Frankly speaking, many web3 projects work very hard before going to CEX, but once they go to CEX, it is equivalent to declaring the project failure. Why? I would like to share my observations and summarized to 5 key points.
- Key #1: Cultural differences between East and West
- Key #2: Failure to develop secondary and tertiary markets
- Key #3: Inappropriate CEX listing strategy
- Key #4: Financing didn’t go well
- Key #5: Failure to make good use of the advisor’s resources (Part Five)
If you happen to be the founder of a web3 project, you might as well check yourself to see if you have made the same mistake. Let’s let’s start talking about point.
Westerners do things start with “rule”, then with “reason”, and finally with “relation”. The Chinese start with “relation”, then “reason”, and finally think about “rule”.
If you plan to enter the Chinese market, whether you are doing business or talking about investment, the fastest and most effective way is trying to invite a dinner first, rather than arranging online meetings. Because eating is for “relation”, meetings is for “reason”, and cooperation is “rule”. If there is no “relation”, there will be no “reason”, not even “rule”. Most Western project founder send the first message talking about cooperation or meeting. Which is dealing Chinese people in a Western way, it’s not effective. Did you make the same mistake?
Of course, if your project is unique, or a world class leading project, you can use your way. Otherwise, my suggestion is “When in Rome, do as the Romans do”.
But why Chinese market related to project failed? Let me explain at Key #2.
We all know that CEX is a public market, where a project’s global token circulation, daily trading volume, price, and market capitalization are openly displayed for the world to see. For a web3 project, the most crucial aspect is how well its services are accepted by a global user base, essentially represented by token circulation and frequency. However, the majority of CEX users are not necessarily global; they tend to be region-specific. So, if a project with an insufficient community hastily lists on a typical CEX, it may not gain many new users from that exchange. Instead, it exposes its weaknesses in market capitalization, circulation, and daily trading volume directly to the public, making it clear that the project isn’t robust enough. As a result, trading volume dwindles, and even if market makers attempt to artificially support it, the sustainability becomes challenging.
Now, what defines a sufficient community size? This is where we need to introduce two indicators. In the first part, let’s talk about CAI (Crypto Adoption Index). As the name suggests, it measures the acceptance of digital currencies in a country or the population using digital currencies. Currently, the top five countries in CAI are India, Nigeria, Vietnam, the USA, and Ukraine. Notably, India has the highest CAI score and is also a crucial third-tier market, which we’ll discuss in the next segment. India ranks first globally in both CEX and DEX trading volumes. So, if a project rushes to list on a CEX without developing a mature community in India, it’s akin to committing suicide. Interestingly, many web3 projects lack clear insights into the distribution of their community users and lack strategic thinking when choosing their first CEX. If that exchange fails to bring in new users, and early investors want to sell but find no buyers, the price naturally spirals downwards.
Now, let me introduce four indicators: High income (HI), Upper middle income (UMI), Lower middle income (LMI), and Lower income (LI). These four indicators represent a country’s income levels. To determine a country’s classification, you can refer to the official data from the World Bank, and I’ve included reference links at the end of this article. According to the latest data, some examples of HI countries include the USA, UK, and Saudi Arabia. UMI countries include China, Russia, and Argentina, while LMI countries include India, Nigeria, and Ukraine. Why are HI, UMI, and LMI important? They correspond to the user markets that should be carefully considered when developing a project community, and these four indicators significantly affect the information and knowledge disparities between nations. People in HI countries, on average, have faster information flow and higher levels of knowledge. Before a project is listed on a CEX, investors purchase tokens directly through the project’s private sales network, community, or launchpad, known as the primary market in the crypto space. The primary market typically includes HI users who have access to firsthand information. However, there may also be a few users from UMI or LMI countries, particularly those involved in the industry or deeply interested in the web3 ecosystem. Users who engage in trading on CEX platforms after the listing are generally referred to as the secondary market. However, for a project to thrive, it needs more users to join from the tertiary market.
Some projects focus on building a secondary market before listing on a CEX but neglect the primary market community. In reality, primary market users tend to have higher incomes. When designing tokenomics, you set minimum purchase amounts at each stage to control the pace of market level. For example, a Seed round might require investments of $3,000 or more, followed by a Private round requiring $1,000 or more, and a presale allowing purchases of 300 tokens or more. After listing on a CEX, there are no minimum purchase limits. This approach helps manage participation across different market tiers. Sometimes, we may need to use KYC to identify investors from different countries and impose purchase limits to diversify ownership.
