At Bunches, we have a few principles that are foundational to how we think about bringing the chain to consumers. Whether we're thinking about decentralizing moderation or designing our utility token, these principles are our system of thinking that help us keep first things first.
So far, I've published two, with a few more to go. You can read about growing the pie and infra not internet at these two links.
This week, I'd like to cover the next principle that talks about how we think about how the social era's marketplace and network effects impact building onchain applications. Namely, I'd like to tackle how we at Bunches think about the cold start problems that remain in consumer crypto: network first, economy second.
Network first third. Economy second fourth.
I have a confession. There's a little bit of clickbait in the title. Let me explain.
At Bunches, we've identified four steps to building an economy. Network and economy are the third and final steps, respectively. We'll walk through each of them in some detail below, but I first want to give some context as to why this principle matters to us.
On both Farcaster and Twitter, there have been lots of talk revolving around some flavor of launching a coin in order to find PMF or as a precursor to launching a product.
Don’t.
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Proponents of this approach will argue some flavor of "launching a coin will help us find PMF and then we'll build a product for the people we gather".
In most cases, this will lead to disaster.
It's the onchain equivalent of "they will come and then we'll build it" ... which is just as wrong as "build it and they will come".
The counter-reaction by some has been some flavor of "products shouldn't launch a coin until they reach full scale and have nothing else to do".
This will also lead to disaster.
It's the onchain equivalent of "don't start a new curve until you've fully tapped out your existing curve" or "don't think about monetization until you reach scale".
As with most dipolar arguments, the reality is somewhere in the middle. But as founders and builders, we have to be methodically thoughtful on what we're building, for whom, and in what order.
Our order (for right or wrong, better or worse) is as follows:
Identity: part of an individual that they would claim as essential to who they are
Community: a gathering of individuals who share an identity
Network: a community equipped with tools for creation, curation, and culture
Economy: a network who is exchanging value around their shared culture
Identity
Webster tells us that identity is "the distinguishing character or personality of an individual". However, since individuals often have multiple identities that are context-dependent, I'd make a slight correction to that: identity is a distinguishing character or personality of an individual.
Identity is a part of an individual that they would claim as essential to who they are.
Why is this important?
Because fundamentally network economies are social structures. They are comprised not of ephemeral digital entities, but rather real flesh and blood persons on a phone, keyboard, or mixed reality headset.
Onchain is about people.
It's about that person's freedom. Their ownership of digitally scarce things.
Onchain is not about financial transactions or innovative technology.
Transactions and technologies are simply means to the end of serving people.
If you want to build an economy, you have to start with a network. And starting with a network means starting with an identity and bringing people of like identity together into a community.
The first step to building an onchain network economy is either discovering or selecting an identity of your target market. Ideally this identity is one that is underserved, shared by many, and hugely impactful to the individuals who hold it.
Facebook did this with college students.
Dribbble with designers.
Farcaster with web3 builders.
This is how the business of sports works, where they monetize IRL fandom.
It's how modern Western politics works, where people self-identify as left, right, center, or otherwise and transact accordingly.
Growing identity into a network economy is how religion works, where people wear the proverbial jersey of their faith of choice.
In order to build an economy, one needs to first identify identity.
But here's a new thing introduced by the chain: one of the craziest properties of NFTs and memecoins are that they are able to create identity out of thin air, simply be prefixing a word with a dollar sign or existing as a piece of digitally unique art.
And then people begin to self-identify with Cryptopunks, Bored Apes, $degen, $higher, or $ENJOY.
And they want to find each other. To congregate. To converse.
And out of shared identity, emerges community.
Community
To be honest, there are very few things to be said about community that hasn't already been written about over the last few years. Community has dominated the thought zeitgeist, and there are a ton of wise things floating in the ether.
But there are a lot of foolish things floating out there, too.
For those wondering where to get started, I'd recommend Squad Wealth (heavy emphasis on onchain communities), Greg Isenberg's Substack (if you can tolerate the constant in-your-face monetization, there are gems amid the nosie) and this podcast hosted by Fred Erhsam (where Blake's thoughts on cultural communities in particular are insightful).
For more old school thought, check out Bowling Alone or the slightly newer-school Get Together from Stripe Press.
But fundamentally, community is the result of a shared identity's gravity.
There's an almost magnetic quality about a sufficiently established identity.
When the identity is powerful enough, it wants ... needs ... to be shared.
Sports fans have stadiums, gamers have Discord servers, churches have congregations, and political participants (and furries and M:TG fans and pen collectors) have conventions.
