With the continual evolution of the global crypto market, investors and developers are facing new challenges. According to Coingecko data, there are a total of 18,921 cryptocurrencies listed on the website. The real number of cryptocurrencies is likely in the millions. However, the total crypto market cap is just slightly above $3 trillion, with Bitcoin and Ethereum responsible for almost $2 trillion of it.
As a result, there is a natural question that arises: what happens to the vast majority of altcoins after they are through the hype cycle? Unsurprisingly, they fade into irrelevance as user and investor interest vanishes. So, what separates cryptocurrencies that last multiple years or sometimes even as long as a decade from the ones that die after getting listed on an exchange? The answer is sustainability.
Utility – the secret ingredient of altcoin longevity
Utility is the cornerstone of any sustainable altcoin. An altcoin can serve any purpose, ranging from enabling transactions on the blockchain by functioning as ‘gas,’ generating yield from DeFi liquidity pools, enabling staking, powering on-chain governance, and a lot more. All these use cases are likely to provide the altcoin value over time.
In a way, utility creates a feedback loop for the underlying token, ultimately empowering its adoption and growth. Let us take the example of the most utilized altcoin in the crypto industry, ETH.
ETH is a powerhouse when it comes to utility. On the Ethereum blockchain, it is used as gas to enable transactions, swap tokens, or mint non-fungible tokens (NFTs). It can be used to provide liquidity to ETH-based liquidity pools, on-chain governance to vote on Ethereum Improvement Proposals (EIP), staking on the Ethereum blockchain to strengthen its security, and more.
In contrast, the top cryptocurrency by market cap, Bitcoin (BTC) suffers from a lack of utility. While it’s not entirely fair to compare ETH and BTC, since both serve different purposes, in terms of sheer utilities that generate revenue for the protocol, ETH trumps BTC by a fair margin.
Enabling engagement through community
Besides utility, an altcoin’s community matters far more than what most people would give it credit for. A strong, loyal, and dedicated community can be the difference between an altcoin that makes its way among the top 20 digital assets by market cap and a token that loses relevance.
In addition to providing online visibility, communities also provide continuous feedback to a cryptocurrency project’s progress, helping developers and marketers get free access to user insights without any extra expense.
A strong community is especially powerful for an altcoin project, as it offers a sense of legitimacy and genuineness in an industry that has gained infamy for scams and rug pulls.
Further, communities play an even more important role during bear markets. Typically, user interest in a token fades fast during a bear market, which may adversely affect the token’s price and, in the worst cases, even get it delisted from major crypto exchanges.
When prices fall, a strong community can act as a buffer, in that it can sustain the token’s usage, contribute to the project’s on-chain governance, and help it steer through market challenges. On the other hand, altcoin projects with weak communities often fail as soon as the speculative interest in them wanes.
Incentivizing growth through revenue models
An altcoin’s ability to generate revenue is one of the most critical factors that can contribute to its growth. Having a sustainable revenue model is, inarguably, the most significant factor that can help an altcoin sail through turbulent market conditions.
Let’s consider the example of Binance Coin. The native token of the top cryptocurrency exchange has no lack of utilities, including revenue-generating uses. BNB powers the Binance ecosystem, as it accrues fees from all the trades on the exchange.
This way, there’s a recurring source of demand for the token, which creates the token’s demand for real usage instead of just speculative trading.
Altcoin ecosystem strength – The bigger picture
The combination of all the aforementioned factors – such as token utility, community engagement, and revenue-generating streams – culminates in a robust cryptocurrency ecosystem that fuels the token’s adoption, leading to sustained demand for the digital asset regardless of the phase of the market.
The ecosystem strength of a protocol can be determined by the usage of various decentralized applications (dApps) built on top of it, in addition to other parameters that signal rising demand for the ecosystem’s token, such as technological integration and partnerships with other entities.
For example, Solana benefits from a bustling ecosystem since there are various decentralized finance (DeFi) trading platforms such as Raydium, Jupiter, and others that make it easy for Solana community members to swap tokens. NFT trading platforms like Magic Eden further propel SOL’s usage.
Finally, a coin or token’s interoperability plays an important role in sustaining and growing its demand. By developing interoperability bridges like Wormhole and others, an altcoin can accrue even greater value and demand over a period of time. In simple terms, the more an altcoin is integrated with other altcoin ecosystems, the less its price will depend on short-term hype cycles.
Final thoughts
While a token can perform spectacularly during a bull market, its mettle is really tested when markets become boring. As the tide of euphoria recedes during a bear market, projects with tokens that have no utility beyond speculative trading usually end up going bankrupt.
On the contrary, projects with tokens with real utility are the ones that stand the test of time. A token having a clear, functional use, a strong community base, multiple sustainable revenue streams, and a strong surrounding ecosystem is far more likely to survive market volatility and external pressures.
Sustainability is rarely about a token’s hype. Getting the fundamentals right is crucial, particularly in an industry known for its volatility and erratic price movements. Always remember, hype can only take a token to getting listed on an exchange, but real token utility is what ensures that it doesn’t get delisted due to weak trading volume.
