Pitfalls and Real-World Examples
The Foundation of Sustainable Web3 Economies
Common mistakes Web3 startups make include:
Short-term focus: Concentrating only on early growth and user acquisition without considering long-term sustainability. Gaming projects often use tokens for bootstrapping but ignore critical Web2 metrics like lifetime value, churn rate, and retention.
Investor-centric design: Thinking primarily about rewarding investors rather than building a balanced ecosystem that serves all economic agents: users, supporters, validators, customers, and liquidity providers.
Supply-side obsession: Controlling token distribution and vesting schedules while neglecting why people would use the tokens. Successful tokenomics requires utility and incentives to hold/use tokens (such as discounts for paying in tokens vs. fiat).
Real-world examples illustrate these principles:
Success stories:
- Bittensor pivoted its economic model from validator rewards to allowing AI projects to issue backed tokens
- Hyperliquid prioritized product quality first, then used tokens to enhance user acquisition and retention
Cautionary tales:
- Eigen Layer developed a strong product with significant TVL, but unfair token distribution and poor market timing led to price collapse
- Axie Infinity initially thrived when it combined a fun game with earning mechanisms, but collapsed when people played solely for money extraction
title: Pitfalls and Real-World Examples description: Learn from common mistakes and real-world tokenomics successes and failures updated: 2025-07-31 authors: [nicolasarnedo] icon: BookOpen
Common mistakes Web3 startups make include:
Short-term focus: Concentrating only on early growth and user acquisition without considering long-term sustainability. Gaming projects often use tokens for bootstrapping but ignore critical Web2 metrics like lifetime value, churn rate, and retention.
Investor-centric design: Thinking primarily about rewarding investors rather than building a balanced ecosystem that serves all economic agents: users, supporters, validators, customers, and liquidity providers.
Supply-side obsession: Controlling token distribution and vesting schedules while neglecting why people would use the tokens. Successful tokenomics requires utility and incentives to hold/use tokens (such as discounts for paying in tokens vs. fiat).
Real-world examples illustrate these principles:
Success stories:
- Bittensor pivoted its economic model from validator rewards to allowing AI projects to issue backed tokens
- Hyperliquid prioritized product quality first, then used tokens to enhance user acquisition and retention
Cautionary tales:
- Eigen Layer developed a strong product with significant TVL, but unfair token distribution and poor market timing led to price collapse
- Axie Infinity initially thrived when it combined a fun game with earning mechanisms, but collapsed when people played solely for money extraction
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