10 Commandments for Efficient and Sustainable Community Building - Part 2 of 2

Table of Contents
Part 1
Part 2
Important Disclaimer
This content is provided for informational and educational purposes only, and should not be relied upon as legal, business, investment, or tax advice. Furthermore, references to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Factomind cannot be responsible for your use of the information provided in this content. Factomind has established, maintained, and enforced strict internal policies and procedures designed to identify and effectively manage conflicts of interest related to its business activities. Factomind does not own any digital assets mentioned below, nor has it made any purchases or sales of the digital assets mentioned below.

(Continued from Part 1)

3. Ten Commandments for Efficient and Sustainable Community Building

3.5. Whales are heavy

The world is unfair. Some have money, some do not. Whales, by definition, have lots of money. Builders might be curious about whether they should implement whale-friendly policies, or address the broader, not-so-rich audience. Should they do airdrops based on stake balances, thus rewarding the whales to let them lead the community for founders? Or should they set a cap on the airdrop amount, or perhaps drop an equal amount to everyone (a.k.a. fairdrop)?
The data saith, “Thou shalt turn many to thy house instead of the rich, and thou shalt shine.” (or in modern language, “Focus more on the retail community than on whales for long term sentiment growth in projects.”)

We checked for the order of signal arrivals on each news to see whether whales are indeed forerunning the retails.

Table 4 – Whale Reaction Count on News Announcements

Contrary to a common belief, in most cases whales are concurrent or late to news, and rarely are preceding the sentiment moves. This observation tells us that whales generally act separately from news announcements, from which we can deduce that the recipients of news are mainly retail users. Therefore, it may be better off to focus on the retail communities when we design marketing strategies based on news announcements.

“Whales are accumulating” is a frequently used meme in the crypto industry to measure soundness of communities, but we should actually focus more on the overall community, or the “retail communities” instead, to build long-lasting communities.

Figure 11 – Whale Reaction Frequency out of Total News Count

If we analyze whale moves by news categories, we can learn that whales do not react to most news, but they are the most likely to recognize NFT mints. Considering that projects usually price NFTs in their own tokens, and whales, by definition, hold many tokens, there is nothing to be surprised here.

One possible shortcoming from the analysis above is that our dataset comprises only large cap tokens. Therefore, our sample dataset is prone to be biased towards tokens with a firm user base, of which on-chain data is likely to be monitored closely by retail communities. As the web3 industry further matures, we hope to see accumulation of data on small to mid cap tokens to extend our knowledge.

3.6. Ride a tide

When developing business ideas, should you go mainstream and follow the trend, or go original and find a blue ocean?
The data saith, “Follow thou me.” (or in modern language, “Going with the trend can give an edge in customer acquisition.”)
Following trends might not be a prerequisite to success, but certainly is a good ally to have. We define ‘trend’ as a period in which a specific subset of the token population outperforms the market (ex: DeFi Summer, NFT Madness). With a subset of news categories, fundraising, liquidity incentive, and NFT, we will try to identify whether sentiment dominance movements are consistent with general market trends.

Figure 12 – Quarterly Sums of Daily Social Volume Dominance per News Category

Unsurprisingly, liquidity incentives were hot during DeFi summer, but public interests in ‘yield farming’ have dissipated in Q3 2022 as people are pushing the ‘real yield’ narrative. Attention on NFTs was close to null in 2020, but was evidently the most cited buzzword since last year. It was relatively easy to launch an NFT project and bootstrap a community back in 2021, but raising capital is incrementally challenging in 2022, even for projects with much higher standards. When the tides fade, it is much harder to row a boat. Going with the trend is quite beneficial in terms of user attention. Of course, we do not intend to encourage all builders to blindly follow what is in fashion, but instead to propose that working on an out-of-fashion project might really need some tweaks to get customer attention.

Figure 13 – Quarterly Mean Social Volume Dominance of the Selected Tokens

Another interesting graph we may take a look at is the constancy in sentiment dominance of large cap tokens. Even under tighter market conditions with macroeconomic turmoil, investors do not just rotate to proven, quality projects—they are still searching for the ‘next generation’ projects, let it be real yield DeFi protocols or blockchain games. In other words, bear markets offer a great marketing opportunity.

