When to launch a token?
An important decision many projects face is when to launch their token. Should they wait until they have a product in the market? Should they seize market dynamics and launch quickly? Does their project even have viability without a token? Getting the timing right for your token launch is a key part of designing your tokenomics. Figuring out what the right time to launch your token is what I'll cover below, including:
- How do you know you're ready to launch your token?
- How to evaluate the timing for launch based on internal and external factors
- Key things to consider regarding when to launch a token
Knowing when it's time to launch a token
Launching a token is similar to any other product launch, but much more complicated. Beyond simply adding another aspect to your product, you're adding a whole financial, economic and political aspect to your product. There's a lot of homework to be done before and answering the checklist of questions below will guide you as to whether you're ready to launch a token and when the right time to launch your token will be.
How does your tokens goal affect when to launch a token?
There are multiple reasons to launch a token and have a token in your product. I've covered seven reasons to launch a token here, and there are other frameworks out there. The first step to deciding when to launch your token is knowing, exactly, what your token does, why you have it, who it serves and how.
Launching a token with the purpose of fundraising is going to be dramatically different from launching an in game currency, an NFT project or a proof of stake asset.
Depending on how critical your token is to your product you'll know whether you need to launch it earlier or later. Alana Levin at Variant Fund has a useful framework:
If your token is the asset needed to secure your network from day one, like Bitcoin or Ethereum, you'll probably need the token the moment you launch. However if your token is not core to the product and is used for governance, progressive decentralization or add on product experience, such as $UNI, $LDO or $XDEFI, you can afford launching your token at a later date.
How much later should you launch your token if it's not core to your product? That depends on the following questions.
When you launch your token is affected by how clear your tokenomics are
If your token is a critical part of your protocol, you'll need to launch it immediately. If it isn't and it's used for governance, public goods funding, product improvements and experiences you have more time. The key question to answer is how clearly have you designed your tokenomics? How clearly have you defined the goal of your token and how it achieves that goal?
The answer to this question is much more business oriented than 'crypto' oriented. As the tokens goal here is business related, and not to incentivize participants or secure the network, it's indeed more of a business question than a crypto network one.
If your tokens serve a business goal that needs to be achieved immediately, such as fundraising, or fast decentralization of your protocol, you'll need to launch sooner. How soon depends on your business roadmap and whether adding a token in at a point in time will help you achieve those goals.
Let's explore some examples from '7 reasons to launch a token':
- Fundraising: Fundraising via a token is usually a forcing function to launch a token before your product is ready. That's why you're fundraising, no? In this case, you'll want to launch based on your capital needs, but it's critical to not launch too soon and make a few mistakes. These include launching a token without knowing what purpose it will serve, not being regulatory compliant (a token for fundraising purposes is more often than not considered a security) and not having a clear idea how your token will capture value.
- Governance: Governance tokens should be launched when you can answer three questions. The first is when you have a clear idea who will be the governing stakeholders. The second is what aspects of your product will be governed and the third is why it's beneficial for this distributed governance to take place. Governance tokens rely on having a properly distributed tokens to stakeholders who care and are aligned about governance. It also matters for products that are governance oriented. Most products don't benefit from distributed governance during their first few years - a reason why most startups and businesses don't have this concept. If you can answer those three questions of who, what and why, you'll know it's time to launch your token. If you can't, and your token is meant for governance - it's still too early. Without knowing the answers you risk having governance captured by a group of unaligned holders or simply apathy and bad governance.
- Product utility: When your token is integrated into your product utility the answer to the question of when is the right to launch a token becomes a product oriented one. Tokens are BIG product updates. They add a myriad of new elements into any product, including financial, political and economic ones. They add new users into the mix. Do you and your team have all the necessary resources to get this product launch right? Have you evaluated your user base? Are they interested in tokens? Will adding a token now be the right move from the prospective of your product roadmap? Will it cause more trouble than it's worth? For example if your product offers gated social experiences based on social tokens, you might need to launch a token sooner rather than later because it's integral to your product experience, but you'll still want to evaluate if it's the right time to launch it versus other 'quicker and dirtier' options. If your tokens serve as loyalty points, maybe it's better off postponing your tokens until you've figured out your points system better. Two opposite examples of this are Stepn and Sweatcoin. Both are apps that do the same thing: incentivize physical activity with tokens, but they took opposite approaches. Stepn launched immediately with tokens whereas Sweatcoin first built a huge community of users with regular 'web2' loyalty points and only after establishing a real user base started converting loyalty points into tokens. The latter approach is vastly superior, since it onboards the right users and not financial ones. Onboarding the wrong users is a problem for many web3 related apps, and one I've written about here and here.
Having the information and analysis on whether you'll know what to do with your token and how to manage your community is the third important question to answer regarding when to launch your token.
When you've modeled your economy is the right time to launch a token
Knowing what purpose your token serves and how it integrates with your product is important but like any good product, you'll need to do testing and modeling to find out what works. This is where tokenomics models come into play. How many users do you need to engage with your product in a desired way to make your token behave like you want it to? How many tokens will be distributed to whom and when? Having a well modeled tokenomics design will inform your decision to launch a token: if the metrics line up, you know you're good to go and have a margin of error. If the metrics don't make sense, it's still too early.
Understanding when the right time to launch your token is relies on how well you've designed your tokenomics.
Other things to consider on when to launch your token
Resources
Launching a token requires a lot of resources. You'll need to model your token properly, create the smart contracts, manage the legal aspects of a global product launch, token distribution and emissions and manage liquidity on centralized and decentralized exchanges. All of these things require resources to do properly. Sure, you can launch a token very easily by using the ERC-20 standard, but I can assure you it won't work well. Make sure you have the resources to manage all the moving parts before you launch your token.
Market conditions
Crypto, like other financial assets, is cyclical. Bull markets and bear markets affect token launches... a lot. While forecasting the market condition is rather challenging, being aware of the market cyclicality will help you decide on when the right time to launch your token is, based on your goals. If you're looking to fundraise - a bull market is perfect. If you're looking for highly aligned users - a bear market is often better.
Regulations
Different countries have different regulations regarding when you can, and even whether you’re allowed, to launch a token. This will change dramatically based on the goal your token serves. While regulations in the EU and US are still being formed, it does seem like they are coalescing around the earlier you launch your token, the more regulatory scrutiny it will be under. This is true especially when your token launch is pre product. When you launch your token is also affected by regulation.
When is the right time to launch your token?
When to launch a token is a complex and important decision for any web3 based project. To answer this question you'll first have to know what your token does, whether it's a core part of your product or not. You'll need to understand the goal of your token and how important that is to your businesses goals. For example fundraising will require an earlier token launch whereas governance will usually require a later one. Lastly you'll need to be able to model your tokenomics and product metrics very well to understand if now is the right time to launch your token or not.
Designing Tokenomics by Yosh Zlotogorski
Web3 Research
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