How Do You Assess A Blockchain + Meatspace Project?

How do you know if a new blockchain + meat­space (B+M) project (like Heli­um, or GEOD­Net, or Plan­et­watch) is like­ly to suc­ceed? What are the key indi­ca­tors of suc­cess or failure? 

Since join­ing the Heli­um Net­work when the Hotspot count was around 7k, I’ve got­ten to see what it’s like to be part of a wild­ly suc­cess­ful project as it grew to more than 800k Hotspots. I jumped into Plan­et­watch in Octo­ber of 2021 and have seen what it’s like to be part of a stum­bling project, and hav­ing recent­ly received GEOD­Net and Weath­erXM devices that I’d ordered months before, I think those projects will be some­where in between, though more like­ly than not to succeed.

There are a long list of these projects, from DIMO to Map­Met­rics to Bird­bot to RevoFi. Some are still build­ing, some are stum­bling, some may be scams. It’s a new and excit­ing space, with all the usu­al oppor­tu­ni­ties and pit­falls of any fron­tier. Invest­ment com­pa­nies are begin­ning to come up with their own terms for blockchain + meat­space that are more insti­tu­tion­al­ly appeal­ing, like Lat­tice Net­works’ TIPIN (Token Incen­tivized Phys­i­cal Infra­struc­ture Net­works).

This should be a tip off that the big mon­ey is start­ing to pay atten­tion to these projects, and that the core idea of incen­tiviz­ing growth with tokens is too good to ignore. It’s such a strong thing that we’ll see a lot of poor­ly thought out projects just tack­ing on tokens to dri­ve inter­est and sales; that’s a recipe for crash and burn.

So, what makes for a suc­cess­ful project? Per­haps before we go there it’s impor­tant to talk about a sig­nif­i­cant dif­fer­ence between these B+M projects and “nor­mal” busi­ness­es. B+M projects are one that com­bine blockchain tech­nol­o­gy with the “real” world. Whether it’s radio waves, weath­er data, or satel­lite accu­ra­cy, all B+M projects have a direct con­nec­tion between a blockchain and a non-dig­i­tal asset. 

B+M projects are dif­fer­ent. The “non-dig­i­tal” aspect is what keeps ’em semi-nor­mal. Radio is radio, and fol­lows the laws of physics. It’s the oth­er aspect, the blockchain one, that makes them different. 

Being on a blockchain allows a B+M project to use tokens to incen­tivize adop­tion. Earn­ing tokens dri­ves incred­i­bly pow­er­ful incen­tives that can (and often do) make these busi­ness­es and projects grow far faster than they’re ready to, or than nor­mal peo­ple are used to. That excep­tion­al­ly rapid rise in val­ue can dri­ve poor deci­sions in the pop­u­lar market. 

The rea­son that earn­ing tokens is so pow­er­ful is the same rea­son a free mar­ket with cor­po­ra­tions sup­port­ed by stock hold­ers is so pow­er­ful; investors get expo­sure to sig­nif­i­cant upside for min­i­mal effort. Crit­i­cal­ly, when it comes to B+M projects, there is almost no fric­tion to invest; you buy a device, it earns tokens, you’re an investor. It’s that easy.

Of course, with ease in expo­sure to upside comes dan­ger and risk from down­side. That down­side is most obvi­ous with projects that rug you (a now-com­mon term used lib­er­al­ly to apply to any hint of a scam, but actu­al­ly mean­ing that the project own­ers “pull the rug out from under you” and abscond with your invest­ed money.)

The down­side is far less obvi­ous when it comes to mak­ing sure that an investor knows what they’re get­ting into. Invest­ing mon­ey is easy to do poor­ly and very dif­fi­cult to do well. In the world of pro­fes­sion­al invest­ing there is the con­cept of an “Accred­it­ed Investor”, basi­cal­ly refer­ring to some­one wealthy enough and savvy enough to make rea­son­able invest­ment deci­sions and able to han­dle loss­es on bad investments.

As we’ve seen in every blockchain + meat­space project so far, from Heli­um to RevoFi to Weath­erXM to GEOD­Net, the aver­age pur­chas­er of the device is nei­ther an expert investor nor an expert in that spe­cif­ic tech­nol­o­gy. Many ear­ly adopters are, like me, “cit­i­zen tech­nol­o­gists”. We enjoy tech­nol­o­gy and learn­ing about it. Typ­i­cal­ly we take the time to read the white paper and most of the doc­u­men­ta­tion, and devel­op a strong grasp of the project, where it’s going, and what it can do. These kinds of projects allow us to com­bine a love of learn­ing new things with the poten­tial to prof­it from that learning.

