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.