What is a real business, anyways?

Crypto as an industry is known for scams, pump and dumps, and ghost infras. If we look at the industry as a whole, the number of teams working on projects that actually solve a problem for people has been disappointingly low.

But, things are changing.

The next era of crypto businesses will be profitable, have real business models, and have tokens that actually distribute shareholder value.

This article is part history lesson, part how-to guide.

It's a look at how we got here as founders: the mistakes we've made, and the realizations we've come to.

It's a checklist for how to launch a real crypto business.

It's an examination of teams setting the standard for how crypto companies will run.

How Did We Get Here? A Brief History of Crypto Business Trends.

Over the past 8 years, I've been trying to figure out how to build value-additive businesses in this industry.

Over that time, fellow founders and I have had similar "collective realizations" that have inspired industry-wide trends in what people are building.

Welcome to a crypto founder's history, in 4 chapters:

Chapter 1: Infra

Most of us started building infra, because there was no infra. Many of the early teams that wanted to build apps like @gnosischain (prediction market by @koeppelmannn and @StefanDGeorge), @Kleros_io (prediction market by @federicoast and @clesaege), @ethstatus (everything app by @jarradhope_) ended up pivoting to infra because their app-centric visions were impossible to build without key pieces of infra. This became part of the core vision of the industry: open censorship-resistant protocols are the lifeblood of the crypto libertarian thesis, and are necessary as underlying rails to build on.

Eventually, over a few market cycles VCs decided that all the value accrual in crypto would be at the infra level: so they started to throw money at infra projects (this ended up not being true, but everyone bought the narrative at the time). By 2020, even if you had an app idea, the VCs would push you to turn it into an infra-first play. We'd commonly hear things like "That's a great vision - but what if you made it it's own L1". the lower-level the infra you go, the higher the expected token performance.

So, we raised some money and built infra for a few years! This was the start of many projects like @graphprotocol, @ensdomains, @Dune, and more.

Chapter 2: Apps

We soon realized that it's really hard to get people to build apps on crypto infra. We first tried incentivizing people to build apps: via grant programs, incubators, etc. That didn't work, because no qualified founders were around building apps (partially due to the incentives VCs set - for years VCs refuse to fund apps).

So, infra teams decided to build our own apps: either on our own infras, or as separate new startups. We all knew that order to have a successful protocol, you need first a successful flagship app (cc: Uniswap, Polymarket, etc) - so it makes sense to start app-first.

But, after switching to building apps, we struggled to get real adoption of them. We incentivized users to come via tokens/points - only to realize that this only onboards farmers, not long-term sticky users. We needed to re-think what we were building from principles-first.

Burnout: [enter stage right]

Chapter 3: The Fork

The past few years, we've faced a fork in the road:

Path A: revert back to the infra theses: to raise more venture money and hopefully figure something out.

Path B: or start focusing on apps and tools with "real business models": where people pay you money to solve a problem.

Path C: give up on real business and launch a memecoin: where you can make quick money regardless of value.

I chose B, and so did most of my friends.

Chapter 4: Good Profit

We're entering a new phase that is characterized by an old concept: good profit.

Good profit is defined as creating real value for your customer; so much value that they are willing to pay you for it.

Good profit is simple. Elegant. Demure.

Good profit is NOT making money off a memecoin launch: a 0 sum game where some people win, others loose.

Good profit is NOT launching a ghost infra that enriches your investors and your founders, but never gets adoption.

Good profit is solving someone's problem, and them paying you for it.

Good profit can involve tokens, but doesn't have to.

Good profit can be present in almost for any kind of crypto business.

@cowswap makes good profit by helping users trade with less exposure to MEV, and we pay them for it.

@gnosispay helps users use crypto to buy things in fiat, and we pay them for it.

Good Profit and Good Tokens

Ok, so we know what good profit is. What about good tokens?

Good tokens look a lot like stocks: they have an expectation to increase in value proportionally as their underlying business increases in value.

Because of securities regulatory worries, as an industry we've spent a lot of time rationalizing how utility tokens, pure governance tokens, and memecoins can "have an expectation to increase in value proportionally as their underlying business increases in value". This was mostly cope. Longer explanation here. While L1s and certain protocols that require complex crypto economic systems, utility tokens can still make sense - but for a vast majority of projects, the main use token case looks very similar to a security.

The main real way to create real value appreciation is to operate similar to a stock: if revenue comes into the business, do stock buy-backs or dividends. This results in "price go up".