How­ev­er, the vast major­i­ty of the next wave of adop­tion, the fat hump of the dis­tri­b­u­tion curve when it comes to deploy­ments, is moti­vat­ed pri­mar­i­ly by earn­ing “free mon­ey” and almost noth­ing else. With almost zero bar­ri­ers to entry, this cre­ates unnec­es­sary pit­falls for a huge num­ber of peo­ple. The dan­ger in these B+M projects is tem­per­ing raw greed with any kind of required edu­ca­tion, waivers, or disclosures.

Now, in the begin­ning (way back in 2018, when Heli­um wrote the white paper that under­lies their cur­rent project), no one knew or expect­ed what would hap­pen. Through excep­tion­al effort, an incred­i­ble skill base, and serendip­i­tous mar­ket tim­ing, Heli­um explod­ed in pop­u­lar­i­ty. It also even­tu­al­ly became awash with Hotspot own­ers who had no idea of what to expect when it came to earn­ings. That igno­rance has cre­at­ed a huge amount of ill-will in the Heli­um com­mu­ni­ty, and that neg­a­tive sen­ti­ment has detract­ed from the val­ue of the project.

As investors in the casu­al sense (and in the pro­fes­sion­al sense), it is intu­itive­ly obvi­ous that ill-will is not good for a project. Ill-will rep­re­sents a form of inef­fi­cien­cy, fric­tion, or drag, and lim­it­ing the poten­tial for it to devel­op should be a part of any B+M project from the beginning.

This is why it’s so impor­tant to cre­ate an edu­ca­tion plan ear­ly in the process of a B+M project. More on edu­ca­tion plans at the end.

For now, know that tok­enized projects are a dif­fer­ent beast entire­ly than a stan­dard invest­ment. The incen­tives are so great and the bar­ri­ers to entry are so low that both scams and ill-formed projects abound. In the future, we can expect gov­ern­ments to step in and begin reg­u­lat­ing tok­enized projects. In the mean­time it is on you, as either a casu­al investor (i.e. token hold­er) or a ven­ture firm, to do rea­son­able research on a project. 

What should you look for? 

Here is what I look for in a blockchain + meatspace project:

Start with the num­bers. They’re the LEAST use­ful but usu­al­ly eas­i­est to find. You’ve got to start some­where, I’d con­sid­er this the bottom.

• How many tokens will be produced? 
• On what sched­ule will they be produced?
• What seg­ment of tokens goes to fiat investors?
• What seg­ment of tokens goes to project investors?
• What seg­ment will go to device owners?

What (if any) are growth pre­dic­tions, and ide­al­ly, what are growth pre­dic­tions and that tem­per the mas­sive attrac­tion of tok­eniza­tion? As an exam­ple in Heli­um, if the peo­ple who bought Hotspots when there were only 300k on the Net­work had known that with 800k Hotspots on the Net­work their earn­ings would be halved, would they have bought so many?

How are the tokens earned? 

Is it pas­sive, where you just plug ‘n play then go to sleep? Is it active? Are there areas for opti­miza­tion? Are there obvi­ous gaming/spoofing/grift oppor­tu­ni­ties? This is vital­ly impor­tant to under­stand, and some of the fol­low­ing ques­tions will dive much deep­er into it. Know for that that both a shal­low and a deep under­stand­ing of the “how” is crit­i­cal to make a risk-cor­rect assess­ment more likely.

What are the plans for the future?

What are project own­er’s assess­ments for the project over the next 6 months, 1 year, 5 years, and 20 years? If they don’t have clear a clear idea of where they’re going (being wrong is fine), I’m much less con­fi­dent in the long term suc­cess of the project. Fair­ly obvi­ous­ly, those plans should make sense. As an exam­ple, Heli­um’s plan to move into 5G sounds good at first, but it’s built on pret­ty shaky foun­da­tions. A very small slice of radio spec­trum that has been paid for by oth­er giant play­ers where Heli­um par­tic­i­pants have the bot­tom pri­or­i­ty is not some­thing I’d plan a giant roll out on. They have, and while they have yet to be wrong once I under­stood what they’re doing, I don’t ful­ly under­stand this move yet. More on that over on my recent arti­cle, State of the Space.

