Type of Web3 project
There are mainly two types of Web3 projects:
- Infrastructure-based project
- Product-based project
A solo project which provides infrastructure for other projects, or a project having its own blockchain, is an infrastructure-based project. If you want to make a decentralized social media app, you don’t need to launch your own blockchain. Instead, you can deploy your product on another blockchain, and that another blockchain where you deploy your dapp is called an infrastructure-based project. Think like this: either you make an app and upload videos on it, or you upload videos on YouTube. Both have their own pros and cons. Like on YouTube, you need to follow their guidelines, but you don’t need to search for users or invest money to build an app. Same like this: either build your own infrastructure or use other infrastructure.
There are different infrastructure subcategories based on the service they provide, like Layer 1 blockchain, Layer 2 blockchain, LayerZero. We will discuss these subcategories in the advanced course; for now, just understand these things. Different blockchains are built using different programming languages and scripts. The general blockchain infrastructure where other projects can build their dApps is called an L1 blockchain. The blockchain which is built on top of L1 is called a Layer 2 blockchain, and the communication medium between different blockchains is called Layer 0 infrastructure.
Project development stage
Either you want to launch your own project or you are seeking opportunities in projects, you need to know how Web3 projects are established so that you can position yourself accordingly.
Suppose you want to earn an airdrop by contributing to a project. In this case, you need to know which stage the project is in. Suppose you start contributing, but after a week the project announces TGE. In this case, there is a very low chance that you will get any airdrops. The earlier you are, the easier it is to position for rewards.
Phase 1: Pre-build stage
In this stage, no one knows about the project, its goal, and use case. The team starts working on the project idea, whitepaper, and ways to raise funds for building. If you are a founder, then only you need to go through this stage, and for contributors like us, it’s none of our business.
Phase 2: Seed round
In this stage, the project raises some investment to start working. This is called the seed round, and there is a high possibility for the project to raise more funds later. You will find many projects that are in the seed round where you can apply for jobs and internships. As they do not have big capital to hire professionals, the chances of getting a job or internship are pretty high. if you find project raise X amount of capital in seed round then don’t expect any kind of airdrop in the next 6 months because it will take time to reach that stage.
Phase 3: Testnet deployment
After the seed round, the project deploys a testnet. There are a lot of benefits of launching a testnet, like users can test the product and give feedback for necessary improvements. Testnet also creates hype in the market. To understand testnet simply, think of it as a real Web3 product with fake money called a faucet.
One more benefit of testnet is that if the testnet succeeds with millions of user interactions, then the project can raise new investment from investors, which is called Phase 4.
Phase 4: Series of funding
After the seed round, the project can go for new funding rounds before mainnet. Series A, Series B, and so on. Like this, the project raises new investments which will eventually grow the project, and the chance of better rewards is there. Some projects shut down after not getting new investments, and some projects scam investors by raising funds but not using them for product development.
Phase 5: Legal compliance and smart contract auditing
This is one of the most important stages where a project needs to complete legal compliance based on their location. If a project conducts a presale, then they need to disclose the investment amount and details of users who are investing under AML and CFT acts (Anti-Money Laundering and Combating the Financing of Terrorism). Another important task that needs to be done is smart contract auditing. No, it’s not like accounting or finance department-related work. Smart contract auditing means finding vulnerabilities and bugs in smart contracts to protect user data and funds. If you deposit funds into a project with no smart contract auditing, then your funds may be stolen by hackers, and no one can do anything. There must be a reputed third party for smart contract auditing.
Phase 6: Partnership, snapshot, and liquidity management
This is called the pre-TGE stage where the project announces its official ecosystem partners, prepares liquidity to add to the ecosystem, and takes snapshots to reward users.
Snapshot means saving on-chain data and off-chain participants in a project campaign who can be eligible for rewards. After the snapshot, criteria will be determined with necessary Sybil implications. People who meet minimum criteria before the snapshot date will get rewards.
Sybil hunting means finding and removing participants who cheated or broke the rules of the airdrop campaign. Like making thousands of accounts and taking part in campaigns, which dilutes the reward per user. Suppose the reward if one million token and 10,000 people are eligible. In this case each user will get 100 token but later you find out 5 user were eligible with 1000 wallet each. In this case if project find out then new reward will be 1 million token for 5000 real and legit user and reward per user increase from 100 to 200.
ICO (initial coin offering) or presales is token sales system at for public and early contributor at low cost. Think this like IPO os stock market. Early investor can take benefit from this by getting crypto at lowcost. Remeber ICO is not always low cost, you need to do FDV analysis before participanting in ICOs
Phase 7: Mainnet, TGE, and listing
Mainnet is the same as testnet but with real money. If it’s an L1 project, then the blockchain will go live with its ecosystem. If it’s a finance-based product, then it will deploy on a mainnet blockchain.
TGE is the token generation event where the project launches its token and may reward airdrops to contributors. For L1 projects, mainnet and TGE usually happen on the same day and time, but for L2 and service-based projects, TGE generally happens 6–12 months after mainnet.
Vesting is the lockup period of tokens for the team, investors, and community. Suppose a coin with 1 billion total supply lists in the market, but the question is what the initial circulating supply is. As we know, lower supply means higher price, and to save the community from VC dumps, vesting mechanisms exist in the market.
Crypto gets listed on DEXs and CEXs, from where users can buy and sell them. The better the listing, the better the price.
Phase 8: Post-mainnet
After mainnet, TGE, and listing, all that is left is new updates and new incentive campaigns. If the project is fundamentally strong, your job is okay, but 90% of projects will be eradicated from the market and delisted from CEXs.