What Does It Actually Take to Build a Blockchain?

Azeem Khan, who writes for CoinDesk as a columnist, is also the co-founder of Morph, a project on the Ethereum second layer, and provides consulting services to the UNICEF Crypto Fund.

Despite the uncertainty about which ecosystem will prevail in the end, building a successful one involves some fundamental elements. By examining those that have thrived, we can identify several key components, even if the implementation proves challenging. Many projects, despite their vast resources and significant valuations, struggle to gain traction with just a few daily active users.

If you find yourself in the task of creating an ecosystem from the ground up, it’s essential to recognize the fundamental elements. The initial requirement is a user base and liquidity within the chain itself. Absent these components, there’s no motivation for software developers or builders to establish projects on the foundation you’re laying. When a chain suffers from insufficient liquidity but lacks developers, it often turns into what’s called a “ghost chain.” These chains usually have tokens used solely for investment speculation or exhibit minimal trading volume, leaving them in a limbo state and eventually losing relevance. In simpler terms, this is undesirable.

New chains encounter a significant hurdle when it comes to drawing in the first users and generating liquidity. Traditional methods involve implementing large-scale incentive systems intended to secure liquidity upon mainnet launch. However, these strategies are unsustainable and can result in “ponzinomics,” which is prevalent in numerous projects. A more viable solution for overcoming this challenge is by forming alliances with established centralized exchanges, as Base has done, or decentralized wallets, akin to Linea’s approach. Although not infallible, incorporating distribution into your launch strategy is crucial for fostering initial activity. It may not be an easy feat, but given the logic behind it, it makes perfect sense.

Given that several of these chains require a significant amount of time to transition to mainnet, it’s reasonable to anticipate the existence of a testnet stage. Properly executed, this phase can generate initial excitement among the community. It serves as an opportunity for the chain to establish essential infrastructure, including RPCs, oracles, indexers, block explorers, multisignature wallets, account abstraction, and more. The notion of requiring infrastructure for the very creation of infrastructure may seem ironic. During this period, developer relations teams can initiate dialogues with potential builders about the benefits of developing on their innovative new platform.

One effective strategy to generate excitement for your blockchain project is by organizing an “airdrop event,” where users receive free tokens as a reward for completing specific tasks. In earlier times, participation and token acquisition were uncertain. However, modern airdrops typically employ a point system, enabling users to earn points through task completion. Ultimately, the greater number of points accumulated, the larger the share of the airdrop’s token allocation that can be claimed upon the blockchain’s token launch. As the dynamic nature of web3 technology ensures continuous evolution, this approach might change; nonetheless, it is currently a standard practice for any new blockchain to implement some form of airdrop during its token economics design. Provisions are made within the token supply to allocate tokens for this purpose.

In typical situations, chains effectively generate excitement via airdrops, distributing free tokens. Following the airdrop’s conclusion, there is usually a rapid price estimation period. Initially, the token value increases, but once a significant number of holders decide to sell, the token experiences a drastic decrease in value. Chains that initially reveled in the platform activity soon discover they attracted individuals primarily motivated by free money opportunities. This realization often prompts these chains to prioritize ecosystem development more earnestly – frequently, an overdue response. Over the next few years, it’s likely many of these chains will fade into obscurity.

Let’s imagine that everything has progressed smoothly thus far. The chain has effectively generated excitement, secured an initial user base, and solidified liquidity on the platform. Now, how do we attract developers moving forward? It’s important to recognize that top-tier developers have a wealth of choices available to them today. In the past, offering grants might have been sufficient to lure them, but even these initiatives have primarily resulted in hiring mercenaries. Most chains are currently operating under this model. However, what if we considered an alternative approach? What if instead, we focused on genuinely empowering developers?

The least employed tactic in the ecosystem thus far is taking builders more seriously. At the end of the day, these builders are new startups seeking the same resources any startup founder would need. However, chains often consider themselves the stars of the show, treating builders as disposable until it’s too late.

Although it doesn’t need to be this way, if chains were to pool their resources to enable builders to excel in their core competencies – such as constructing decks, pitching to investors, devising token economies, and securing listings on exchanges – that particular chain would likely emerge as a prominent player.

If a chain’s success relies heavily on its builders, why don’t more chains actively court and nurture those builders who have the potential to create stars? A few proven success stories could draw builders from other chains, enticed by the opportunity for similar support in launching successful startups. However, if chains fail to adopt this strategy, they may find themselves struggling to attract talent as the adage “if you build it, they will come” does not always hold true.

I’d like to share my perspective based on my own experiences and observations in the cryptocurrency industry. It’s important to note that the opinions expressed below are mine alone and do not necessarily reflect those of CoinDesk, Inc. or any of its affiliates.