any successful application running on a blockchain computer will feature these three components:

Product/market fit
Community participation
Sufficient decentralization (community ownership)

user-owned networks can benefit from a cooperative economic model that helps ensure crypto services remain better aligned with their users, even as they scale.

Crypto tokens that facilitate economic alignment can be deemed securities under the Howey Test, a regulatory framework used by the SEC.

“In the pre-network stage, tokens will generally be characterized as securities in light of the ‘reliance on the efforts of others’ prong of the Howey Test. However, post-network launch — provided that the network is sufficiently decentralized — the nature of the token can change from security to non-security, owing to the fact that the holder of the token is no longer relying on the efforts of others.”

Objective 1: Product/Market Fit

The earliest stage of building a crypto application requires all the ingredients of a normal startup: a great team, lean development, tight execution, and quick learning.

Launching a token at this stage is not advisable because it could trip compliance wires. Dependence on the core team’s efforts is one way a token might be deemed a security under the Howey Test, and thinking about this is a distraction from product development.

If users are complaining about the control you’ve got, that’s actually a good problem to have! It means someone cares about what you’ve built. That said, it’s important to communicate clearly about where control exists.

Objective 2: Community Participation

An economic incentive is one way to engender community contribution.

A pragmatic and familiar business model for crypto services is a fee-per-call, similar to an API micro-service like Twilio or Stripe. Distributing this fee stream to active contributors can align the community around the project’s success.

it may be better to introduce fees only once there are strong network effects, resulting in defensibility through switching costs.

In crypto, however, protocols must remain minimally extractive (in other words, they cover relevant costs rather than seek to maximize profit) in order to incentivize community contribution.

Objective 3: Sufficient Decentralization

The core team will have ceded majority ownership of the application (fees and control) and mitigated platform risk by ensuring the product is community-owned and operated.

The company is sustainable, having retained enough tokens to benefit from fees and growth.

app teams that pursue community ownership first (starting with a wide token distribution) risk engendering a community of speculators, rather than real users. Without a working product, ownership is worthless, and the community won’t stick.

Failing to formalize real community participation can land projects in an uncanny valley of decentralization theater. A symptom of being caught here is an apathetic community with low participation rates, and a heavy dependency on founding teams.