[HN Gopher] When the chain becomes the product: Seven years insi...
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When the chain becomes the product: Seven years inside a token-
funded venture
Author : mhendric
Score : 46 points
Date : 2026-03-08 08:37 UTC (3 days ago)
(HTM) web link (markmhendrickson.com)
(TXT) w3m dump (markmhendrickson.com)
| drdrek wrote:
| I love the ending footnote, its the perfect statement to prove
| his thesis. Just because you understand the problem does not mean
| you are immune to it. Just because you know smoking is bad for,
| and you understand the mechanisms of addition, does not mean you
| manage to quit smoking.
| aurareturn wrote:
| Good products come from tight cycles: ship something, listen to
| users, iterate. Token economics break that cycle by introducing a
| competing optimization target. The team stops asking "what do our
| developers need?" and starts asking "what supports the token
| narrative?"
|
| In other words, the team starts asking "How can we maximize the
| token price while delivering as little product value as
| possible"?
|
| This is why 99.99% of crypto projects are a scam.
|
| No, your token investors don't give a damn what you deliver. They
| only care about the price of the token. Lie if you have to. Hype
| up your project like it's the greatest thing in the world. Do
| whatever to enable security fraud.
|
| When teams discover that lying does more for the token price than
| actually building, they quickly switch incentives. Now they'll
| just lie, sell tokens, repeat, until a final rug pull to scam the
| remaining bag holders.
| pjc50 wrote:
| Yes - but the sad thing is how badly this has bled back to the
| real markets. That's how you get things like
| https://en.wikipedia.org/wiki/Nikola_Corporation
|
| I'm concerned we may not be able to pull back from low-trust
| society in which most investments are fradulent; eventually it
| will become impossible to raise money for real ventures!
| kevinak wrote:
| Yep!
|
| People in the Bitcoin space have been screaming at the top of
| their lungs about this for decades at this point, but it's hard
| to work against the marketing machine that comes from these
| ICOs.
| pavlov wrote:
| The weird thing is that this outcome was always obvious.
|
| Token-driven projects were clearly just penny stock boiler room
| scams dressed up in a trenchcoat made of jargon whitepapers.
| mhendric wrote:
| Author here. The essay's argument is actually the opposite of
| that. The team was talented. Proof-of-Transfer was a real
| technical contribution. The SEC qualification was historic.
| What I'm describing is how structural incentives bent a
| legitimate effort toward narrative optimization over time.
| That's a harder problem than fraud. There's no villain, just
| a system that rewards the wrong things. Reducing it to
| "scams" makes it too easy and misses the lesson for anyone
| building with a financial instrument attached.
| SlinkyOnStairs wrote:
| If you'll humor a cheeky substitution:
|
| > No, your _VC_ investors don 't give a damn what you deliver.
| They only care about the _valuation_. Lie if you have to. Hype
| up your project like it 's the greatest thing in the world. Do
| whatever to enable security fraud.
|
| People are quite good at recognizing this dynamic amongst
| crypto startups.
|
| Yet they pretend it's not the driving force in both the VC
| world _and_ Big Tech.
| oofbey wrote:
| Clever comparison, but the key difference is there's no
| mechanism for a rug pull for most startups. Unless they reach
| a huge valuation, the stock is absolutely not liquid. There's
| no way to cash out.
| SlinkyOnStairs wrote:
| The incentives are the same. Rug-pulls just make it
| _faster_ to cash out.
|
| > There's no way to cash out.
|
| There are precisely two: Go for an IPO, or get acquired by
| a major tech firm.
|
| Both of these run near-exclusively on hype. So long as the
| company isn't showing actively fraudulent numbers, you can
| IPO with a terrible product that doesn't turn a profit.
| oofbey wrote:
| It's not just that crypto lets you cash out faster - it
| lets you do it with zero notice, accountability, or
| diligence.
|
| Startup exits (IPO or acquisition) often have a big chunk
| of hype associated with them. But often the hype is
| backed by factual numbers of revenue or user-base. Even
| if it's pure hype, there will be mountains of legal
| paperwork. Hundreds if not thousands of hours spent by
| professional lawyers checking that whoever is putting up
| the money really is getting what they're paying for, even
| if what they're buying is a dream. If not, somebody has
| broken the law (fraud) or a shocking amount of
| incompetence has occurred. Your typical crypto scam
| thrives because there are no such procedural guarantees.