If a project attracts many LMI users in its Seed round but lacks sufficient HI users, it indicates an unhealthy community development. The amount a project can raise in its early stages is limited because LMI users typically have lower incomes and less risk tolerance. If any minor issues arise in the project’s early development, they can quickly spread as protests or negative reviews throughout the community.
If a project has enough HI users but hasn’t developed enough UMI users before listing on a CEX, it will have a surplus of sellers but a lack of buyers after listing, resulting in severe selling pressure.
Almost every project starts with enthusiasm, claiming to be listed on first-tier exchanges such as Binance, Huobi, OKEx, KuCoin or Gate.io. In fact, this is not necessarily the right idea, and here’s why:
1. Mis-Matching: You don’t have to focus on the first-tier CEX at the beginning, because investors won’t believe it if the project does not have enough community size, celebrity team or sufficient funds. Many first-tier CEX don’t care about listing fees. If the liquidity of the project is high, then the income from transaction fees is far more than the listing fees. The better the ranking, the more attention the CEX will pay to the activity of the project’s own community and its circulation potential. Therefore, instead of investing human and financial resources to go to higher-level exchanges, it is better to invest in developing a very active community.
2. Cost considerations: The cost of listing on CEX is not low, with an investment of more than 300K. If it is just for provide a public trading mechanism, DEX can also meet the demand. Some CEXs provide IEO services, allowing projects to sell tokens to obtain partial funds before being listed on the exchange, while most CEXs do not provide this part of the service. Therefore, from a cost-benefit perspective, choosing CEX which offer IEO maybe the choice for more projects. But don’t forget that tokens sold in IEOs come at a discount. These traders come with the idea of buying low and selling high, and many of them have no faith and patient in the project. So once token unlocked, selling pressure is inevitable. In order to support the market price of the tokens, the project party then has to uses its own money to buy back token released into the market. If the project party does not buy back tokens, and also there is insufficient secondary market takeover, the token price will only plummet.
- Geographical considerations: When selecting a CEX, does the project party understand the distribution of users of the CEX? Are the user interface, KYC method, and trading process of this CEX friendly enough for early project participants? Let me share you a truth. In most Asian countries, ID or receipt documents are in the local language rather than English. But many CEX’s KYC can only accept English documents and can only submit English versions of public hydroelectric receipts. prove. If I were a trader I would give up at this level. So, as a project owner, how many traders do you know who simply give up at this stage?4. After being listed on the exchange: There are many projects that are not aware an important thing after token being listed on CEX or DEX. That is the operation and management of the token market, known as the market making (MM). In fact, MM is not only needed in the Web3 space, but also in the stock and securities markets, and many MM service providers in the crypto space have also crossed over from the traditional financial field of stocks and securities. In addition to preparing CEX listing fees, the project team must also select a suitable MM partner, which is also a considerable expense. The question is, what if there is no MM in the project? Let’s put it this way, any product that sells well must have promotional methods. In an era when the Internet is so developed and competition for similar products is so fierce, I personally no longer believe in natural traffic. All traffic is paid traffic with a price.
Therefore, if a project are not entirely clear why chose to list on a certain CEX, it is recommended that project does not hurry list on a CEX. Moreover, most Web3 users do not necessarily need CEX to trade. After the project has figured out why it should be listed on a certain CEX and clearly analyzed its advantages and disadvantages, it can be listed on the CEX.
Above I just briefing a few factors that I think need to be considered in CEX listing strategy. As a project owner, whether you have a technical background or a market expert. The most important thing is to return to user thinking. The project team must put users first in any decision-making. When the project team truly considers the users, the users will also consider the project. We saw so many meme coins listed at tier-one CEX, why? Simply because they have enough believers and been take care.
When the financing of many projects is not smooth, but due to commitments to early investors or schedule announcements in the community, even if the project’s current physical and market operations are not very smooth, it still has to be listed on the exchange at the original time. In most of these cases, the project is listed on the exchange to allow early investors or those who received airdrops to sell their tokens. When project financing does not go smoothly and you are forced to get CEX, can you avoid failure?
