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What does it really take to build a blockchain?
Every month, it seems, a new blockchain is announced. They come in many forms: L1, L2, L3, parallel EVMs, and so on. But, at their core, they are all about creating new infrastructure tracks for developers to build the app that will ultimately drive real adoption. Each announcement is often accompanied by a buzz of fundraising, with the excitement of this latest technical advancement being the key to the future.
Azeem Khan, a CoinDesk columnist, co-founder of Morph, an Ethereum layer 2, and an advisor to the UNICEF Crypto Fund.
However, the truth is that no one knows which of these ecosystems will succeed. So, what does it actually take to build a successful ecosystem? If you reverse engineer it, you will find that the concept is quite simple, although perhaps not so easy to implement, as evidenced by the huge chains with only 20 active users per day despite their billion-dollar valuations and treasuries.
If you find yourself in a position where you need to build an ecosystem from scratch, it is critical to understand the essential components. The first requirement is users and liquidity on the chain itself. Without these, there is no incentive for software developers, or builders, to build products on the infrastructure you are providing. When a chain with little liquidity stays online but has no builders, it becomes what people call a “ghost chain.” Typically, these chains have tokens that are used purely for speculation or sit in some sort of purgatory with no trading volume, eventually falling into obscurity. If you haven’t already figured it out, this is bad.
Attracting these early adopters and liquidity is often the biggest challenge new chains face. Typically, we see massive early incentive systems designed to lock up liquidity on chain when it goes to mainnet. The problem with these approaches is that they are not sustainable and often lead to the “ponzinomics” we see in many projects. The most effective strategy to overcome this obstacle is to partner with a centralized exchange, like Base has done, or a decentralized wallet, similar to Linea’s approach, to attract early adopters. While not foolproof, having distribution built into your launch is one of the most crucial factors in generating early activity. I never said it was easy, but if you think about it, it makes sense.
Considering that many of these chains take a long time to reach mainnet, we assume there will be a testnet phase. If done correctly, this phase can be a great way to build initial hype, correctly being the key word. It is also the time when the chain needs to have the necessary infrastructure in place, such as RPCs, oracles, indexers, block explorers, multisig, account abstraction, etc. The irony of needing infrastructure for infrastructure should not be lost on you. During this phase, developer relations teams can start conversations with builders about all the reasons why they should develop on their new awesome chain.
One of the surest ways to build hype for your chain is to build anticipation for an “airdrop,” which is free tokens sent to wallets for completing certain tasks. In the past, this was randomized, leaving users unsure of which actions would yield tokens. Nowadays, a point system is often used, where users accumulate points by completing tasks, eventually earning a larger share of an airdrop once the chain’s token is airdropped. While this method may evolve, as web3 moves at lightning speed, it is currently the norm that every chain must adopt in some way. During the design of tokenomics, portions of the token supply are allocated to the community for this purpose.
The most common scenario is that chains do a great job of creating buzz through their airdrop, essentially giving away free money. Once the airdrop is complete, we often see a real-time price prediction. The price typically rises for a while before a large percentage of holders rush to sell, causing the value of the token to plummet. Chains that were initially excited about the activity on their platform realize that they have simply attracted on-chain mercenaries looking for free money. This is usually when these chains start to get more serious about ecosystem building, often too late. In the coming years, we will likely see many of these chains become ghost chains.
Let’s say everything has gone well so far. The chain has created buzz, attracted early adopters, and locked up liquidity on the chain. What’s in store to attract builders? The reality is that builders, especially the best ones, have hundreds of options these days. In the past, having a grant program was enough to attract them, but even those just created mercenaries. This is where most chains stand today. But what if there was another way? What if we actually took the time to empower builders?
The ecosystem’s least-used tactic so far is to take builders more seriously. After all, these builders are new startups looking for the same resources any startup founder would need. However, chains often see themselves as the stars of the show, treating builders as disposable until it’s too late.
But it doesn’t have to be that way. If chains started pooling their resources to allow builders to focus on what they do best—providing deckbuilding support, pitching investors, creating tokenomics, going public, and more—we’d probably see that chain become a true superstar.
If a chain is nothing without its builders, why aren’t there more chains rushing to create stars from builders who believe in them? A handful of success stories alone would attract builders from other chains, who are looking for the same support to create successful startups. If these chains don’t take this approach, they will soon realize that just because you build it doesn’t mean they will come.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.