| aurareturn wrote:
| Not the same because VCs can only make money when the startup
| gets acquired by a bigger company or by IPO. Both of them
| will require professional due diligence. So it's far harder
| to fool investors than crypto which prey on the least
| sophisticated investors.
| SlinkyOnStairs wrote:
| The due diligence stops the fraud that is rampant in
| crypto. It doesn't change the incentive structure of hype-
| over-substance though.
|
| So long as you aren't (caught) overtly lying about the
| startup, all hype is fair game. Sam Altman can spout his
| ridiculous claims until the sun explodes.
|
| The reason I left the security fraud part of the quote in
| is that the line is entirely demarked by what the SEC will
| _enforce_ , not what's actually illegal according to the
| law or not. (And under the current admin, the SEC isn't
| gonna do shit.) There are a lot of tech startups doing
| securities fraud that'd get them hit by the regulators in
| any other part of the west.
| stuaxo wrote:
| Does anyone else find this kind of LLM written stuff tiring to
| read.
|
| Admittedly I only read the titles.
| Tklaaaalo wrote:
| 'read the title' is not the same as reading an article.
|
| Im also not sure why this would be LLM written and i have not
| seen a lot of / relevant amount of LLM written articles
| especially on hn
| ramon156 wrote:
| I have a feeling that people who shout this (I gotta be
| careful, I call out a bunch of articles as LLM-written) do
| not always know what to look out for. Em dashes aren't
| inherently LLM, neither are some of the phrases it uses.
|
| One pattern I look for is; how is the end part written? Does
| it tie into the whole story? Is it extremely generic? Did the
| author put something real / raw / personal in it? If not, its
| a grey area, any other hints will lean my conclusion to real
| or fake.
| the__alchemist wrote:
| The author even copied ChatGPT's website design!
| mhendric wrote:
| Author here. I do use AI tools in my writing process. I build
| AI agent tooling, so that's how I work now.
|
| But the ideas, analysis and seven years of firsthand experience
| are mine. And I write "with" AI very closely, not handing
| anything over blindly.
|
| If you read past the title you'll find lots of personal details
| I lived through. It would be hard to prompt-engineer that from
| the outside.
| jcfrei wrote:
| Lots of similarities to the Bitcoin investment thesis. Where the
| chain itself becomes the product and not any utility derived from
| it. You have to believe in a future where all fiat money crashes
| and becomes worthless, evil states confiscate other forms of
| wealth, like stocks and bonds but for some reason will be
| powerless to prevent bitcoin transfers. At the same time the hard
| limit of 21 million BTC will never be revoked despite
| continuously declining miners revenue. And only within that
| strict narrative does a long-term investment really make sense.
| mothballed wrote:
| FATF and the government were desperate to eliminate/immobilize
| bearer bonds, bearer shares, high denomination notes, and
| hawala. It does seem like at least part of it is they think
| they have less control over oversight of their transfer for
| certain instrument or asset classes.
| Aurornis wrote:
| Bitcoin is not like high denomination notes or bearer bonds,
| though. Transactions are on the public blockchain.
|
| In theory someone could have coins untraceable to them as
| long as they never intersect with something on chain that
| could be traced back to them, but that turns into a game of
| never spending the tokens when taken to the extreme.
| Bitcoiners quietly see that as a feature, not a bug, because
| the goal of the game is to get everyone to buy as much as
| possible but sell as little as possible. That's the formula
| to make the number go up.
| pfortuny wrote:
| Exactly: money disappears into the hands of Government (or
| because of hyperinflation) but somehow you can buy goods on a
| "free" Internet without the Government intervention. Also: all
| transactions are recorded...
|
| Good luck with that.
| rednb wrote:
| It does not need to be all or nothing though. It simply needs
| to be true for a large enough number of people, to create an
| extremely valuable market.
|
| We are over 8 billion on earth, even if as little as 1% of the
| population rely on it directly or indirectly due to some form
| of oppression real or perceived due to political opinions, a
| long investment thesis on bitcoin can make sense.