Let’s get back to the key of this question, why financing is not going smoothly. In the past five years or so, we have served as advisor for more than 80 web3companies. Most project hopes that we can help the project party bring in investment. In my experience and observation of cooperating with these projects, there are indeed many factors that lead to unsuccessful financing. Here I summarize the following five main and most common reasons. If you happen to be the founder of a project or the person in charge of financing, you might as well see if you have made similar mistakes.
- Incorrect positioning: Positioning is one of the most critical factors for the success of a project. This is a complex issue involving market analysis, product blueprint, strategic layout and SWOT. Below I’m not talking about theory, but more about sharing practical experience. For example, I have met many project founders who asked: Why other projects can raise so much money, and their teams look ordinary? Or maybe they don’t have many fans in their community? Their product hasn’t been released yet? In fact, this is a problem of project positioning. Because there are many things behind the public announcement which you don’t know, and you can’t just look at things based on their appearance. Perhaps the founder of the successfully financed project has a deep relationship with an investment institution, or perhaps the project and the investment institution have a gambling agreement. Project founders must be clear about the positioning of the project itself in the market. People, promotion and profit are the three most important elements of impact financing. People refers to the team, Promotion refers to publicity and promotion, and profit refers to the ability to make profits. Why is product not among the three most important elements? Because now is the era of product surplus. There is no shortage of high-quality products on the market, and there are no products that must be bought. Most products are just icing on the cake for users. Proof you have the ability turning product into profit, then you can convince investor.
- Misunderstanding the definition of current product: For a crypto project in early stage that wants to raise funds, what is the “product” of this project? If we invite 100 web3 project founders answer this question, 80% of the answers should be: the product is the service or technology platform launched or about to be developed by the project party. Unfortunately, this is an incorrect answer. For a crypto project that needs financing, if I stand from the perspective of an investor, the product I think is the token issued by project. Because that’s what I can get immediately after paying the money. Therefore, if a crypto project founder unable to figured out what the current product yet, it financing will be very easy to fail. Why do I say that tokens are the product of this crypto project? Because when the product of a crypto project is not mature enough to generate revenue, the product is not worthy of excessive publicity at this stage. Publicity only highlights the weaknesses of the project and contributes product direction to potential competitors, but cannot bring in any cash flow. The only thing that most crypto projects can sell for money is tokens. And because the token is a virtual thing, not a physical commodity, it is even more necessary to promote it carefully, correctly and strategically, explaining the purpose of the token, the prospects of the token ecology, and the future use scenarios of the token. Only by communicating it clearly to potential investors can you have a chance to get investment.
When promoting, many project parties excessively promote “products” or “technical” functions that have not yet been implemented, and they promote them to potential future users. In fact, these groups are not token investors. In this case, most of their community members are not token buyer, so will not have a good effect on project financing. To use a Chinese proverb, that is “more peddling less selling”.
- Failure to manage the project weakness rationally: I have encountered many projects that failed to manage the weakness rationally, but used their own preferences to manage the weakness. Founders with technical backgrounds attach great importance to technology and ignore marketing promotions. They always reserve a budget for technology development. They always believe that as long as they develop product technology, they can survive even if they do not raise funds. The founder, who has a marketing background, shouts slogans every day, but cannot come up with a specific technology development blueprint. It is unclear what services can be provided at each stage and what problems can be solved. The budget is spent on posting some content every day without specific content. tweets. Either way, these entrepreneurs fall into the trap of self-righteous budget management. To put it simply, rational management is based on the standpoint of what is lacking in the project. The financing of the Web3 project is simply to “sell pre-sale tickets to a virtual utopia around the world.” There are four key points here. All over the world; virtual; utopia; pre-sale tickets. 1. The world is so big, where are your potential buyers? Now that you know where they are, how do you find these buyers? Middlemen? Channels and ticketing platforms? Why would they help? What benefit does it give them? How to divide the money? 2. Virtual, the token does not even have a paper ticket, it is just a string of codes. How to make buyers believe that this string of codes can really enter the market in the future? You can even sell scalper tickets to transfer a sum of money. 3. What is in Utopia? There are endless delicacies to eat for free, endless beautiful women, and gold and silver mountains at your disposal. Many items are unclear. 4. Generally speaking, the earlier you buy pre-sale tickets, the more advantageous it is. How many benefits are there? But if inflation in the web3 world is 10 times that of the real world, is it worthwhile to buy pre-sale tickets? What if inflation is 50 times? I have seen a project where their two token sales phases were one month apart, and the price difference was only 30%. Although 30% seems like a lot, the problem is that the market rose by more than 100% in a single month at that stage. So why should investors invest in this token? Isn’t it a good idea to buy ETH or BTC directly if you have spare money? Therefore, at different stages, you must think clearly about the above issues over and over again, and you will find a suitable and rational budget model.
