Token Optionality is Essential for Your Blockchain Project. Here’s How to Do it Right

Yes, take a moment to celebrate.

After that, it’s back to brass tacks.

And that means solving the next problem that every blockchain project faces.

This Week’s Challenge?

What can I use your token for?

Token optionality is measured by token utility.

When we talk about token optionality with our clients at Alpha Growth, we’re fundamentally asking:

• Where are all the places people can put your token and receive value back?
• How can we increase the number of places we can put your token?
• How can we increase the value people will get back?

Before we get into the ways you can create token optionality for your blockchain project, let’s look at why this is such an important quality for your token to have — and continue to pursue relentlessly over time.

​​What dis? This is the modern theory of money. Translation: the higher the money supply, the higher the velocity of the money supply. When you increase the velocity of money, you increase price.

In macro, a high money supply and high money velocity can lead to inflation. This leads to price increases that no consumer wants.

In crypto, you can apply this same formula for a positive outcome: make token go up. If you can increase the quantity of goods and services that your token can plug into, you will increase the velocity, therefore increasing price.

This is a good thing for your blockchain project. Unlike the cost of consumer goods, of course you want your token price to increase. Without token optionality, that will not happen. Instead you will be like a Chuck E Cheese with zero games. No bueno.

Beyond monetary theory, I’d also argue there’s a philosophical case for optionality of any kind:

Optionality is freedom and freedom is good

Whether it’s token or jobs or competing businesses offering the same goods and services, options create more freedom because they give you more individual choices.

Coming back to token optionality in blockchain, it’s not hard to figure out that your project needs it. The real challenge is in the execution. How can your project create token optionality that will help sustain your token price over time?

This is a good conversation to start with the end in mind. The ultimate goal for your token:

Become a commodity.

That’s the only outcome you want. Think about it like a game of chess. If you get to the end of a game of chess and there are no more options, that’s bad. If you run out of options, you lose. You don’t want to lose. You don’t want to end up with a token that has nowhere to go. A token with nowhere to go is worthless.

Instead, you want a future where your token has many, many options and the game keeps going. In this future, your token is so useful,, it’s used in so many places, it’s now considered a commodity — like Ethereum or Bitcoin.

It’s helpful to work backwards from a future where your token achieves this kind of commodity-level optionality. Bitcoin and ETH are there. Think about that future and how you can reverse engineer optionality on that scale.

By doing that exercise, you will begin to see how your strategy for token optionality is a roadmap to becoming a commodity.

So how do you start creating token optionality?

Can I:

• Put token in a staking game?
• Use it in a lending game?
• Borrow against it?
• Swap it for other tokens?
• Use it as gas?
• Bond token?
• Exchange it for IRL goods and services like tacos and watches or water?
• Where can I plug the token in and get something else back that I want?

Your blockchain project needs to pursue putting your token in so many places, across so many DEXs, so many exchanges and applications that the US government now considers it a commodity like gold or pork belly.

This also creates whale protection, which is crucial for stabilizing your project. Wide distribution to as many people as possible is your own real weapon against whales, who can otherwise manipulate your token price with ease.

On a granular level, implementing token optionality means leveraging the community and business development partnerships you have built as part of your foundational work. You need these partnerships and collaborations in order to create more places for people to plug your token in.

In additional to creating places people can plug your token in and get real value in return, you need to create a buy back strategy. Otherwise there is constant sell pressure on holders to dump your token on the market. Utility is key here. Utility creates buy back pressure because it creates a reason for users to buy and hold the token.

For a good example at this at play, look at LuxFi, where LXF is used to authenticate luxury goods. It can also be staked and exchanged for Luxury NFTs that represent boxes of luxury products stored in a freeport.

While we believe that the exact schematics will differ from project to project, the answer will always lie in a simple framework:

• Encourage people to buy your token
• Increase the options for places to use token
• Discourage selling your token

You want to continuously encourage these three activities. Tokenomics structured around these three thematic pillars are crucial.

You can start doing this by building Ponzi games on top of your token to create synthetic buy pressure until there’s enough volume and utility for it to happen naturally. To do this for clients at Alpha Growth, we track and help implement 12 Ponzi games that make token go up and to the right. These typically happen through product changes, code and biz dev partnerships that result in the following options for your token:

• Lending
• Borrowing
• Returning yield
• Staking
• Liquidity incentives
• Payment for goods, services
• Access to Events (i.e. buying tickets with Bitcoin)

How will you know that you have done enough to create real token optionality? Simple: you will know you have real optionality when your business development partners start holding your token on their balance sheets as an asset.

On the road to making that happen, there are of course a lot of DeFi mechanics you will need to implement. Up next in this series, we will look at the most important areas of DeFi your project needs to generate long-term token optionality. See you next week.

If you’re interested in learning about more growth strategies for your project, we encourage you to connect on Twitter @bryancolligan. Join our Telegram for members-only alpha on projects we’re watching and DYOR resources for creating growth, credibility and engagement for your project.