
price of COMP to fluctuate and become convertible
to fiat.
Other examples include:
---(1) Proportionately rewarding users and/or
developers in an asset like COMP, but that is
redeemable for fiat in the product itself at a fixed
rate (Roblox example) or good for some other
consumptive use within the platform
(IMVU example).
---(2) Rewarding users and/or developers with fractions of equity in the company you’re building (Linen App example).
Putting these and other types of incentive mechanisms into the bootstrapping toolset allows for founding teams to supercharge their product launch, prevent user churn, generate economically-driven network effects, and attract additional developers and other community members that will help drive the future of the product’s development, growth, and reach.
----------------------
Daniel Zider,
daniel.g.zider@gmail.com
Disclaimer(s): The contents above describe theoretical ideas and are to be used for illustrative purposes only. The contents above are not to be used, in any way, as legal, technical, financial, and/or professional advice and as such should be thoroughly reviewed by appropriate parties prior to any decision making. The contents above are provided “as is” and without warrant to their accuracy or general viability. All contents described are done so at a high-level and require further due diligence, testing, research, and examination by various parties.
Comments
Post a Comment