Why Marketing is Futile Without Strong Web 3 Sustainability Principles

Acknowledgment: This article is based on insights from "The Web3 Sustainability Loop" by Trent McConaghy. The original concepts and ideas are credited to their research and publication, which you can access here, and which is part of the foundations module of the Token Engineering Academy, which I also highly recommend you check out here.

Web3. What a beautiful space to be a part of. And I mean it, even though it could sound incredibly satirical considering the amount of scams and frauds around it. Pretty much everyone—end users, devs, investors, builders, or founders—has at some point suffered the consequences of the rise of a paradigm-shifting technology and principles. So far, there have been many more losers than winners, and this applies not just to retail investors, but also to protocols and marketing efforts. How many teams have finished a TGE, Hackathon, Event sponsorship, Paid ads campaign, PR, or any other action, with the feeling of having poured money down the drain with little to no results? We could count them by the thousands. But who is to blame?

No one can provide statistical data on the matter, and while we know for a fact that there is a lot of BS in the web3 marketing space—where you have to really dig deep into the numbers to check their veracity and humanity—there is ONE fundamental aspect that explains why web3 businesses struggle to grow their ecosystems: alignment with the web3 mission and vision.

Let me start over again. I LOVE THIS SPACE. Not because of what 90% of it is, but because of what the remaining 10% represents: the Satoshi spark that originated it all. WEB3 WAS CREATED TO CREATE OPPORTUNITIES FOR ALL.

Ethos, my dear friends. And this is not just about trust, transparency, and immutability. It has much more to do with sustainability and how businesses can grow to become self-sustaining ecosystems. At the core of this principle is the token, which helps me conclude this intro by framing the title and giving it the context it deserves. No marketing efforts can change the long-term course of a flawed token design.

As expressed in the tokens section of the Kernel syllabus: Tokens are economic code that create psycho-social cultural systems that both depend upon and create narratives of use. You can go ahead and read that again.

Token design is a complex endeavor that combines computer science, economics, sociology, psychology, advertising, legislation, and more. So, it’s only understandable that so many have failed at it.

However, rather than going down the path of what not to do—which is much better explained by the team at Kernel—I would like to explore the evolution that Trent presents in terms of how ecosystems have managed to add layers to their token mechanisms to achieve more sustainable and long-lasting models.

How Do We Grow the Ecosystem and Make It Truly Self-Sustaining?

The Web 3 Sustainability Loop: A Foundation for Success

The Web 3 Sustainability Loop, as outlined by Trent McConaghy, CEO and Founder of the Ocean Protocol, emphasizes the importance of creating a self-sustaining ecosystem where participants are incentivized to contribute and grow. This is our foundation. No marketing efforts can surpass simple short-lived successes if the feedback loop between how the token is used as compensation and contribution for growth is not well thought out.

Learning from Failures

Many Web 3 companies have learned the hard way that marketing alone cannot drive long-term success. Projects that focused heavily on initial hype but neglected sustainable practices quickly found themselves struggling. Examples like EOS and Bitconnect, although very different in principle, illustrate how many forms and shapes sustainability can adopt.

Evolution of Growth Models in Web 3

Stage 1: Initial Growth Model

Initially, Web 3 growth models followed a straightforward path: founders generate tokens, sell some for initial funding, build the product, and ship it to power a nascent ecosystem. The goal was to grow the token value. The dynamics were designed so that the token value increases as usage goes up. The founding team sustained itself by selling more tokens for fiat over time, as they improved the product. However, this model encountered significant problems.

As teams continually dipped into their supply of tokens to fund themselves, the supply dwindled. Each dilution event further diminished the founders’ incentive to make the projects succeed. If the supply got too low, the team would need to sell company stock or a second token, risking misalignment of incentives.

Stage 2: Revenue Generation

To address these issues, some Web 3 projects introduced revenue generation. Inspired by businesses and nations, this model loops revenue back to workers in a curated fashion. Projects are chosen based on growth potential and alignment with the project’s mission. Funding goes to the founding team and other project teams, all performing work to grow the token value and network revenue.

Revenue generation can draw on ideas from Web1 & Web2 businesses but with less extractive rates. The token must be designed such that its value rises as usage rises. However, this model also faced challenges: what Trent calls "too little revenue, too late."