What does the thing do?
In plain Eng­lish (or the lan­guage of your choice), what prob­lem will the net­work solve?

Is this being done already, and at what cost?

If the cost dif­fer­ence between what this net­work will do and the cur­rent solu­tion is more than 2x, that is a good sign but not a sure thing.

What is the esti­mat­ed deliv­ery time for devices?

This is a key aspect to be con­ser­v­a­tive on, for two rea­sons. First, glob­al sup­ply short­ages ensure that most units that have con­nec­tion to blockchain tech­nol­o­gy will not ship with­in an Ama­zon time win­dow. Sec­ond, there is already enough hype in the B+M space. An over­abun­dance of hype will whiplash into tox­i­c­i­ty if not met. 

Whether the project pro­duces the device (like Weath­erXM, or it’s one third par­ty (like GEOD­Net) or mul­ti­ple third par­ties (like Heli­um), the project struc­ture should include incen­tiviza­tion for man­u­fac­tur­ers to pub­licly and accu­rate­ly pre­dict this. As an exam­ple in Heli­um, man­u­fac­tur­ers who deliv­er 2 weeks or more out­side of their pre­dict­ed deliv­ery esti­mate would have high­er onboard­ing costs for Hotspots.

Is there a clear way to ben­e­fi­cial­ly opti­mize oper­a­tions of the device? 

Can you put the thing high­er, or give it a bet­ter anten­na, or some­how gain a com­pet­i­tive advan­tage through your own addi­tion­al invest­ment or efforts? This aligns incen­tives for excel­lence, which is a healthy goal for any project. Do not con­fuse this with a clear way to opti­mize WITHOUT net­work ben­e­fit. If that exists, it’s a giant red warn­ing light!

What are the incen­tives for all parties?

• Project Team (core devs, etc)
• Device own­ers
• Fiat investors
• Net­work users

The incen­tives for a project are what dri­ve it’s growth. Prop­er­ly aligned, they act as the right amount of fuel for the fire. Improp­er­ly aligned they encour­age gam­ing, steal­ing, poor behav­ior, and ulti­mate­ly, a failed project. The incen­tive struc­ture is one of the most excit­ing aspects of any blockchain + meat­space project, and also one of the least under­stood. Despite hun­dreds of years of eco­nom­ic study, we humans still don’t seem to have a grasp on how to clear­ly build a well formed incen­tive struc­ture. They are tricky, require expert and inno­v­a­tive think­ing, and will prob­a­bly require long term maintenance. 

If the incen­tives aren’t clear to you, do NOT, I say again, do NOT invest.

If you can answer all of those ques­tions clear­ly in your own mind, you’ll have a very good idea of what you’re get­ting into and the like­li­hood of suc­cess for this project. 

What is their marketing/community/education plan (if they have one)?

I’m biased, but one of the very best indi­ca­tors for me of the long term suc­cess of a project is the core team mak­ing an earnest effort to edu­cate poten­tial investors before they put their mon­ey into it. Most don’t. This seems to come from these projects being formed most­ly by very smart engi­neers who don’t have the time or skill set to edu­cate the com­mu­ni­ty on their efforts. They’re too busy work­ing and get­ting things done. That’s fine, but igno­rance breeds fear, and fear is fer­tile ground for busi­ness fric­tion. Fric­tion dra­mat­i­cal­ly increas­es risk.

A blockchain + meat­space project with­out an edu­ca­tion plan and a ded­i­cat­ed posi­tion for “mar­ket fac­ing edu­ca­tion” is one that car­ries an order of mag­ni­tude high­er risk than one without.

An edu­ca­tion plan address the ques­tions above in all of the three major for­mats (writ­ing, lis­ten­ing, watch­ing video) and expo­sure to it should be a manda­to­ry first step in the pur­chase process for any project device. As an exam­ple in Heli­um, every man­u­fac­tur­er sell­ing a Hotspot should attach a copy of the Heli­um edu­ca­tion plan (which does not yet exist) with every pur­chase hav­ing links to all three formats.

If you’d like help build­ing an edu­ca­tion plan for your project, or if you know of a project that is in sore need of an edu­ca­tion plan, please let me know, I’d love to help you lev­el up your pro­jec­t’s like­li­hood of success. 

Rock on!