Introduction

Coming from the familiar world of Web2, you're likely used to the traditional investment stuff. Stocks, with their well-defined ownership structures and established trading mechanisms, are probably second nature to you. However, as you step into the exciting but unfamiliar territory of Web3, prepare to encounter a different definition: “Token.”

While tokens might be somewhat similar to stocks, functioning as tradable units with value, their purpose and role are significantly different. Unlike holding a stock that grants you a slice of a company's ownership, holding a Web3 token doesn't necessarily translate to owning a piece of the underlying project, like a blockchain.

This guide serves as your essential toolkit, detailing all the fundamentals of Web3 tokens and equipping you with the knowledge needed to make informed decisions as you transition from Web2 to Web3. 

We'll discuss the diverse functionalities of tokens, explore their distinct characteristics, and bring up various reasons why projects choose to create and distribute tokens. This piece, mainly written by Long Leo Pham from SqrDAO and slightly edited by Chainslab, aims to make the topic of tokens clear and easy to understand.

What is tokenization?

Tokenization in Web3 projects refers to the process of converting physical or digital assets into digital tokens that can be traded, transferred, or exchanged on a blockchain. This technology has the potential to revolutionize the way we interact with assets, making them more liquid, accessible, and transparent.

Many different types of asset3s can be tokenized, including:

  • Real-world assets, such as real estate, fine art, and commodities
  • Digital assets, such as intellectual property, gaming items, and virtual land
  • Financial assets, such as stocks, bonds, and currencies

Web3 projects leverage tokenization to achieve various goals, such as:

  • Fractional ownership: Tokenization allows assets to be divided into smaller pieces, making them more affordable and accessible to a wider range of investors.
  • Increased liquidity: Tokenized assets can be traded easily and quickly on decentralized exchanges (DEXs), making them more liquid than traditional assets.
  • Improved transparency: Blockchain technology provides a transparent and tamper-proof record of all asset transactions.
  • Enhanced security: Blockchain-based security measures make tokenized assets more secure and resistant to fraud.

Here are some examples of Web3 projects that are using tokenization:

  • Real estate tokenization: RealT, Brickblock, and Propy are a few examples of projects tokenizing real estate assets, enabling investors to buy and sell fractional ownership of properties.
  • Fine art tokenization: Maecenas, Artory, and Verisart are the initiatives that tokenize fine art, making it easier to trade and invest in this asset class.
  • Gaming tokenization: Axie Infinity, The Sandbox, and Decentraland tokenize in-game items like weapons, characters, and even virtual land, allowing players to own and trade them freely.
  • Financial asset tokenization: Projects like Polymath, Securitize, and tZERO are making financial assets, such as stocks, bonds, and currencies, more accessible and liquid for investors by tokenizing them.

Tokenization is still a relatively new technology, but its potential to revolutionize how we interact with assets in the Web3 world is undeniable. As the technology continues to develop and mature, we can expect to see even more innovative and groundbreaking use cases for tokenization emerge.

The Ethereum Token Market

The Ethereum token market is a new and innovative way for early-stage crypto projects to raise funds, build community, and get feedback. It is an alternative to traditional angel and pre-seed rounds, and it has several advantages, including:

  • Speed: Token launches are lightning-fast compared to traditional methods, allowing projects to hit the ground running with product development and launch.
  • Accessibility: Token launches are open to everyone, not just accredited investors. This allows projects to raise capital from a wider range of people, including their own community members.
  • Alignment: Token holders are incentivized to promote and support the project, as they have a financial stake in its success. This can help to build a strong community around the project early on.

Here are some of the benefits that using a token launch correctly can get for your project:

  • Funding: Token launches can be used to raise significant amounts of capital, even for early-stage projects. This can help to fund development, marketing, and other costs associated with launching and growing a successful crypto project.
  • Social presence: Token launches can help to generate excitement and buzz around your project. This can attract new users, partners, and investors.
  • Feedback: Token holders can provide valuable feedback on your product or service. This can help you to improve your product and make it more market-fit.

In the past, angels and venture capitalists (VCs) were the primary sources of funding for early-stage crypto projects. However, more and more crypto projects are now turning to the Ethereum token market to fill this role. This is because the token market offers a number of advantages over traditional fundraising methods, as described above.

Here are some examples of successful crypto projects that have raised funds through token launches:

  • Ethereum
  • EOS
  • Polkadot
  • Solana
  • Avalanche
  • Filecoin
  • Polygon
  • Uniswap
  • Aave
  • Curve Finance
  • Synthetix
  • MakerDAO

These projects have raised billions of dollars through token launches, and they have gone on to become some of the most successful crypto projects in the world.

Overall, the Ethereum token market is a valuable resource for early-stage crypto projects. It provides a way to raise funds, build community, and get feedback quickly and efficiently. If you are considering launching a crypto project, consider exploring the Ethereum token market as a fundraising option.

Who should consider Bootstrapping with Tokens?

