Liqudity Mining (Token Based Network Bootstrapping) is not a scam, it’s the crypto version of a startup growth marketing program

It can be used to achieve hyper growth, but does always not garuntee future success

Some thoughts... 0/

1/ Giving tokens to protocol users essentially takes them from other token holders (investors, team, etc.)

This is similar to how companies can use cash from their balance sheet to pay for user acquisition via product subsidies, referal bonuses, etc.

2/ This cash was created via dilutive equity financing.

In both cases you are making a bet that the benefit of your program outweighs the costs of dilution

3/ http://Jet.com  was an interesting case study where they actually rewarded customers that created the most value for the company with actual company shares

This was is more similar to liqudity mining programs than standard growth marketing programs https://twitter.com/jpurd17/status/1280146265658056705

4/ Customer stickiness/retention is one of the most important factors. If you’re going to be spending a lot to acquire liqudity/customers, you want to make sure they stick around

5/ Just like the dozens of meal delivery/meal prep startups that people abused only for the free food (and then moved onto the next)

We will (and have) seen the same for protocols that initiate liqudity mining. Farmers moving from one protocol with the best yield to the next

6/ Companies and token projects also need to worry about whether their business model actually makes sense. Many startups can achieve hyper growth, but then collapse because of poor unit economics e.g Wework, Juicero, etc.

7/ DeFi projects have a major advantage here becuase they inherently have great economics. Many parts of their system have no cost to the protocol which otherwise would be expensive in the CeFi world

Operations are automated via SCs, server costs passed onto users/Layer 1, etc.

8/ Just look at the borrow/lend space. Compound & Aave have grown tremendously the last few months to the point where they are scaring centralized lending companies who will have a hard time competing because of their expensive operational costs

Aave hasn’t even started LM

9/ The meme of 100% automated systems disintermediating centralized rent seekers is actually happening which is pretty amazing

10/ And with both traditional startups and DeFi projects, you want to make sure you don’t overpay for customers.

Cost of acquisition should be much lower than lifetime value (A different LTV)

11/ For DeFi projects this means yield shouldn’t be too high & you are incentivizing the right actions to generate real long term network value & network effects

Fcoin (while centralized) is a case study of a poorly planned token incentive program

12/ Anyways, I hope this thread can be used to educate those that are dense and can’t understand why these programs exist and why they aren’t scams

Long DeFi

Btw there are definitely ponzis that have and will use these programs and sometimes lines are blurred.

But sometimes I love a good ponzi because if you’re early they can make for a great trade