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What Does It Actually Take to Build a Blockchain?
By Azeem Khan,
2024-07-16
Each month, it seems, a new blockchain is announced. They come in various forms — L1s, L2s, L3s, Parallel EVMs, and so on. But, at their core, they are all about creating new infrastructure rails for developers to build the app that will finally drive real adoption. Each announcement is often accompanied by a fundraising buzz, with excitement around this latest technical advancement being the key to the future.
Azeem Khan, a CoinDesk Columnist, is a co-founder of Morph, an Ethereum layer 2, and consultant to the UNICEF Crypto Fund.
Yet, the truth is, no one knows which of these ecosystems will ultimately succeed. So, what does it actually take to build a successful ecosystem? If you reverse-engineer one, you’ll find that the concept is quite simple, though perhaps not as easy to implement, as evidenced by massive chains with only 20 daily active users despite their billion-dollar valuations and treasuries.
If you find yourself in a position where you need to build an ecosystem from scratch, it's crucial to understand the essential components. The first necessity is users and liquidity on the chain itself. Without these, there’s no incentive for software developers, or builders, to create products on the infrastructure you’re providing. When a chain with too little liquidity remains online but lacks builders, it becomes what people refer to as a “ghost chain.” Typically, these chains have tokens used purely for speculation or sit in a sort of purgatory with no trading volume, eventually fading into obscurity. If you didn’t already catch it, this is bad.
Attracting these initial users and liquidity is often the biggest challenge that new chains face. Typically, we see massive initial incentive systems designed to lock liquidity on the chain when it goes to mainnet. The problem with these approaches is that they’re not sustainable and often lead to the "ponzinomics" we see in many projects. The most effective strategy to overcome this hurdle is partnering with a centralized exchange, as Base has done, or with a decentralized wallet, similar to Linea’s approach, to attract initial users. While not entirely foolproof, having distribution built into your launch is one of the most crucial factors in generating initial activity. At no point did I say this was easy, but if you think about it, it makes sense.
Considering that many of these chains take quite some time to reach mainnet, let’s assume there will be a testnet phase. When done correctly, this phase can be a great way to build initial hype — the key word being "correctly." It’s also the time for the chain to get the necessary infrastructure in place, such as RPCs, oracles, indexers, block explorers, multisigs, account abstraction, and so on. The irony of needing infrastructure for infrastructure should not be lost on you. During this phase, developer relations teams can start conversations with builders about all the reasons they should develop on their fancy new chain.
One of the most surefire ways to create hype for your chain is to build anticipation for an “airdrop,” meaning free tokens sent to wallets for completing certain tasks. In the past, this was randomized, leaving users unsure which actions would yield tokens. Nowadays, a points system is often used, where users accrue points by performing tasks, eventually earning a larger share of an airdrop once the chain’s token launches. While this method may evolve — since web3 moves at light speed — it’s currently the norm that every chain must adopt in some fashion. During tokenomics design, portions of the token supply are allocated to the community for this purpose.
The most common scenario is that chains do an excellent job of creating hype through their airdrop, essentially giving away free money. Once the airdrop is over, we often see a real-time price prediction take place. The price typically rises for a while before a large percentage of holders rush to sell, causing the token's value to plummet. Chains that were initially excited about the activity on their platform realize they had merely attracted on-chain mercenaries looking for free money. This is usually when these chains begin to take ecosystem building more seriously — often too late. Over the next few years, we’ll likely see many of these chains become ghost chains.
Let’s assume that everything has gone well so far. The chain successfully built hype, attracted initial users, and locked liquidity on the chain. What’s next for attracting builders? The reality is that builders, especially the best ones, have hundreds of options these days. In the past, having a grants program was enough to attract them, but even those have merely created mercenaries. This is where the majority of chains currently stand. But what if there was another way? What if we actually took the time to empower builders?
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.
It doesn’t have to be this way, though. If chains started to compile their resources to allow builders to focus on what they do best — while providing support for building decks, pitching to investors, creating tokenomics, getting listed on exchanges, and more — we’d likely see that chain become an actual superstar.
If a chain is nothing without its builders, why aren’t more chains rushing to create stars out of the builders who believe in them? A handful of success stories alone would attract builders from other chains, seeking the same support to create successful startups. If these chains don’t take this approach, they will soon realize that just because you build it does not mean they will come.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
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