Article reprinted from: Mankun Blockchain
In the blockchain industry, many practitioners believe that blockchain projects without tokens lack soul. Here, 'tokens' typically refer to tokens issued on public chains that users can withdraw to decentralized wallets and trade on-chain or on centralized exchanges. However, for the vast majority of blockchain projects, whether in token economics design, exchange operations, or the combination of technology and public chains, the level of professionalism and maturity has not yet reached sufficient standards.
More importantly, the issuance and application of tokens face a complex regulatory environment globally. Directly issuing tokens by startup teams not only brings enormous compliance pressure but may also lead to operational loss of control. Therefore, a more prudent choice is to first incentivize users through a points system, and after stabilizing the ecosystem, gradually convert points into tokens and migrate to the blockchain for assetization.
The value of points: from incentives to transition
The advantage of the points system is that it provides projects with a low-cost tool for market validation while avoiding legal risks during the initial token issuance. Through points, the team can provide rewards to users within the application, enhancing user stickiness and activity. As the points mechanism matures, it can be tokenized to bestow more value and enable on-chain circulation.
This model not only enhances the team's operational flexibility but also builds user trust and ecological foundations through points, laying the groundwork for future token economies. For instance, a blockchain platform focused on community autonomy incentivizes users to vote and participate in governance tasks through points, and after stabilizing the points system, introduces on-chain tokens, allowing users to intuitively perceive the value and role of tokens.
Taking the recent token issuance by HashKey Group as an example. Established in 2018, HashKey Group is a leader in the field of digital asset financial services in Asia. The HashKey Group is known for its comprehensive Web3 ecosystem layout, covering multiple core areas including trading, investment, tokenization services, and infrastructure. Its main businesses include two trading platforms, HashKey Exchange and HashKey Global, with HashKey Exchange being the first licensed virtual asset exchange in Hong Kong, providing users with compliant and secure trading services, while HashKey Global offers diverse digital asset trading services to global users, holding a Class F license from the Bermuda Monetary Authority.
HSK is the core token of the HashKey ecosystem, designed to support its vast business network and enhance user participation. The total supply is fixed at 1 billion tokens, and HSK is launched through a private distribution method, avoiding the legal and compliance risks associated with public sales. This distribution approach directly links the token's value to the ecosystem's activity, making it more sustainable. In practical application scenarios, HSK is endowed with multiple functions. Within exchanges, HSK can be used to pay platform fees and provide holders with transaction fee discounts, significantly reducing trading costs. Additionally, as a core tool for community incentives, HSK promotes user participation in ecosystem construction through various reward programs, increasing community activity. Users holding HSK can also gain priority access to new products and services launched by HashKey, further enhancing the user experience. This diversified application design makes HSK not only a functional token but also a key driver of collaborative development within the ecosystem.
HASHKEY's token issuance model and application scenarios provide valuable experience for startup teams. During HASHKEY's token issuance and promotion process, they adopted the following strategies:
1. Ecosystem incentives and distribution
HASHKEY's tokens were not distributed through public sales but through internal ecosystem incentive methods. This model avoids the risk of violating securities regulations while effectively expanding the base of token holders through reward mechanisms.
2. Task-driven airdrops
Users earn token rewards by completing specific tasks. This approach not only enhances user participation in the ecosystem but also drives community engagement and brand communication. For example, HASHKEY has previously rewarded tokens through ecosystem activities to encourage users to share and promote ecosystem content.
3. The combination of business and technology
HASHKEY's tokens integrate various functions in practical applications, such as participating in governance, paying fees, and redeeming ecosystem services. This token economic design aligns with business logic while advancing the deep application of blockchain technology in the financial sector.
This gradual model of transitioning from points to tokens not only allows HASHKEY to avoid unnecessary compliance risks but also enhances user trust and stickiness towards the project.
A win-win path for compliance and commercial validation
The path from points to tokens is both a key to legitimizing projects and a necessary step in commercial validation. As Web3 entrepreneurs, if token issuance is also in your future roadmap, starting from points may be a more suitable development path. We can analyze it specifically from the following four aspects:
1. Market validation of user incentives
Whether traditional centralized points or future-oriented decentralized project tokens, the core issue to resolve is user acceptance. The core value of early points systems lies in providing project parties with a low-cost tool to test the market. Through point reward mechanisms, teams can observe user acceptance and stickiness towards the project. For example, an application focused on decentralized knowledge sharing could design point reward rules: users earn points for uploading quality content, and additional points for likes or favorites. This approach not only attracts early user participation but also accumulates project data, providing a real basis for subsequent tokenized economic models. Moreover, data on point consumption reflects users' preferences for different payment services. This market validation not only enhances operational efficiency in the early stages of the project but also guides subsequent tokenization design.
2. The timing of tokenization
Pragmatically speaking, tokenization is a natural extension of the development of the points system, but the timing of its selection needs to consider the user base, ecosystem construction, and technological readiness. Initially incentivizing users to participate in minting and trading through points, and gradually transitioning to tokenization as the points system matures, effectively avoids issues of token unsold or user loss caused by 'incomplete technology and unstable ecosystem.' For example, a certain NFT project achieved over one million dollars in daily trading volume on the very first day of its token going live, one year after its points system was operational. This grasp of tokenization timing provides important reference for startups.
3. Balancing compliance and financing
Many teams mistakenly believe that tokens are the only tool to attract investment. In reality, financing models can be more flexible. For the vast majority of blockchain startup teams, early-stage funding can be obtained through equity financing. Based on this, if there is a future need for token issuance, both parties can specify in the shareholder agreement that a certain proportion of tokens will be allocated to investors once the project reaches a specific stage. This approach satisfies the team's funding needs while avoiding the compliance risks of direct token sales. Additionally, many startups introduce qualified investors or investment funds by establishing overseas companies (such as in Hong Kong or Singapore) while integrating points reward mechanisms to increase user stickiness. This ensures compliance in fundraising while enhancing project valuation through user data and business scenario validation. This method meets funding needs and avoids compliance risks associated with early-stage token sales.
4. The linkage validation between technology and application
The linkage validation between technology and business scenarios is key to the success of project tokenization. For instance, a blockchain project focused on green energy trading initially incentivized household users to upload electricity usage data and energy-saving measures through points, accumulating a vast energy data pool. In the technology validation phase, the platform redeemed points for environmental tokens, combining off-chain energy data with on-chain smart contracts to complete the leap from points to tokens. The advantage of this model is that points not only serve as a user incentive tool but also provide real scenario data for technical application testing, helping the team identify issues and adjust strategies. After several rounds of model adjustments, a public risk pool was formally established through tokens, significantly reducing the risk of failure post-launch.
Through the above strategies, the team can not only steadily promote the project's compliance but also effectively validate its commercial value and user需求, laying a solid foundation for the future token economy.
Summary by Lawyer Mankun
The path from points to tokens is not only an evolution of business models but also a necessary step in combining market validation with compliance innovation. In an increasingly complex global regulatory environment, startup teams should abandon the fantasy of 'one-step token issuance' and adopt a gradual strategy, using points as a starting point to accumulate data and optimize mechanisms through market validation, then converting successful experiences into asset applications on the blockchain.
This 'gradual tokenization' model not only reduces legal risks in the early stages of the project but also makes the process of validating commercial value more natural and efficient. Blockchain entrepreneurs must continually experiment and optimize within a compliant framework to find their breakthrough in a complex and changing market environment. While internet entrepreneurship emphasizes taking small steps quickly, exploration in the blockchain field may truly require a steady and solid approach.