The rise of blockchain technology has ushered in a new wave of tokenized startups launching on platforms like Ethereum, Solana, Binance Smart Chain, Polygon, and Avalanche. These blockchains, powered by their native tokens (ETH, SOL, BNB, MATIC, AVAX, etc.), form the backbone of decentralized innovation.
But as more projects tokenize and launch, a crucial question arises: Are these startups creating value for the blockchain ecosystems they are built on, or are they merely extracting value from them? Let’s break this issue down and explore its implications across all blockchain platforms.
How Token Launches Work on Blockchains
Here’s a common flow of value when startups launch tokens on any blockchain platform:
- A User Buys the Blockchain’s Native Token
Someone interested in a startup’s tokenized product or service purchases the native token of the blockchain they’re built on (e.g., ETH, SOL, MATIC, etc.) with fiat currency. This initial purchase increases demand for the native token and represents money entering the blockchain ecosystem. - The User Swaps the Native Token for the Startup’s Token
The user exchanges their native tokens (e.g., SOL or ETH) for the startup’s token, often using a decentralized exchange. At this point, the user holds the startup’s token, while the startup now holds the blockchain’s native tokens. - The Startup Sells the Native Token for Dollars
To fund its operations, the startup sells the native tokens (e.g., ETH or SOL) it received back into dollars or stablecoins. This value leaves the blockchain ecosystem and returns to traditional fiat markets.
This process effectively creates a “round trip” for value: dollars are converted into the blockchain’s native token, swapped for the startup’s token, and eventually leave the ecosystem when the startup cashes out. The native token experiences short-term demand but may lose this value if the process is repeated at scale without proper mechanisms for retaining value within the ecosystem.
Why This Could Be Extractive
This cycle has the potential to extract value from blockchain ecosystems rather than contribute to their long-term growth. Here’s why:
1. Short-Term Utility for Native Tokens
When users purchase the native token solely to swap it for a startup’s token, the demand for the native token may be temporary. Startups often sell the received native tokens quickly to meet operational costs, causing value to exit the ecosystem rather than remain locked in.
2. Ecosystem Mismatch
For blockchains to grow, they need startups to create demand for their infrastructure—whether it’s transaction fees, staking, or smart contract execution. However, when startups don’t design dependencies on the blockchain’s native features, the relationship becomes transactional. They use the blockchain as a means to an end (fundraising) rather than a foundational partner in their business model.
3. Ripple Effects of Repeated Value Extraction
If many startups operate this way, the ecosystem could see an overall “leakage” of value:
- The blockchain’s token experiences inflationary demand spikes around token launches but does not benefit from consistent, sustained demand.
- Price volatility increases as startups repeatedly sell the native token, undermining confidence among users and investors.
- Long-term sustainability is put at risk as value flowing in gets funneled back out too quickly.
This dynamic can lead to ecosystems stagnating unless they create mechanisms to retain value.
Is There Hope for Long-Term Value Creation?
While the extractive behavior described above is a risk, it is not inevitable. Many blockchain ecosystems—including Ethereum, Solana, Binance Smart Chain, and others—can structure incentives and mechanisms that ensure lasting value creation from tokenized startups.
1. Startups Retaining Native Tokens
One solution is encouraging startups to hold a significant portion of the native token they receive, rather than immediately cashing out. For example, they could:
- Stake tokens to earn rewards and actively support the network.
- Use tokens for governance participation, demonstrating a vested interest in the blockchain’s growth.
- Provide liquidity in the ecosystem’s DeFi protocols, driving demand for decentralized finance services on the platform.
These behaviors not only create ties between startups and the blockchain but also keep economic value circulating within the ecosystem.
2. Building Native Token Dependency
Startups can design their business models to depend directly on the blockchain’s infrastructure. Examples include:
- Requiring native tokens (e.g., ETH, SOL, MATIC) for all transaction fees, in-app purchases, or governance mechanisms within their product.
- Leveraging ecosystem tools such as token bridges, DeFi platforms, or staking protocols that require native token collateral.
- Relying on native tokens to pay for smart contract execution or to interact with layer-2 scaling solutions.
When native tokens are essential for the startup’s functionality, value tends to stay in the ecosystem rather than being extracted.
3. Aligning Startup Success with Blockchain Growth
Blockchains like Ethereum and Solana can design incentive programs to ensure that successful startups contribute back to the ecosystem. For instance:
- Grant requirements: Ecosystem grants or funding from blockchain foundations could stipulate that startups use native tokens for operations or retain a portion as long-term holdings.
- Shared success models: Startups could dedicate a portion of transaction fees or revenue back to the ecosystem’s development fund, ensuring mutual growth.
- Staking and Liquidity Commitments: Startups might lock native tokens in staking pools or liquidity protocols as part of their launch conditions.
Broader Implications for Blockchain Ecosystems
If extractive practices scale across multiple ecosystems, the competition between blockchains may intensify. Platforms with stronger feedback loops that retain value—like Ethereum’s wide adoption in DeFi or Avalanche’s subnets attracting long-term developers—could see better outcomes than ecosystems that rely solely on speculative or short-term demand.
Conversely, blockchains that fail to address this challenge may experience:
- Increased Token Volatility: Native token prices could become tied to hype cycles around token launches, leading to instability.
- Ecosystem Stagnation: As value repeatedly leaks out, ecosystems may struggle to sustain development, innovation, and adoption.
- Loss of Competitive Edge: Other blockchains with better-designed value retention mechanisms might attract higher-quality startups and talent.
The Way Forward: Building Sustainable Ecosystems
The challenge of value extraction from blockchain ecosystems isn’t unique to Solana or any one platform—it’s an industry-wide concern. However, blockchains can mitigate this risk by:
- Encouraging alignment between startups and ecosystem growth through incentives and dependencies.
- Educating token launchers about designing tokenomics that sustain long-term value rather than enabling speculative hype.
- Creating infrastructure for long-term economic engagement, such as staking, lending, and liquidity protocols that require native tokens.
Ultimately, ecosystems that can tie their native token’s success to the broader growth of their network will attract the best projects and maintain their competitive advantage in the ever-expanding blockchain space.
Tokenized startups have the potential to drive significant innovation across blockchain ecosystems. But to avoid the trap of extractive cycles, blockchain platforms must ensure that they are more than just a fundraising intermediary—they must be the foundation for lasting value creation.
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