On Crypto Branding
The crypto space needs a better brand strategy.
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On Crypto Branding
A few days ago, Fred Wilson of USV wrote a brilliant piece on the importance of public perception about controversial technologies. In his piece, he made a point that there have been many promising technologies that suffer a lack of growth due to negative public opinion. Nuclear, vaccines, and web 3.0 are examples of how negative branding could lead to underinvestment and unsophisticated regulations. I’ve been commenting on crypto branding issues for a while and finally decided to dedicate an issue to this topic since I’m not seeing any significant improvements or initiatives from industry leaders. Crypto needs a better brand strategy.
Here are the quick takeaways:
- Promising technologies often suffer significant consequences from negative branding, which can halt their growth for decades.
- Crypto often suffers from negative public perception thanks to new “fundraising” mechanisms that prey on tail-end retail investors: ICO, NFTs, etc.
- Negative crypto branding makes it difficult to partner with other communities or companies despite the good intention.
- Negative crypto branding dries up the talent pool to only those who are in it for short-term upside.
- Crypto needs to move away from financializing everything as its brand “slogan” and focus on business/product, community ownership, and education.
What’s the Problem?
Let’s take a step back. We need to ask what’s gotten us here, what’s the state of play, and where things went wrong. Crypto started as a niche tech-first space, in the era of the Cypherpunks, without much public awareness. The first instance where crypto truly penetrated mainstream awareness was during the 2017–2018 bull-bear cycle. You saw people lose their homes by mortgaging their houses to buy Dentacoin (if you understand this reference🖖), while your neighbor’s teenager made 8 figures from Wanchain ICO.
The market volatility and ease of access to capital turned crypto into the wild wild west, which left a bad taste in most people’s mouths. Without the help of governments or true productivity/economic growth, the financial market is often a zero-sum game. That was especially true for crypto. While many people reaped profits in 2017, much more were hurt by the market crash. It took a while for the crypto space to recover from the aftermath, both financially and reputationally.
For a while, crypto was a very high-risk industry. What helped the space recover was all the builders on the technological side which improved on the underlying blockchain tech and smart contracts functionalities; on the financial side which continues to “institutionalize” the asset class and create market infrastructures; and on the career side which removed reputational risks for others to enter the space, such as when Paul Tudor Jones showed his support for Bitcoin, or when endowment funds decided to invest in crypto VCs.
So what went wrong?🤔
We would’ve hoped that after the ICO debacle, the crypto space would’ve learned that optimizing short-term profits is bad for the future of the space. Spoiler, we haven’t. ICOs morphed into IEOs and then into IDOs and NFT “projects”.
Be Transparent
Let me be clear, there’s nothing inherently wrong with these fundraising mechanisms. The problematic part is the case-by-case fundraising design that often benefitted earlier investors, typically private, at the cost of later investors, typically public. I’m not advocating against letting retail or public investors from investing in private crypto rounds; but when earlier investors can access their tokens after a short lock-up period (6–18 months) and dump their holdings either on the market or through a secondary market, it doesn’t create aligned incentives with the rest of the tokenholders, nor the founders of the project. This problem is then being repeated post the ICO era with ludicrous funding structure for IEOs, IDOs, and even NFT projects whitelist.
In the traditional venture investing landscape, angel investors and VC funds would not see their capital for 3–7 years, with a few exceptions through the secondary market. But the time horizon is generally longer for everybody on the cap table to be invested in the success of the company. In crypto, this is not the case as liquidity is much more accessible through DeFi market infrastructure and a shorter lock-up period. You don’t really see a lot of projects with 3 years+ lock-up these days.
Median Time from Initial VC Funding to IPO in the US from 2000 to 2021
So what needs to happen?
The shorter lock-up period can’t really be stopped and private investors would be able to find a way to sell their tokens if they really want to — either through the secondary or derivatives market. What should be changed instead is the communication being done by the projects raising capital from private investors. Transparency needs to be front-and-center, especially if the project also plans to raise public investors. Lack of transparency around the token is what kills a crypto project’s community.
A crypto project should at the very least do the following transparency procedure:
- List down all of their private investors’ wallets
- Clearly showcase vesting period for different investors
- Announce a significant unlock (a select % of the total supply) ahead of time
While this practice makes a lot of sense and seems simple enough, not many projects are implementing it. A case example of the lack of transparency is an issue that can be seen from LOOKS token price performance below. LooksRare, the NFT Marketplace, had a good shot at competing with OpenSea, but the founders decided to reward themselves and private investors through unfriendly deal structures and loopholes in the token design value accrual mechanism.
Bad Press
While negative media coverage of crypto is nothing new, the followings are relatively new and are not coming from the incumbents or other entities that have reasons to be against crypto.
- Minecraft Developers Mojang Studio Bans NFTs
- Why Brands Are Refusing to Mention ‘NFTs’ During NFT Launches
- Discord Shutters Plans for Ethereum Integration After Community Backlash
- Mizkif (2m+ followers) Explains Why He’s Glad Most Twitch Streamers Oppose “Garbage” NFTs
- Shroud (10m+ followers) Says That NFT Games Are “Not Really Thought Out”
- Ludwig (3m+ followers) Calls Out NFT “Scam” Using the Likeness of Top Twitch Stars
- DrDisrespect (4m+ followers) Faces Backlash After Latest NFT Announcement
- Playstation’s New “Digital Collectibles” Are Definitely Not NFTs
- The Crypto-Skeptics’ Voices Are Getting Louder
- Survey: Consumers Think NFTs Are Getting Riskier
You get the point. Public perception of crypto (and NFT specifically) is not in a good place. Younger voices including internet influencers under the age of 35 who are largely the go-to “thought leaders” for kids and teenagers are starting to be against crypto, depicting the space in a bad light. The amount of effort being put into countering these arguments has started to increase, but we need to continuously pound on the issues to ensure that crypto isn’t going to suffer due to negative branding — just like what happened to Nuclear energy.
Additionally, disdain and skepticism towards crypto VC have also been increasing within the crypto space. While not every firm deserves it, a good amount does. Frankly, the lucrative deal structure combined with short-term lock-up creates a salivating environment for VC firms to exploit. We need to fix the system, not the players capitalizing on the system.
Some ideas:
- Enforce longer lock-up periods with on-chain slashing mechanisms
- Have a clear line between pure VC firms and a hybrid Hedge Fund vehicle
- Be honest about where we are in the cycle, don’t just spew web 3.0 talking points that force solutions to non-existing problems (see music NFT discussion below)
Financialization of Everything
In summary, a negative brand creates second-order effects that will render crypto’s growth. Young talents will be discouraged from entering the space, investments will dry up, and collaborations with non-crypto companies will be difficult. But by far, the most difficult part of fighting against the negative perception of crypto is preventing the technology to be described as the financialization of everything. While it might be unavoidable, crypto proponents often describe this as a positive value of crypto — own your data, own your community, own your in-game assets, etc.
The reality is that not everyone wants to think about money all the time. That’s why we have money managers. We’re also living in a society where wealth gaps continuously increase while at the same time your average Jill & Joe have unlimited access to watch the Kardashians’ lavish life 24/7. Hence, striking a balance between conveying the benefits of crypto without diving too much into the “financialization of everything” will be key to fixing crypto’s negative branding.
It might sound boring; but even in 2022, crypto education is still extremely lacking.
Until next time,
Marco M.