3.7. Broke, but woke

Now that we have established the value of following trends, we arrive at everyone’s curiosity: Finding the next trend.
The data saith, “Thou shalt play games.” (or in modern language, “Despite the lower market capitalization than DeFi, Gaming sector gets more attention.”)
The market stands vigilant on the Gaming sector. We plotted sentiment dominance values by sectors to see the relative strengths of sectors in the year 2020 (Figure 13) and in the year 2022 (Figure 14). The market focus started out on DeFi, but it shifted to Gaming as market participants viewed Web 3 Games as the next big step to onboard the next wave of users.

Figure 13 – Social Volume Dominance per Sector 2020

Figure 14 – Social Volume Dominance per Sector 2022

However, aggregate market cap of DeFi to Gaming is still at 2:1 as of Oct 2022. The market speculates the Gaming sector to be the next big thing in crypto, but money is yet to flow from DeFi into Gaming, perhaps due to a lack of ‘killer products.’

When all eyes are on Gaming, it is a great time to build one and take it all. Even if the market trend changes, we are searching for more metrics that could potentially visualize the trend, so you don’t have to.

3.8. Airdrops are temporary, quality listings are permanent

We have already established that airdrops are one of the efficient ways to attract attention, but for how long would it last?
The data saith, “Thou shall live by the righteous listings.” (or in modern language, “People forget easily about airdrops, but they remember quality listings.”)
Among three subgroups Listing (Tier 1 CEX), Listing (Non-Tier 1 CEX), and airdrops, Listing (Tier 1 CEX) is the only event that has lasting effect on sentiment dominance after one week from the initial announcement; sentiment of the other two subgroups fall to the previous levels as soon as the news evaporates.

Figure 15 – Social Volume Dominance Change to Pre-Announcement

Airdrops can get temporary attraction, but it is short-lived. An airdrop-and-forget strategy is less likely to accomplish its original goal of bootstrapping a sustainable community; if we were to employ an airdrop as our primary user acquisition, we must provide additional services to the recipients of the airdrop within a few days of execution—preferably a Tier 1 CEX listing announcement.

3.9. One-size-fits-one

Industry winners are often benchmarked against peers. Luckily, we already have 21 representative tickers in our hands. What kinds of news are the winners of each sector announcing? What would be the representative distribution of news categories?
The data saith, “Thou shalt have differing plans to prosper for each part.” (or in modern language, “Each sector has different strategies to strengthen a community.”)
We categorized each news and sorted it out based on their dominance, to see what news appeals to users in each sector. Below is the top 5 ranking in terms of sentiment dominance.

Figure 16 – Top 5 Social Volume Dominance Ranking per Sector

L1s and DeFi projects have a good reason to get high valuations or get substantial funding, but Gaming projects only need as much as they can continue to operate. Liquidity incentive events brew significant sentiment in L1s and DeFi projects, thus it is important to bring in more funds to the ecosystem, or to the protocols to drive more consumers in. However, gamers have much lower appetites for money; they embrace events and playable builds instead, as we mentioned in Commandment 3.

One thing to note here is that offline events are usually fruitless in terms of market attention unless for L1s, implying that the market is still revolving around L1 projects. Other sectors might not have enough capital, or enough communities, to draw in enough visitors to host offline events.

3.10. Somebody gets tired of loving you

People get weary of repetitive news. Even if you designed the finest marketing strategy, spamming the same news consistently would result in lower consumer sentiment.
The data saith, “Thou shalt not call the same name again and again.” (or in modern language, “Do not rely on repetitive announcements of a similar kind. Mix a single great news with diverse okay news.”)

We saved the lightest for the last. We will zoom in to Dogecoin ($DOGE), the most beloved meme-based cryptocurrency, as it offers some fresh data points in many ways—it is a ticker led by a single KOL, but that KOL is nowhere near to being a founder or an owner; Dogecoin is also entirely driven by meme values.