- Encountering fraud: Many projects have experienced fraud. The two most common scams at present are 1. Fake exchanges, especially well-known exchanges. 2. Pretend to be an investment institution or service company. In the 80 projects I have worked with in the past, I have also encountered three scams. One of them was a fake exchange, and both were fake Binance exchanges. The other was a fake investment institution. Although many exchanges have public official contacts or links to apply for listing on their official websites, the problem is that these links are often passive contacts. Therefore, many project parties hope to communicate directly with the exchange’s business windows through acquaintances. And because the fees for listing are high and the anonymity of encrypted wallets is difficult to trace, this gives many scammers an opportunity. The second type is fake investment institutions or services. The fake investment institutions will require the project party to pay a guarantee fee before investing. The fake service company will disappear directly after collecting the fee, and then open another telegram ID to continue the fraud. A common method for these scams is to look for projects on telegram that can be started, then enter the project group and actively ask for DM, and then slowly lure the project party to take the bait. One scammer even opened an account on Linkedin and dressed up like an official contact window.
- Expect lucky: I have encountered many projects come to me, and ask me to bring in investment by only success fee basis. However, these projects are neither celebrity platforms, nor do they have strong academic background & connections from prestigious schools. They do not yet have the ability to generate revenue, and they don’t have any lead VC or angel investor. Under such circumstances, I basically will not accept such cooperation conditions, and I have never seen such a project successfully financed. Just imagine, those companies that already have celebrity platforms, the founders are from prestigious schools, have rich connections, the products have proven their revenue capabilities, and the cooperation conditions they offer the same success fee condition. As a consultant, why should I help with high-risk unknown projects?
As a startup founder, you should know there is a cost to starting a business, there is a cost to developing a product, and there is a cost to raising capital. As an entrepreneur, if you don’t pay any upfront costs, can your technology platform or product be born on its own? Or are there any developers willing to help you develop the product without charging any upfront fees and then pay you? If that’s not possible, then why do you expect a financing advisor to help you get the investment first and then pay success fee after? I ask these entrepreneurs who are hoping for luck, why are you unwilling to offer more attractive terms to consultants so that consultants are willing to help you raise funds. Most of the answers are that they don’t have the funds, or they are afraid of being cheated out of their money. Or other finance advisory only ask success fee. When I heard such answer, I just Ha Ha and close the conversation as soon as I can. Because it this is bull shit and waste my time. Because these are not a correct mindset from a real entrepreneur. I never see success project success.
Here, I would like to advise all project founder to learn what is an entrepreneurs. What is entrepreneurship? Getting lucky is not called entrepreneurship, but able to survive near-death challenges to execute his plan is so called entrepreneurship. If you are unwilling to take risks, sacrifice your rest time, and take money from your pocket to invest in your own business, but you fantasize about being lucky and get money from others, that is not called entrepreneurship, but a dreamer. If there is not near-death challenges during founding a company, then everyone will succeed in starting a business.
- Too few investors: The only reason why a good project has not received investment is that it has not contacted enough investors. Let me ask a simple question, if you have already made a product, how can you sell as many products as possible? Do you expect buyers to come to your home on their own? Or just let 5 or 10 people introduce your product one by one? In an era where the Internet is so developed, no one in my project would use such an inefficient method to sell products. So here’s the question, if you are a web3 crypto project and you hope to sell tokens to raise fund, how do you find people to buy tokens?
Let me ask another question, how many institutional investors in the world? And how many angel investors are there? 50,000? 100,000? 200,000? I believe there are more than 200,000 institutional investors. This does not include some data that Google cannot collect, such as China region. As far as I know, there are more than 50,000 large and small institutional investor registered in China. For example, there are 4,370 traditional investment institutions in Beijing. This even not not include investment institutions and angel investors focusing on Web3. But I see that 99% of projects are still financing using classic way. They try to contact some people with investor connections and ask them to introduce investment institutions around them. Although this method may still work, it is far behind the efficiency of Internet financing. You need to have a macro understanding of the capital market. Global capital is a zero-sum ecosystem. Whichever project is taken first, the total amount will become smaller and smaller. Therefore, while you are still contacting investment institutions one by one through word of mouth, the smart project party has already used Internet marketing to promote the investment opportunity of the project party to all investment institutions around the world. Although 99% of these promotions may not receive any response, a 1% reply is enough for this project to obtain the required financing.
