Thoughts on Ponzinomics as a Go-To-Market Strategy

The past few weeks have been brutal for the crypto market. Tokens like Smooth Love Portion (SLP) have seen almost all its value wiped out. SLP is a token earned by playing the Axie Infinity game, and it is currently 98% down from its all-time high. Even though this might seem like a cause for concern, some experts believe that SLP crashing may not necessarily be a bad thing. The protocol can offer lessons for other game projects. This article will explore why ponzinomics as a go-to-market strategy may not necessarily be bad for protocols that seek to accrue value in their base layer in the long term.

Understanding Tokens in the Attention Economy

According to Cobie of UpOnlyTV, attention is the only truly scarce resource in the crypto industry. “Good traders know that they want to buy “Winners” to achieve maximum returns. They want to buy projects that will move from “Niche” to “Winners”. They would even prefer to buy projects that have a chance to move from “Rekt” to “Retail Trap”, though they know that this is obviously much riskier since there is less chance of a bad project becoming popular. Projects can also move from “Rekt” to “Niche” with a product pivot, change in tech, or change in leadership. Traders know that any project moving upwards or to the left in the chart above provides for an opportunity.”

“Winners” represent the best assets for long-term investors and new market entrants since they are easier to identify. However, they are not favored by individuals seeking large daily returns as they have less potential for huge growth. “Retail Traps” may have more risks than “Winners” due to several factors, such as poor use cases, a bad team, or worse long-term prospects. In the best-case scenario, they may yield returns close to the market average. However, they bear the risk of moving from being “Retail Trap” to “Rekt” if there is negative news that exposes their shortcomings.

To sum up the diagram, as a project increases in popularity and awareness, it becomes favored among traders. This period of time is where asset-valuations experience the most change.

Bootstrapping Attention

Over the past few years, we have witnessed feeble attempts by various projects to draw investors’ attention with the implementation of new mechanisms, promising high returns through confusing mechanisms.

One of such mechanism is the addition of a secondary token alongside the core value accrual token, which makes it possible to bootstrap attention without diluting the value of the base token. A project can utilize these secondary tokens to pivot to a base layer protocol before relying on existing attention generated by these tokens and hope something sticks while the brand still has a strong ecosystem support. A good example is Axie Infinity, with AXS, the governance token, and its secondary token SLP, used for breeding NFTs.

To sustain the price of SLP, there have been discussions to introduce sinks; however, without a unique value proposition, “artificial complexity around sinks just prolongs the time until the tokens dump.”

Some experts believe for a protocol such as Axie, the current SLP prices should not cause any concern, and “games that have attracted significant attention should learn from L1/L2 GTM model.”

Trip Down Memory Lane

A stroll down memory lane offers some vital lessons. In the mid-19th century, San Francisco saw an explosion in population as people moved there to mine gold and strike it rich. This saw the prices of basic goods and services rise ridiculously. Even when mining gold was not possible for individual miners, the initial rush had created a vision for California. Even when the gold was gone, the people, the vision, and the brand stayed. Maybe it was because friends or family, emotional attachment to the land, or difficulty going home - the people that came never left.

Coming back to crypto, Arbitrum started to gain attention with the launch of Arbinyan, a meme token farm that promised APYs in quadruple digits. But even when the farm dumped, the protocol’s massive TVL still remains. Why? To remove your assets from the platform, you would have to wait for 7 days, or you could use some of the other services and products available within the platform.

Similarly, if your funds are currently locked in the Axie Infinity platform to buy Axies, you are left with illiquid JPEGs, whose individual traits you would have to look up in the marketplace for a fair price. Alternatively, you could keep your scholar team to earn some profits. More crucial than the initial TVL was the attention these “ponzis” brought to the base layer protocols. It is no secret that Axie remains synonymous with blockchain gaming and has a large share of the P2E space, just like how Arbitrum still has a massive TVL.

Value of Attention to Base Layers

This initial attention is crucial as it allows a base layer to source for individuals that will build on top of its protocol. It is the same way L1s and L2s that attract massive TVL operate. They ask projects to migrate and new ones to build on them, thus creating opportunity, mindshare, and ecosystem incentives.

A base layer needs only one project to do well and continue accruing value through activity on the app layer. Sooner or later, the base layer might see another novel “ponzi” that will accrue additional volume and attention for the base layer. Thanks to a successful enough Ponzi, the app layer will be able to build a brand by itself.

This is why the decline in the price of SLP does not necessarily matter, as Axie created a token that is not their core governance/value accrual token to bootstrap attention. Many experts doubt that AXS could get as big as it got without the attention from its SLP token.