Even the greatest news has a diminishing marginal sentiment response. We can easily map Tweets from a KOL onto sentiment dominance of Dogecoin in social media (Figure 17).

The initial and the followup Tweets from the KOL on Dec 20 2020 and Jan 29 2021 respectively, and the following price pump literally drove SNS sentiment on Dogecoin to Mars, but subsequent Tweets from Elon were just not as effective as the first two; even the KOL urging to accept $DOGE as a viable payment were accepted at a lesser degree of cheers from the public.

Figure 17 – Dogecoin Social Volume Dominance with KOL Tweets

This KOL is probably one of the most popular figures in the crypto market, but even his Tweets were received with a decreasing magnitude of response levels. Customers must be supplied with a variation of news to remain attentive to a project.

4. Key Takeaways and Concluding Remarks

So far we shared data insights on frequently asked questions from founders to come up with benchmarks to anchor their thoughts on:
  • – To do an airdrop, choose a fairdrop over a stakedrop for building a community.
  • – An airdrop or a non-Tier 1 listing may attract attention, but they are not effective in retention.
  • – Gaming projects should consistently share their visual productions, while L1 or DeFi projects should drop a partnership bomb once in a while.

Although we boastfully named these insights ‘Commandments’, they are by no means absolute; we recommend taking our advice with a grain of salt when applying them to actual business opportunities.

We chose community building as the foundational topic as it is the topic founders are mostly concerned with due to its ambiguity in measurement and uniqueness to Web 3. How can we define a ‘good community,’ and how can we measure the contribution of each marketing strategy to building the community? Our paper might not be a comprehensive cookbook, but we hope it could be a primitive starting point to develop ideas on.

Our thematic research paper series will keep on providing deep, data-driven insights on key questions from founders in the crypto industry. Please stay tuned for our next release.

For the curiosities we have not addressed in this paper, for example:

  • – Is there any specific news category that is more likely to only trigger positive sentiment?
  • – How can a project conduct multiple NFT mints and not ruin consumer sentiment?
We are more than happy to provide solutions to any of the unmentioned questions on a one-on-one basis. We welcome you to reach out to us.

Appendix : Methodology

Data Selection

We picked 21 tickers out of 200+ tickers from our database, based on the following criteria:
  • – Market capitalization
  • – Data history and completeness
  • – Sector representativeness and first-of-its-kind status
  • – Community diversity

Data Conversion

The raw data for each ticker would represent the sentiment volume, and we converted the sentiment volume to sentiment dominance, using the following formula:
Our intention was to adjust each ticker for the total sentiment growth in the crypto industry, as if we did not transform them into relative terms, we could misinterpret the sentiment growth in the overall industry as the sentiment growth in the individual tickers.

Table 1 – News Category Classification Criteria

We categorized news from official announcements as shown in Table 1, and for each news, we assigned a ‘significant factor,’ which represents the significance of the news. If a news article is classified as ‘significant,’ it falls under the ‘quality’ category as mentioned in Commandment 2, and falls under the ‘Tier 1 CEX’ category as mentioned in Commandment 2 and 8. If a news article is not classified as ‘significant,’ it falls under the ‘mediocre’ category as mentioned in Commandment 2 and 4.

A significant factor is assigned 1 if the news involves publicly listed companies or tokens with more than $1B market capitalization at the time of writing, top ranked global and local CEXes in terms of net effective trading volume and user density, upgrades to the core unit that is generally accepted to be of importance (ex. Ethereum’s transition to Proof-of-Stake), or fundraises solely for the protocol and/or ecosystem fund amounting to more than $100M.

Significant News

We classified a news announcement as being significant if it possesses any of the following qualities:
  • A fundraising of more than $100M
  • A partnership with a publicly listed company or a crypto project with a market capitalization higher than $1B
  • Listing on one of Top 3 CEXes based on trading volume and reputation

Price rallies/sell-offs

We classified significant volatility in price as a daily price return exceeding two standard deviations of 30-day volatility of benchmark cryptocurrency.

(End of this paper)