The desire for conversation, camaraderie, belonging, information exchange, or simply sharing a mutual passion for the identity are all reasons that communities emerge.
And this doesn’t change if you’re talking about digital or IRL communities.
Shared identity leads to community.
Then increasingly, as these communities grow in complexity and in size, they inevitably want tools.
Tools to gather, to communicate, to organize, to create common culture, to accomplish a stated communal mission.
And so networks emerge out of sufficiently sized communities.
Network
Shared identity leads to community.
Engaged community leads to network.
Whereas communities want to be together, networks want to do together.
They want to chat, post, create, curate, collect, engage, grow, and most other verbs you can think of here.
One major difference between a community and a network are the (forgive the computer science speak) are the number of edges between nodes. To put more plainly: there are more connections.
In a community, people gather around a shared identity, with the identity in the center.
In a network, people use the shared identity and community as a means for interaction.
There are many startups to be had simply by identifying communities of sufficient size and importance who want tooling for interaction.
Again, Bunches for sports fans or Dribbble for designers or Zora for onchain creators.
Similar to community, there are tons of resources out there about building and cultivating networks.
Contrary to what some may have you to believe, knowledge from the last phase of the internet definitely carries over to the onchain era.
After all, the chain is new infra, not a new internet.
The lessons from social don't just magically go away because the chain now exists.
Here are some great resources on networks and network effects.
First, if you’re new to thinking about network effects, you could do worse than starting with nFx’s resources: the Network Effects Bible, the Network Effects Manual, and their archives.
And then there’re the classic reads: Cold Start Problem, Blitzscaling, and Zero to One (though the chapters on 1 to n are the most pertinent for this topic).
But my personal favorite and one I recommend the most consistently is Modern Monopolies. It’s lesser known as it’s not coming from “celebrity thought leaders”, but it’s a fantastic and accessible overview to the space.
But as more and more interaction happens within the network, more and more content, connection, and culture are created within the network. Which in turns provide value.
And as the network begins to create value, the network begins to desire to capture this value.
And thus an economy is born.
Economy
As networks create content, connection, and culture, they create value.
At this point, it's important to also note that not all value is financial in nature. In today's world you could even argue that social capital (attention, reputation, influence) is just as (if not moreso!) important as financial capital.
No matter the underlying type of value it's still created within networks.
And eventually this value leaks and the network seeks to capture it.
At this point, the network begins clamoring for tools to capture and circulate value...which inherently means that an economy emerges.
This is where the infrastructure that is the chain truly shines.
The chain is extraordinary at capturing and circulating value in our modern digital world.
After all, this is why blockchains were initially invented: to solve the computer science (and economic) problems of double spending, immutable ledgers, and how to move value between entities that may not have full trust in one another.
And don't forget that no matter how big or small the economy, it's all about serving the network, the underlying community, and fundamentally the individual people who make up the community.
After all, if a memecoin launches but no one transacts it does it even have market cap?
OK...but why does this matter?
As we've seen, we can generate a shared identity via tokens of all kinds. These tokens (memecoins, NFTs, etc.) leads to shared culture in community and some semblance of value is created as people pump bags or projects. This value is then often captured via the tokens themselves.
But now we see the issue: the value created is the shared identity. It's circular.
The value isn't created for or by the identity...it is the shared identity. This is exciting for a while...but in most cases this economy inevitably collapses in on itself.
When the shared identity is also the same as the captured value, it's akin to dividing by zero.
But for a while, it's really exciting to watch. As tokens moon, they seem like successes.
As builders, in our excitement for these "successes" and for the technology, we can put the proverbial cart before the horse (the economy before the other steps), which doesn't quite work.
If we don't think about identity, we're not building for something essential.
If we don't think about community, we're not building for people.
If we don't think about networks, we're not building for created value.
Here's the good news: the chain can help fast forward the four steps, and you can go from identity to economy nearly instantaneously...especially if the captured value is intrinsic to (but not the same as!) the shared identity.
But these four steps can't be skipped. Only fast forwarded.
If you want to build an economy from six people it's nearly instantaneous. Particularly because in most cases you know the other 5 participants.
But if you want to build an economy for the millions of global sports fans, you can't skip steps.
Building the network has to come first. And then the economy.
But we're almost there. Stay tuned. 🧢
Want to learn more, or just chat about this? Ping me! I primarily hang out on Farcaster these days, so feel free to send me a reply (thinking in public is great!) or shoot me a direct cast there.
Otherwise, thanks for reading! 🙏
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