Original article by Alex Topchishvili, CoinList
Original translation: 1912212.eth, Foresight News
According to American businessman Eric Ries, product-market fit (PMF) is the moment when a startup finally finds a broad customer base that resonates with its product.
Despite the differences between Web2 and Web3 startups, the profound insights about PMF apply equally to crypto: find it, or fail.
This begs the question: should PMF be implemented before issuing tokens?
In short, it depends on how many tokens the product needs to find product-market fit. The importance of using the token will determine the best time to introduce the token to the product.
In this article, we will explore the problems that arise from issuing tokens before achieving PMF, as well as the few situations where it is appropriate to issue tokens early.
Issues with issuing tokens before implementing PMF
To be fair, many of the existing tokens are not critical to the products they serve.
For crypto products that do not rely on tokens to operate, efforts should be made to secure a PMF before issuing tokens, as the decentralized nature of these projects makes it extremely difficult to make adjustments after issuance. For example, while governance tokens may be critical to a project’s ecosystem, they are not core to the product.
Introducing tokens too early can hinder the search for PMF by distorting incentives, influencing user behavior, and locking in specific product elements. In addition, it is often difficult to adjust the economic model after the token is issued, even if these adjustments are necessary to achieve PMF. And, while token incentives may initially attract users, they cannot ensure long-term user retention or solve fundamental product problems that must be addressed before issuance.
When is it appropriate to issue coins before implementing PMF?
For crypto products that are designed with tokens at their core (which is rare), the tokens are actually a necessary part of the product’s functionality and must be issued before a PMF is found.
Examples where tokens are critical to finding a PMF include L1s that derive economic security from miners or validators, like Bitcoin, Ethereum, Solana, and BNB Chain, or DePINs like Helium and Dimo that rely on token issuance to bootstrap the supply side of the network.
Although less common, some DeFi products require tokens to properly align incentives in the network (excluding governance). For these products, the token network must function properly to achieve scale and incentive alignment.
Under what circumstances is it not appropriate to issue coins before implementing PMF?
While many products have tokens, few crypto projects actually rely on tokens to operate. The most common use of tokens is to effectively kick-start user acquisition (or eventually provide exit liquidity). One successful example of this might be Blur. They effectively launched a blood-sucking attack on OpenSea, which was the leading NFT marketplace at the time, through a token incentive mechanism.
While tokens may be effective in kickstarting user acquisition, if the product has no true PMF, activity is bound to drop significantly when these incentive campaigns end (see what happened with all the major airdrops in 2024).
Conversely, if your product is already working, then by adding incentives to increase user acquisition (in many cases to decentralize governance), you can enjoy the benefits of accelerated growth.
Take Compound as an example. While they have a token for governance, the token is not critical to their core product (decentralized lending). Compound had already achieved significant product traction prior to launching its token.
Similarly, Uniswap, which had already captured a major market share of decentralized exchanges with version 2 of its protocol before launching its token, effectively resisted SushiSwap’s bloodsucking attack by issuing its own token to match incentives.
Recently, Polymarket has found extremely strong PMF in decentralized prediction markets, where users can use USDC to bet on the outcomes of real-world events instead of using tokens with wildly volatile prices.
In summary, unless your product truly relies on a token, you shouldn’t rush to launch a token before implementing a PMF. Without a PMF, your token may slow down growth rather than boost it.