|
| I am not a bitcoin holder once this is said. Arrived at the
| party too late IMHO, and i have better investment options for
| now from a risk-adjusted perspective.
|
| However if i had more cash to invest than i know what to do
| with, i'd definitely take a long position on bitcoin.
| the_snooze wrote:
| >even if as little as 1% of the population
|
| 1% of 8 billion is 80 million. Coordinating that many people
| onto a particular platform or alternative is a gargantuan
| task. It's not "little."
| mhendric wrote:
| Author here. There's real overlap with that comparison, and I
| wouldn't dismiss it entirely. The receding horizon and
| community dynamics around belief reinforcement do look similar.
| Where I'd draw the line is the specific organizational failure
| mode: a product team whose feedback loops get hijacked by token
| economics. Bitcoin doesn't have a product team in the same
| sense. But the broader point (that a financial instrument can
| make belief liquid and self-reinforcing) applies more broadly
| than just token-funded ventures. I'm less certain where Bitcoin
| falls on that spectrum than I am about chains driven by
| ecosystems funded primarily by their tokens.
| brazzy wrote:
| So... his takeaway after taking 7 years to realize that
| "blockchain ecosystems" are an empty hype machine... is to start
| a project that brings blockchain into LLM coding agents.
| mhendric wrote:
| Author here. Neotoma has nothing to do with blockchain, at
| least for any foreseeable future. It's a structured memory
| layer for AI agents. Think: entity storage with relationships,
| provenance, and queryable state. No token, no chain, no crypto.
|
| The whole point of the essay's ending is that I chose not to
| issue a token and instead shipped a developer release to
| collect real feedback from real testers.
|
| The takeaway wasn't "blockchain bad," it was "feedback loops
| matter and token economics break them." Neotoma is built around
| the opposite approach: short cycles, real users, and no
| financial instrument that makes belief liquid.
| codechicago277 wrote:
| I remember Blockstack from the first crypto bull run. It was the
| product I thought had the most potential after Ethereum, building
| off of tools like Sia. The white papers [1] laid out a technical
| plan for fully building an internet on blockchain. It felt like
| the "decentralized internet" from Silicon Valley (the show), and
| must have inspired that plot point.
|
| For an industry that was full of hype and fake products, it was
| one of the few you could download and get some use out of. I
| remember a very janky Google Docs clone running on the chain. Sad
| to see that they've lost their way. For now crypto still only has
| one value prop: token go up.
|
| [1]
| https://cs.brown.edu/courses/csci2390/2019/readings/blocksta...
| mhendric wrote:
| Author here. I felt the same way when I joined. Gaia and the
| decentralized identity work were genuinely interesting, and the
| early developer community was real, with people building things
| and giving honest feedback. That's what made the shift
| frustrating to watch from the inside.
|
| I'd refine "lost their way" slightly: the incentive structure
| was always going to produce this outcome once the token became
| the primary funding mechanism. The team didn't lose direction;
| the path was bent by the economics.
| api wrote:
| Seems like you could get a very similar phenomenon in lavishly
| funded hot startups.
|
| The company's stock is the product. The product only has to be
| good enough to look plausible. Growth can be bought by selling $1
| bills for $1.50 and by plowing money into marketing. The most
| important thing is to keep the hype up and raise the next round
| and make sure it's not a down round, or even if it is who
| cares... the execs just pay themselves fat salaries or work side
| sales of stock into there to cash out even if the main stock
| price is underwater.
|
| You get inherent problems when you're selling a promise or a
| certificate not a product.
| mhendric wrote:
| Author here. Agreed that overfunding of any kind can break
| feedback loops. When you have more money than signal, narrative
| fills the gap.
|
| The structural difference with tokens is liquidity and breadth
| of exposure. In a VC-funded startup, equity is illiquid and
| held by a small number of employees and investors with board
| seats. There's still a corrective mechanism, even if it's slow.
|
| With a token, the instrument is liquid and held by thousands of
| retail participants with no effective governance rights.
| Everyone (treasury, employees, community) shares a direct
| financial interest in maintaining the story, and there's no
| board meeting where someone says "the numbers don't work."
| add-sub-mul-div wrote:
| I can't believe this field turned into this. It used to be so
| cool and rewarding.
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