$500M TVL Within A Week: Lessons from #Blur and #Blast🚀

Before diving into programming, I had a long stint in the finance industry, focusing on investments. Hence, when I noticed the rapid rise of projects like #Blur and #Blast under the same founding team, it piqued my interest, though not from an investor's viewpoint this time. 📈

My journey into programming was driven purely by interest, with hopes of someday creating or contributing to a project. Therefore, my observations of these two projects are primarily from the standpoint of a developer and founder. 👨‍💻

In this article, I will ponder some factors that might have contributed to the swift success of these two projects. Some factors are unique, while others are more generalizable and could serve as valuable lessons for other developers and founders. My focus will be more on the latter, as they hold more significance for both myself and others. 🤔

Technology or "Decentralization" is Important in Web3 Ventures, but Not the Most Crucial

I once came across a [Steve Jobs video on YouTube with over 70 million views](https://www.youtube.com/watch?v=oeqPrUmVz-o). At the 1997 developers' conference, when asked to explain a fancy technical term, Jobs responded: "We should first consider what amazing benefits and experiences we can bring to users, and then think about how to achieve that within the current technological limits," rather than the other way around.

I initially thought Jobs' view was just a simple demand- and market-driven approach. It wasn't until I read Geoffrey Moore's "Crossing the Chasm" that I had an important realization:

New technologies inherently come with complexities that can hinder their spread. Only killer apps, that represent strong user benefits, can overcome these complexities and penetrate niche markets. The complexity of new technologies, in terms of problem-solving, can only be overcome by simplifying solutions and products. Only then can the value chain focus its energy and resources on production and supply, creating a positive feedback loop.💥

This brought to mind the recent criticisms of Blast in the market. For instance, claims that Blast isn't a real L2, that it lacks substantial technology, being just a smart contract, or that it isn't "decentralized" enough with the team controlling all multisig wallets, etc.

Despite these sharp, tech-focused criticisms, Blast's TVL surpassed $500 million, with over 50,000 users in just a week: Dune dashboard. 🚀

I'm not trying to overlook the risks these criticisms suggest at the project's current stage. In fact, I once made a calculation during Blast's early access launch, which indicated that even under conservative assumptions, the airdrop gains from participating in this event could yield annual returns of over 50% or even higher.

When I wrote that analysis, the project's TVL had just surpassed $200 million. I asserted that it would definitely break the $500 million mark, which became a reality in less than a week.

When many airdrop hunters or users invest significant time, manpower, gas costs, or even deploy capital and operate nodes in other L2s, only to receive minimal airdrops leading to financial losses and severe psychological defeat, Blast's straightforward participation approach and almost calculable massive airdrop gains naturally become what we mentioned earlier: "strong user interest" + "simplified solution or product."

From Geoffrey Moore's theoretical framework, this already constitutes the two essential elements of a killer application in new technology, driving rapid project growth. At this point, for end users, concerns about the project's lack of decentralization causing multisig contract rug risks or Blast as an L2 not even having a testnet yet may slow growth but are no longer the primary conflicts.

If decentralization and advanced (fancy) technology were the main determinants of success in a web3 project, then the world's largest and most successful exchanges wouldn't be Binance and Coinbase. And the largest volume of USD stablecoin settlements and highest daily active users wouldn't belong to the infamous Justin Sun and his Tron network. No doubt, it's true that Tron has the highest DAU, far exceeding Ethereum and BNB networks. 🌐

Incremental Innovation and Vampire Attacks May Be Effective for Creating Killer Apps at This Stage

Understanding niche markets and grasping product-market fit marks the fundamental difference between experienced founding teams and novices. New founders often indulge in their own ideas, mistaking their personal needs and pain points for market demands. In contrast, seasoned teams usually start by analyzing existing products and user needs in niche markets.

When #Blur entered the NFT exchange market, the field was far from empty; it was dominated by giants like #opensea. Before #Blur, despite challenges from other competitors, opensea maintained over 80%, even 90%, market share for a long time. This fact is clearly visible on this Dune dashboard.

According to strategist Bruce Greenwald, leading companies can maintain market entry barriers in slow-growing or stagnant markets. However, it's most challenging to keep a monopoly or oligopoly in a rapidly growing niche market. Clearly, both the NFT trading market and Ethereum's L2 are rapidly, even exponentially, growing markets.

Why study leading companies and even launch vampire attacks targeting their user pain points in such markets? A simple answer is that their services or products have already proven their product-market fit. Verifying this requires not only immense resources and capital but also the right timing and circumstances.

If a product or service has already been validated in a market that makes it difficult for leaders to build entry barriers, then incremental innovation and vampire attacks become the most cost-effective and likely successful strategy for new entrants.