I once collaborated on a smart project. The founder was graduated from a prestigious USA university and had experience in large management consulting companies and investment firm. In 9 months, we contacted more than 3,000 VCs and more than 10,000 angel investors. In the end, they received $44M in investment, of which nearly $20M came from these financial promoting activities. This is Internet-style financing marketing. Products all require Internet marketing, and financing also requires knowing how to use Internet marketing.
I summarized my past experience as an advisor in more than 80 web3 projects. There are two main types of projects I encountered. The first type is during the middle or late stages of token financing. I found that the execution method of my project was incorrect or the execution effect was not good. , quickly make amends and find a consultant for help. The second type is to first inquire on the Internet which consultant is more experienced, and then invite them. But no matter what type of project it is, a large number of projects fail to do a good job in plan management, time management and work management during the process of cooperation with consultants.
I have cooperated with so many projects, and only less than 10% of entrepreneurs have achieved the following three points. It can be seen that there are many entrepreneurs who want to start a business, but few entrepreneurs who have discipline.
- Set up regular weekly meetings and hold meetings on time every week.
- Send the topics for the next meeting to the consultant one day before the meeting
- Send meeting minutes to the consultant within one day after the meeting
Secondly, when defining the role of an advisor, many entrepreneurs are overly biased in expecting the advisor to bring in investment, or they want to rely on the advisor’s own reputation in the industry to improve the reliability of the project, but ignore the resources that the advisor can provide in addition to investment resources. and assistance.
While funding is a very important factor in project outcomes, it is not the only factor in success. Moreover, when a project has not yet reached a stage where the team, product and promotion are attractive enough, it is relatively difficult to find investment. In terms of my own resources, bringing in investment is only a very small part of my resources. My more resources are to assist project parties in selecting appropriate partners, optimizing business models, building ecosystems, market layout strategies, and Promotion of commercial implementation. Unfortunately, few entrepreneurs of new projects discuss with me how to do this part better.
Therefore, if you are the founder of a web3 project, the most important thing you should do now is not to implement anything, but to conduct a serious examination of your project first. Or seek experienced consultants to help you conduct a physical examination of the project first, and sort out the problems that need to be solved in order of importance and urgency. Deal with urgent matters first and important matters second. Every time I become an advisor for a project, I will first do a readiness review for the project. The experience I have accumulated over the years is summarized into 9 categories (Team, Board, Token Sale, Product, Strategy, Marketing & Media, Technical, Finance & Economic, Resilience), a total of 38 check points, which can effectively discover all the weaknesses of the project. However, when the project team knows its own weaknesses and areas for improvement, whether or not it wants to improve them is another issue.
In the rapidly evolving world of web3, projects face a unique set of challenges as they transition to Centralized Exchanges (CEX). Understanding and adapting to these challenges is crucial for success. Cultural nuances, particularly the differences between Eastern and Western approaches to business and relationships, play a significant role in shaping a project’s journey. Effectively developing secondary and tertiary markets is not just a strategy but a necessity for sustained growth and visibility in the global arena.
The choice of CEX listing strategy can make or break a project. It requires a delicate balance of timing, understanding market dynamics, and aligning with the right platform that complements the project’s vision and community base. Financing, a critical aspect of any venture, demands careful planning, realistic goal setting, and an understanding of the investor landscape. And lastly, the underutilization of advisors’ resources often leaves untapped potential on the table. These experts can offer much more than just financial advice; they bring a wealth of experience in strategy, market understanding, and industry connections.
As founders and teams in the web3 space chart their courses, it’s essential to take a holistic view of these elements. Success in this space is not just about a great idea or technology; it’s about understanding the complex interplay of market forces, cultural contexts, strategic partnerships, and the nuanced dynamics of the crypto world. By paying heed to these key areas, web3 projects can not only avoid common pitfalls but also position themselves for a prosperous and impactful presence in the ever-evolving digital economy.
I wish you have got some creative and instructive impact from this article. Good luck!