Whether you’re building your own project or investing, give me a few minutes to expose a critical flaw often overlooked in many projects: Positive buying pressure. First, a quick live example with no project names mentioned 😁.
A new NFT marketplace opened up recently on BSC, enabling users to sell NFT’s using their native token (let’s call it $FAIL). Users list their NFT’s (which were purchased in BNB) in $FAIL token for others to buy on the platform. The platform takes a 1% fee in $FAIL and positions this as a competitive advantage to the market in comparison to competitors.
Now let’s think about a potential sale on the platform. A seller lists their NFT for 100 $FAIL, someone buys it for 100 $FAIL. The seller gets 99 $FAIL, which they then liquidate. The platform captures only 1 $FAIL. There’s nothing else for users to do with $FAIL except buy NFT’s. Furthermore, since the NFT’s are originally minted using BNB, users are asked to sell their NFT in exchange for a much more volatile asset ($FAIL).
Running some numbers using this real example, we can see that it’d take a TON of NFT’s to be sold to realize a much smaller amount of positive buying pressure for the project. Note that there are no other reasons to buy the token. Now, factor in marketing, development, and other overhead expenses. The business model is not looking good at all, nor is the buying pressure. Users have no need to buy $FAIL unless they want an NFT, and in that scenario they’ll simply transfer their $FAIL to someone else who will just sell it for profit, leaving only 1%.
So, what could have been done differently?
First, the project should have designed utilities/token use cases that a high quantity of people value. In the example above, only buyers and sellers of NFT’s have an exchange of value. People who buy $FAIL will eventually ask themselves why they’re holding something they can’t even use, leading to sells.
Second, the project should have considered frequency of buying pressure. Utilities people value will lead to them using more of the token, creating more buys on the chart and a higher amount of buying pressure. Here, people only have to buy $FAIL when they want to buy an NFT…not likely going to be very often on BSC.
Third, the project should have considered token flow. Rather than cycling all utilities in such a way that NFT sellers get 99%. Tokens need to be wrapped up, taken out of supply and into the hands of the project. This is positive buying pressure.
Fourth, the project should have considered the market. Most NFT’s are purchased using $ETH, $SOL or $MATIC. Here, we have a very volatile asset, $FAIL, where users list their NFT’s. $FAIL is not correlated in value to the original mint asset (BNB) and is much more volatile. This is very risky for users and not a great experience.
Fifth…yeah, I can go on forever here 😁
However, I hope in this brief article I shared some key insights into both project/product design in addition to running the financials. I like to joke that my body is riddled with scar tissue from failures I’ve learned from.
After completing this exercise with a client during our first consulting call this week, we discovered a massive lack of positive buying pressure in their idea that would have led to a failed project. It’s not the developer’s fault, they’re simply missing some pieces and haven’t had some painful lessons of their own yet.
This is the purpose of my company, Moonbound. To help well-intentioned people building in Web3 increase their chances of a successful project launch. We explore product ideation, financial modeling and build out an execution plan. NASA doesn’t launch a rocket without a ton of upfront work and calculations, and neither should you.