• High Rates Issue: If rates are too high, the project might get forked and re-deployed with lower rates, or it won’t get adopted because it’s seen as too extractive.
• Low Rates Issue: If rates are too low (and usage isn’t sufficient), revenue is too low.

Stage 3: The Web 3 Sustainability Loop

Ocean Protocol proposes a solution to the “too little revenue, too late” challenge. Instead of disbursing all tokens at the beginning of the project, a large fraction of tokens is disbursed over a much longer period to workers adding value to the project. This provides teams with a longer runway to iterate towards product-market fit (PMF) and more funds to catalyze growth once PMF is achieved.

This approach is framed by Trent as the Web3 Sustainability Loop. At its heart is a loop designed for “snowball effect” growth of the ecosystem. The Workers help grow the Web3 Project Ecosystem. Apps and services generate revenue using the Web3 project’s tools. A non-extractive fraction of that revenue is looped back as Network revenue to the Web3 community. Network rewards also feed to Workers to catalyze growth and ensure decent funding in early days.

Here’s a breakdown of the loop:

1. Projects are proposed and curated by the community.
2. Projects are funded by Network revenue and Network reward.
3. As projects do work and add value, network revenue and $TOKEN value increase, leading to more funding for the community.
4. This positive feedback loop ensures more projects get funded over time.

For this model to succeed:

• Each project must add sufficient value to the ecosystem.
• Value added needs to be reflected in the token price.

This last point is quite important and often generates trouble even under this model. For the value added to be reflected in the token price, it has to exceed the value spent by the ecosystem. This is a crucial and often overlooked step.

Many protocols allocate a good chunk of the token supply to marketing/community actions or rewards. While this is acceptable, the timing of these actions has to be carefully considered, following the principle that value added to the ecosystem must exceed value spent. In other words, before you grow your community, ensure that the existing community is contributing to its growth more than it is feeding from it.

The Ocean Protocol Model: Stage 4

Ocean Protocol’s approach involves disbursing tokens over a longer period, allowing for a more sustainable and iterative development process. This longer runway helps teams achieve product-market fit (PMF) and provides continuous funding to support growth. By ensuring that the value added to the ecosystem exceeds the value spent, Ocean Protocol creates a positive feedback loop that drives long-term sustainability and growth.

Here’s how Ocean Protocol applies the Web 3 Sustainability Loop:

• Curated Funding: Funding is allocated based on selection criteria that ensure an expected ROI greater than 1.0 and alignment with Ocean’s mission and values. OceanDAO, which relies on subjective assessments, and Data Farming, which uses objective measures, are the two vehicles for funding distribution.
• OceanDAO: Grants are given based on the promise of future value-add. OCEAN holders vote on projects based on their potential to add value, track records, and alignment with Ocean’s goals. Funding sources include the OPF treasury, 51% Network Rewards, and Network Revenue.
• Data Farming: Rewards are distributed based on objectively defined measures, such as data consumption volume, which serve as proxies for value added to the Ocean ecosystem. Data Farming optimizes for these measures to ensure ongoing ecosystem growth.
• Token Disbursement: 51% of the overall OCEAN token supply is dedicated to Network Rewards, disbursed over time following a Bitcoin-like schedule with an initial ramp-up period. This ensures continuous incentives for contributing to the ecosystem’s growth.

* FYI - You should also check out Ethernity Cloud - Protocol I have personally worked at and who have done a great job and replicating this model with a similiar proposition focusing more on privacy and security.

Conclusion

Marketing efforts in the Web 3 space are only effective when grounded in solid sustainability principles. Learning from past failures and focusing on building self-sustaining ecosystems is the key to long-term success. Advanced ecosystem integration and real-world application are crucial, emphasizing holistic engagement, seamless integration, and continuous feedback loops. The Web 3 sustainability loop offers a clear roadmap for building resilient ecosystems.

In the end, it’s the combination of solid foundations, strategic marketing, and an unwavering commitment to sustainability that drives enduring success in the Web 3 world. Embracing these principles not only fosters growth but also ensures the creation of opportunities for all, staying true to the core ethos of Web 3. So let's keep pushing forward, learning, and growing together in this amazing space we love, even if it's still got its fair share of challenges. After all, that's what makes it all worth it, right? ??