One might argue, didn't #looksrare and #x2y2 also use token airdrops in exchange for trading volume to vampire attack opensea, only to quickly fade away? I believe the main reasons are two-fold:

1. Anonymous projects and those with public identities (backed by well-known VCs) differ significantly in operational logic and profit models

Anonymous projects often opt for community-led paths and give tokens substantial value capture in their tokenomics. However, their biggest issue is the lack of strong endorsement, leading to difficulties in long-term investor expectation management, significantly impacting long-term token value management.

Consequently, founders of such projects tend to stimulate rapid project growth through airdrops shortly after token launch, creating a thriving illusion before cashing out massive tokens for profit. Being anonymous, these teams often don't plan to compete in the market long-term or invest significantly.

In contrast, projects with public identities and VC investments are often actually controlled by equity investors, making it challenging to allocate substantial value capture to tokens, usually relegated to governance and airdrop incentives. Since the primary interest of founding teams and VCs lies in equity, tokens become an additional benefit. Thus, they can afford to lock tokens for a long time (instead of selling off immediately upon listing) and then release them gradually as needed to stimulate project growth.

2. Merely incentivizing user interaction or TVL growth through token airdrops doesn't constitute real innovation.

Neither #looksrare nor #x2y2 introduced any significant, even incremental, innovations over opensea. Their approach of incentivizing user interaction to artificially boost trading volumes proved unsustainable and failed to genuinely guide users to invest in the ecosystem.

#Blur, while also not achieving disruptive innovation, did more than just token airdrop incentives. It precisely targeted opensea users' pain points with initial no NFT trading royalties and consistently waived fees. Another key innovation was enhancing market liquidity through its Bid Pool design and incentivizing effective bidding, a mere incremental innovation but crucial nonetheless.

This innovation, while not as revolutionary as AMM, has made NFT trading nearly as seamless as fungible token trading. The increased liquidity and improved trading experience allowed Blur to surpass all competitors, even dethroning the once-dominant opensea.

Token Airdrop Expectations Can Build Strong User Interest, but Founders Must Align Them with the Project's North Star Goals at Each Stage

In the first part, we discussed the two essential elements for the diffusion of new technologies in killer applications: "strong user interest" + "simplified solution or product." Observing the most successful products in the web3 domain, be it Binance's exchange, the Metamask wallet, or even Do Kwon's infamous UST stablecoin, all invariably possess these characteristics.

Crypto founders have a powerful tool at their disposal, unlike their counterparts in traditional domains: token economic incentives, a simple way to build strong customer interest.

When a project launches, there might be various long-term or short-term growth targets, such as user numbers, transaction volumes, transaction counts, TVL, etc. How should founding teams plan token incentives and use airdrop expectations to best guide the market and users?

From the launch of #Blur and #Blast, the most important lesson I learned is not to follow the crowd blindly. Don't just incentivize what others incentivize. Instead, focus on the project innovations mentioned earlier, such as the North Star for setting incentives.

For example, during Blur's launch, besides precisely targeting opensea's transaction fees and royalties, the key incremental innovation was the liquidity improvement mentioned earlier, leading to an enhanced user experience. Hence, from Blur's first season, incentivizing liquidity became the North Star for airdrop strategy.

Some might argue that the trading volume incentives by looksrare and x2y2 also led to an increase in NFT trades. However, this increase did not genuinely enhance liquidity, thus failing to improve the actual NFT trading experience for users. That's why, when comparing projects horizontally, such trading volumes are often excluded from the statistics.

In short, the token airdrop incentives of these two projects were merely aimed at inflating trade volume figures. In contrast, Blur's airdrop expectations were wholly directed at market makers, big and small. As long as you consistently make effective, executable bids on Blur, you essentially contribute liquidity to the market.

We've seen a similar design on Uniswap V3. Unfortunately, Uniswap only suggested this method to improve the capital efficiency of liquidity providers and did not use token airdrop expectations to build strong user interest, missing an opportunity to irresistibly attract market participants.

Conclusion

In conclusion, the exceptional performance of the Blur team in the launch of both Blur and Blast projects offers numerous lessons worth learning for developers and founding teams. If we focus solely on others' marketing growth hacks or Ponzi-like referral mechanisms, we limit ourselves and miss the bigger picture. The takeaway is succinct and potent:

1. Technology or "decentralization" is important in web3 ventures but not the most crucial factor.

   
   

2. Incremental innovation and vampire attacks may be effective strategies for creating killer apps at this stage.

   
   

3. Token airdrop expectations can build strong user interest, but founders must align them with the project's North Star goals at each stage.

   
   

What are your thoughts? I look forward to sharing in the comments.🤼‍♂️

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