Written by Dovey Wan
Compiled by: TechFlow
Tokens represent a financialized belief system where token volatility is the most powerful market entry strategy. Many first-time crypto founders adopt a bottom-up, milestone-based mentality similar to tech startup founders, believing that once meaningful value is created, the price will eventually improve. However, the growth trajectory of a successful crypto project typically follows a different sequence:
Prices guide emotions.
Emotions guide the narrative.
Narratives guide cognition.
Cognitive leadership community.
Community-led adoption and protocol-market fit (PMF).
Barbell Distribution and the Sunk Cost Fallacy
Cryptocurrency embodies the intersection of financial populism and technological libertarianism. The best distribution strategy for tokens is a "barbell distribution", which targets both ends of the user spectrum - core users and fringe users, from IQ 150 to IQ 50. This approach forms the upper funnel of the belief formation process. Many founders try to limit the initial token supply to avoid "selling pressure", but often fail to achieve growth in the upper funnel. It is critical to successfully attract users on one end first and then widen the barbell.
In its early days, Bitcoin served either core users (cypherpunks, miners, and billionaires who wanted to avoid wealth redistribution) or fringe users (regular people whose local monetary systems collapsed or who wanted to circumvent sanctions or capital controls). Early DeFi also reflected this pattern, working best for crypto-native core users (self-custody enthusiasts, large players who want transparent transactions, large long-tail asset issuance) or fringe users (those who do not have good access to centralized exchanges or financial infrastructure, driven by the "price increase" narrative). Most of the middle users remain apathetic or poorly incentivized due to high psychological and product switching costs.
For core users, the opportunity cost of not adopting cryptocurrency is too high. For fringe users, the opportunity cost is low, so they are more likely to try.
"Miners" in most token economic environments are highly mercenary in nature, influenced by their level of sunk costs. The higher the sunk costs, the closer they are to core users. Pre-ASIC Bitcoin miners rarely retain coins because there are no substantial sunk costs to recover. Post-ASIC miners retain coins to cover their sunk costs and operating expenses. PoS stakers hold coins at the opportunity cost of capital. The less productive a PoS coin is, the harder it is to build a strong core user base. Locking (including TVL locking) and airdrop farms are the worst forms of token distribution. The sunk costs of these actions are often proof of meaningless work, which is difficult to assess the "cost" and difficult to attract core or marginal users.
Active circulation through volatility
The few cycles of turnover in a market cycle are the perfect hothouse for nurturing belief systems and a litmus test for founders’ adaptability and commitment. In crypto, these cycles are significantly accelerated, five times faster than traditional finance. This dynamic works like a natural selection process, where passionate advocates who hold early tokens amplify the message and spread it like an idea virus. This shift changes the environment from player vs. player (PvP) to player vs. environment (PvE).
The key to this shift is strong leadership, a positive feedback loop of delivering on promises, and healthy engagement with key members of the upper funnel. This effectively shifts the funnel within crypto. Certain areas, like memes and NFTs, require a higher intensity of focus and mental agility, moving five times faster than the already accelerated crypto cycle, and 25 times faster overall.
For memecoin founders, it’s a statistical game with a very low hit rate, akin to a roulette wheel spinning wildly. Memecoins play a role in the history of financial populism: they are not the product of financial nihilism, but financial absurdism and populist movements. Camus said this out loud 100 years ago. Cultural fluidity, identity crises, the twin deaths of traditionalism and modern liberalism, all have led to a great void in the sense of a modern autistic monkey. From consumerism to internet tribalism, trends, narratives, and products have emerged to fill this void.
As a result, the narrative and identity alignment within each coin now becomes a new means of expressing meaning and connecting with like-minded people - just like the early days of the internet when normally introverted, socially awkward cat owners finally found an outlet to post photos of their beloved cats. Unlike large corporations or venture capital coins, which may insist on some grand vision and brand legitimacy, meme coins provide a place for all those who don't care about "what is the long-term meaning". Only the most absurd, short-lived, but most intense dopamine hits can retain this group of warriors who have no other wars to fight (but must release their ADHD power somewhere). This is a great PMF in crypto, perfect for a culture centered around depravity.
This environment is characterized by the most extreme survivorship bias and power laws, and users and traders are fickle by nature. This is why most tokens have only a 1-3 month lifespan in terms of liquidity and volatility, and very few are able to remain relevant after a cycle. When there is no liquidity, the token dies. Information is entropy, attention is currency. Liquidity is the HRV of a token.
Make diamond hands rich
Reward early loyalists generously and build a momentum drive system that reinforces commitment in this belief system funnel. Imagine a pyramid, the width of the base determines its height; the diamond hand forms the base and determines the height of the FDV. Price always leads the narrative.
Failure to make diamond hands rich naturally invalidates the conversion path of this belief funnel, and then it becomes PvP rather than PvE. Rewards go beyond financial gain, they also serve as a form of identity recognition and enhance self-esteem. As a token community rooted in a belief system, you can provide social and psychological value by cultivating a sense of shared identity among holders. The decline of traditionalism and modern liberalism has left a huge survival gap for today's keyboard apes. Trends, narratives, and tokens have emerged to fill this gap, providing people with a sense of purpose and connection: just like the early days of the Internet, when cat owners, who are usually introverted and unsociable, finally found a channel to post photos of their beloved cats.
Diamond hands exist not only for the wealth effect, but also for the alignment of culture and beliefs. Wealthy Diamond hands will further enhance the overall cultural influence of the token, strengthen the belief system, and make it more self-fulfilling.
Ultimately, tokens represent a financialized belief system where market dynamics, human nature, and psychological biases are not just obstacles to overcome, but fundamental building blocks for growth and adoption. Understanding and leveraging this belief system is critical to navigating and succeeding in the crypto ecosystem. I am always looking for founders who have both solid technical skills and a deep understanding of human nature. Crypto entrepreneurship is a process that requires a full grasp of the rules of the capital market game, cultural developments, and technological advances.