Introduction
Many blockchain projects grapple with hurdles related to growth, such as enhancing user adoption, amplifying organic trading volume, facilitating exchange listings, improving market capitalization, and attracting new investors. These endeavors demand considerable effort and resources, often spent on refining tokenomics, exploring various marketing strategies, participating in numerous unproductive meetings, deciphering trading patterns, and continually engaging with venture capitalists for sustained funding.
In the context of the crypto space, a project's adoption rate significantly impacts its success. Typically, projects predominantly emphasize the first two elements of adoption while neglecting the third vital component. We believe that achieving maximum value requires equal focus on all components.
Understanding Project Adoption
Projects usually initiate with a promising idea, an issue to resolve, or a goal to accomplish. The pioneer product addresses a significant problem in the Web3 space, with the accompanying token offering robust tokenomics and a significant use case within the ecosystem.
Marketing becomes the initial focus, aiming to spotlight the problem and the project solution. The projects may attract an investor, leading to their first listings on two centralized exchanges.
While the fundamentals and marketing are set up, many projects overlook another critical factor determining the project's adoption and overall success: liquidity.
Our standpoint is that project adoption is an interplay of three elements: sound fundamentals, effective marketing, and adequate liquidity. Each component holds nearly equal significance, and a project can attain optimal adoption only when all three elements score medium to high, as opposed to just two out of the three.
Liquidity as the missing piece
Liquidity, the ability to buy or sell a specific asset quickly, conveniently, and in large quantities without significantly impacting its price, is an often disregarded yet critical element. A liquid market, characterized by a narrow spread and a deep order book, facilitates easy buy-sell transactions in substantial volumes, consequently boosting trading volume, enhancing adoption, and attracting new investors.
Combining all three
The success of a project may stall if it underperforms in any one of the three constituents – fundamentals, marketing, or liquidity. The lack of emphasis on any one of these elements may lead to the project being unnecessary, unknown, or inaccessible, because:
1. Without strong fundamentals, no one needs your product.
2. Without effective marketing, no one knows your product.
3. Without ample liquidity, no one is able to participate (buy).
Projects risk failure if they fail to allocate equal attention to each of the three components of adoption. For instance, a project with robust fundamentals and marketing may stumble if it lacks liquidity, making it difficult for users to purchase the token and utilize the project. Conversely, a project with abundant liquidity and strong marketing, but weak fundamentals, cannot sustain its adoption rate due to insufficient knowledge about the project among potential users.
Illustratively, if each element is in the range 0-10 and adoption is a score of 0-1000, then a project scoring 100 in fundamentals and marketing, but 10 in liquidity, yields an adoption score of 100/1000 (10%), significantly lower than an average project which equally focuses on all three aspects such as 6 x 6 x 6 = 216/1000 (21.6%).
In conclusion, it is indispensable for projects to equally focus on all three elements – fundamentals, marketing, and liquidity – to optimize their potential for success. Liquidity, while often overlooked, is a vital component, as without it, the value of robust marketing and sound fundamentals diminish, hindering the ease of transactions for traders and investors.
Recommended next steps
1. Self-assess your liquidity using CoinGecko
2. Let us do a complimentary assessment of your liquidity
3. Start with a 2-week market making trial with us at Enflux