If revenues are coming from good profit, then "price go up" is tied to good profit. Ideally, crypto founders should create businesses with both: good profit, and good token.

But, is anyone actually building crypto businesses like this?

Good question, ser. I'm happy to say that answer is yes.

Better Crypto Businesses

Over the past year I've had the good fortune of meeting many entrepreneurs who are building businesses in crypto with good profit and a good token.

A Simple Formula

Building better crypto businesses isn't complicated.

Create a business that solves a problem for someone
Optionally raise early capital via a token pre-sale (akin to a venture round in web2)
Generate revenue
Launch a token (akin to an IPO in web2)
Do token buy-backs or dividends using your revenue (just like web2 companies do with their stocks)

That's it.

Let's look at some examples.

Brave: A Privacy Browser Company

About the Business:

You've probably used Brave browser. It's not new. This privacy-centric browser was launched in 2016, with it's expansion funded by their BAT token sale in 2017.

Problem they Solve:

People care about privacy, but no private browsers had won out in the market. One reason is it's hard for private browsers to compete on revenue: because they are missing out on all the advertisements and personal usage data sales that traditional browsers make money from.

Business Model:

Offer a private browser.
Allow companies to buy BAT "credits" via credit card, and spend it to purchase ad-space.
Allow users to opt-in to watching ads in exchange for BAT token.
Revenues from advertising sales go into token buy-backs: 70% of revenue historically has been allocated to buy-backs.

This model has been working for them for a very long time (in crypto terms), and Brave remains one of the first and longest-living "good profit" and "good token" companies in crypto. Not to mention, they've built a software that I literally use daily.

Follow them on X here.

Aquari: An Environmental Cleanup Gig Work Platform

About the Business:

Aquari was created by Cameron and Maciej in 2021 with the goal of orchestrating global environmental cleanups via a gig-economy business model. They were funded via their AQUARI token sale. Since then, Aquari has run dozens of cleanups over the world engaging over 2000 workers to date on government-funded and nonprofit engagements.

Problem They Solve:

In most of the world, proper waste management is not the norm. Governments attempt to resolve it by paying private contractors to deal with waste: but often money is just laundered through everyday corruption. The result of this is trash accumulation and disease.

Business Model:

They negotiate trash collection contracts with local governments in emerging markets.
They take in the funds for the contract, and use the funds to buy AQUARI token.
They put up gig opportunities for locals to fulfill the cleanup work required.
Gig workers are paid in AQUARI token.
Gig workers can then choose to hold AQUARI (and see if it will appreciate, like a stock), or sell it and off-ramp immediately to their local bank.
Profits made on the government contract go into token buy-backs to push gradual price appreciation.

Pictured here is the site of a cleanup happening this week. Aquari has engaged more than 300 people to clean this massive malaria-infested landfill in Nigeria. They are halfway done.

Want to track their progress? Follow them on X.

Hair DAO: A Pharma R&D Business

About the Business:

HairDAO was created in 2021 and launched their HAIR token the year after. HairDAO is a pharmaceutical research organization dedicated to solving hair loss via new drugs.

Problem they Solve:

Hair loss is an extremely under-funded area of research, mostly because it's considered "cosmetic". As a result, 0 new treatments for hair loss have been brought to market since Finasteride in 1997.

Business Model:

They crowd-fund a treasury to fund research and development of novel hair loss drugs. Funders receive HAIR token in exchange for their investment.
HAIR holders vote on which drug research to fund, and can optionally participate themselves in trials: getting early access to novel drugs.
Revenues from future FDA-approved drugs and associated patents are expected to go into supporting token price.

Hair loss research receives about $5.4 million per year from all government agencies globally. HairDAO has already raised $3.3 million to fund their research. They have multiple drugs in progress for FDA approval and an extremely engaged community of trial participants.

Follow them on X to see what they're up to.

A New Era

The next era of crypto businesses are profitable, have real business models, and have tokens that actually distribute shareholder value.

These businesses will look very different from one another: they could be software companies, research labs, services companies, or something else entirely. But, they're united on the same principles: good profit, and good token.

Companies are thriving on this new way of doing business, today. They actually have been for a while. It's just people weren't paying attention.

The trend is only getting stronger.

And I'm so here for it.

Do you know about other companies following this model? Tag them in the comments.

Shoutout to jeremy, @dmihal, and @_pranav_singhal riffing on this stuff with me.