“Crack” devs

Crack devs are talented solo developers who are passionate about their projects and are willing to work hard to make them a success. They are often self-funded and have little to no outside investment.

Token launches can be a great way for crack devs to bootstrap their development. By launching a token, they can raise funds from their community and supporters. This can allow them to focus on building their product without worrying about running out of money.

Small teams, Big dreams

Similar to crack devs, small teams with limited funding can leverage token launches to bridge the financial gap. Not only can they raise needed capital for development and launch, but the buzz generated can attract new users, partners, and investors, further fueling their project's growth.

“Fail fast” builders

The "fail fast" philosophy of building software is based on the idea that it is better to build a product quickly and get feedback from users early on, rather than spending a lot of time and money developing a product that no one wants.

Token launches can be a great way for developers to fail fast. By launching a token, they can quickly raise funds from their community and build a prototype of their product. They can then get feedback from their community and supporters to see if there is interest in the product. If there is interest, they can continue to develop the product and launch it to the public. If there is no interest, they can quickly pivot and try something new.

Overall, token launches can be a great way for developers to bootstrap their projects, regardless of their experience level or budget. If you are a developer who is interested in launching a token, I encourage you to do your research and learn more about the process.

Here are some additional benefits of using tokens to bootstrap a software project:

  • Alignment of incentives: Token holders are incentivized to promote and support the project, as they have a financial stake in its success. This can help to build a strong community around the project early on.
  • Decentralized governance: Tokens can be used to create decentralized governance structures for software projects. This allows token holders to have a say in the direction of the project and to vote on important decisions.
  • Open source development: Token launches can be used to fund open-source software development. This can help to accelerate the development of new and innovative software projects.

If you're a developer with a burning vision and a desire to build something in Web3, consider token-based bootstrapping. This approach offers great advantages over traditional fundraising methods, potentially bringing your project to success.

The New Meta of the Fairlaunch Token

Fairlaunch tokens are a new type of cryptocurrency that is launched without any presales or vesting periods. This means that all tokens are distributed to the public at the same time, which is seen as a more fair and equitable way to launch a new cryptocurrency project.

One of the most successful fairlaunch tokens to date has been $UNIBOT. $UNIBOT is a utility token that is used to power the Unibot ecosystem, which includes a decentralized exchange (DEX), a yield aggregator, and a launchpad.

$UNIBOT was fair-launched in July 2023 with a total supply of 10,000,000 tokens. 100% of the supply was added to liquidity, and there was no presale or vesting period.

$UNIBOT quickly became one of the most popular cryptocurrencies on the market, and it caused a mini bull market for utility coins. This was due to a number of factors, including:

  • Fair launch: The fair launch structure of $UNIBOT made it attractive to investors, as it ensured that everyone had an equal chance to participate in the launch and there was no selling pressure from private investors.
  • Live product: $UNIBOT was launched with a live product, the Unibot DEX. This showed investors that the project was legitimate and that the team was serious about building a successful product.

The market seems to be accepting token taxes if the token has a perceived fair launch and a live product or is launching soon. This is because investors are willing to pay a small tax on their trades if they believe that the project has a good chance of success.

Fairlaunch tokens are still a relatively new phenomenon, but they have the potential to revolutionize the way that cryptocurrencies are launched. By providing a more fair and equitable way to launch new projects, fair launch tokens can help to attract more investors and build stronger communities around these projects.

Here are some of the other benefits of fair launch tokens:

  • Transparency: Fairlaunch tokens are typically more transparent than other types of tokens, as all of the information about the launch is publicly available.
  • Community ownership: Fairlaunch tokens give the community more ownership over the project, as they are distributed to the public at the same time.
  • Reduced risk: Fairlaunch tokens can reduce the risk for investors, as there is no presale or vesting period. This means that investors are not buying tokens from the team at a discounted price, and they are not locked into holding their tokens for a certain period of time.

Overall, fairlaunch tokens offer a number of advantages over traditional fundraising methods. They are more fair, equitable, and transparent. Additionally, they can help to build stronger communities around new cryptocurrency projects.

Conclusion

Web3 is constantly evolving, with new ideas and technologies popping up all the time. What's cutting-edge today could be yesterday's news tomorrow. It's disruptive, fast-paced, and a little bit chaotic, but also full of potential.

So, if you're thinking about jumping into Web3, ditch the "one-size-fits-all" mindset. Here's the real deal:

  • Stay in the know: Research deeply into the Web3 world. Talk to the community, follow the trendsetters, and keep your finger on the pulse of what's happening.
  • Be flexible: Don't get too attached to any one approach, even if it seems like the ultimate solution right now. Be ready to switch gears and adapt as things change (which they will, trust me).
  • Never stop learning: This is a space that's constantly learning and growing, and so should you. Keep the "growth mindset" and keep exploring new things to stay ahead of the curve.

These are the superpowers you need to navigate this wild ride and maybe even leave your own mark on the future of Web3.