Polkachu Playbook

Polkachu Team | 2024-07-20

Polkachu was established first and foremost as a for-profit staking business and will always remain so.

When we burst into the validation business in 2021, it was at the peak of the last bull market. The staking industry was chaotic but raked in lots of money. Figment was reported to be making $100M in annual revenue. Overnight, a 1-person system admin could turn from pre-rich to rich with little effort and no business plan. Opportunistic validators invented new tricks like "Stake for NFT" and "Stake for Airdrop" with great success. Small validators cried foul all day long, claiming the space was rigged: they were squeezed by the big branded validators from one side and the dishonest validators from the other. Nonetheless, because there was so much money to be made, everyone was basking in a euphoria and few thought about a basic question: How to build a sustainable staking business for the long run?

The great news for Polkachu, a newbie at the time, was: When an industry was moving so fast and chaotic, there must be some under-explored spaces for us to carve out a niche.

Indeed, for the last three years, we have established a unique and profitable business. Our business strategy will always evolve, but here are three core tenets since the early days.

Target mid-market
Offer products for free and monetize on validation
Shitposting as marketing

Target Mid-Market

Our business is in non-custodial staking; it means we will never really know who our customers are. A lazy validator might just throw up their hands in the air and give up on customer targeting altogether.

In 2021, most validators only focused on two sides of the staking market: institutions and retails. When a validator targets institutions, it would ramp up its business development, attend conferences and shake hands, get certified by government agencies and industry groups, etc. For example: P2P, Chorus One, StakeFish, Figment, Everstake. When a validator targets retails, it might start a podcast or YouTube show, organize community events, release an NFT collection, be present on Crypto Twitter all day long, etc. For example, CryptoCito, Frens Validator.

But we saw a neglected segment: the mid-market. The mid-market is rather hard to define. Maybe it is easier to think of a typical team member on a staking company like Chorus or an engineer on a blockchain project. Let's talk about their traits:

They are crypto natives and do not need additional education to onboard
They have been crypto-pilled and are betting their career on this emerging industry
While they do not have institution-level token holdings, they can be regarded as token "whales" by the retails and own tokens on many PoS chains
They are through a few crypto cycles and can easily distinguish between good actors and bad actors, and between legit projects and bullshits.

Such mid-market is often neglected for a good reason. In the traditional web2 world, we have two unique business models: B2B and B2C. B2B is like targeting institutions and B2C is like targeting retails. The mid-market does not really exist in that world. Only in web3, we have a class of new sovereign economic elite that does not exactly control the institutional power, but is quantitatively different from the mass. This group is sizable and growing, and you can even argue that this is the only group that will eventually matter if crypto reaches its promise.

[An unrelated sidebar: Blockworks is one of the few crypto media companies that also pursues this segment. This at least partially explains their success]

Offer Products For Free and Monetize on Validation

For this target customer group, we need a customer activation strategy. For us, it is very simple: offer products for free that the mid-market users use and monetize on validation. This will probably go down the history as the most elegant business model of all times. Only crypto enables this.

Every traditional web2 business struggles with two forces fighting against each other. On the one hand, they want to reach as many customers as possible. On the other hand, they want to add barriers, fictions and paywalls so they can monetize on their customers. Eventually, most have to pick one side: Facebook is free for all and it sells ads; Netflix is for paid users only. Of course, we also have the freemium SaaS business model that uses "free" product as a user acquisition funnel. However, this kind of business eventually only resolves the tension by squeezing on the "free" users.

Crypto staking offers an elegant solution to this tension. If a validator can offer products that users like, it establishes the affinity between the brand and users. Later when the users want to stake their tokens for their own good, the validator will become their top choice. Similar to the freemium model, the free product is the distribution and the top of the funnel. The difference is that validators never need to charge for a premium version of the products (The best version of the product is already free). In a way, the free products are both the distribution and the differentiation in a commodity business that is staking.

Once the strategy is established, the rest is simple. If you visit our website today, you can see we have a full suite of products and services that specifically cater to this mid-market segment. I bet many of the blockchain engineers have used our products. I hope many have found the products so useful that they are staking with Polkachu because of our products and the brand.

Let me also call out the products we do not offer. We do not offer anything that institutions like to see (certifications, partnership with crypto custodians, etc). And we do not offer products for retails (wallet rescue service, telegram alert for commission change, slashing). They are probably all doable from the engineering perspective, but we refuse to make them because we want to maintain our laser focus on our target customers.

A very strange but natural side effect of this strategy is that we are becoming the best ally of other validators. They are competitors, but they are also our mid-market target customers on blockchains that they do not validate but hold tokens. After all, the validator slots on a blockchain need to taken by someone anyway. We would rather to have friends to compete with us instead of our enemies.

Shitposting as Marketing

Target customer, check. Monetization strategy, check. Polkachu the business can really stand on its own with these two big ideas. Indeed, this was how it operated in our first year of business. But then we discovered another piece of gold in 2022. Enter the Polkachu Intern.

The more you spend time in crypto, the more you realize how valuable the so-called Crypto Twitter (CT) is. However, CT is also terrible in its unique way: lots of grifters, shillers, scammers, spammers, self-haters, self-doubters, nihilists, and ideologues. The core problem is that people who spend time on CT also want to directly monetize on CT, leading to the cesspool that we see today. I do not blame them, because they all have to feed their family. However, there must be a better way to align shitposting with the betterment of the industry so we grow the pie together.

Polkachu is lucky and privileged, as we already monetize on validation. We can afford to treat CT as another distribution channel but never ever monetize on CT directly.

So we created the Intern account. Much of its initial design was laid out in its opening statement, but the character did evolve quite a bit over the years. Some of the initial designs turned out to be unworkable, unsustainable and unenjoyable, but other themes began to emerge to become the core idea of the Intern. The most important one is what we call "CT Shitposter Trilemma":

Positive
Educational
Entertaining

"Entertaining" is Level 1. It provides the short-term dopamine hit. When you have a banger, you get a galore of likes, retweets, quote-tweets, bookmarks, oh my... Many CT shitposters live and thrive at this level. While glorious in a bull market, these shitposters tend to not survive in a bear market when things are boring and people are quitting.

"Educational" is Level 2. The best shitpost is only good when it is funny on the surface but reveals an unconformable truth. Most readers won't get it so it will never be a popular banger. But for a few who get it, you are their best friends, and by extension, their go-to validators when it comes to staking. Many CT shitposters are too shallow to get to this level. For a few smart ones, because they need to make a living, they tend not to be too prolific.

"Positive" is the final boss. I have seen so many CT shitposters who are funny, smart and knowledgable. However, they become restless when things are boring. Instead of saying nothing, they craft shitposts at the expense of others. They would FUD projects, attack people, create dramas, seek attentions, and finally blame everyone else if things blow up. This is a line that the Intern will never cross. Of course there are bad actors in the space, but we believe that the intern's energy is better spent in amplifying the good parts.

Once the Intern has mastered the arts of being entertaining, education and positive at the same time, it can gain a deep connection with the target audience. Every time a user gets a laugh from the intern's shitpost, mgmt gets a valuable brand impression.

Polkachu: The Playbook

As you can see, we have been thinking about the staking business deeply since Day 1. Many of the casual tactics we do on the surface are really guided by some deeply-held principles. In a way, those tactics are easy to do because they are simply the implementation details.

But we can abstract one level further up. "Target mid-market", "Offer products for free and monetize on validation", "Shitposting as marketing" are our core business strategies, but they are simply the implementation of an even bigger idea: crypto business is just business, but with its unique characteristics. It means that many tried-and-true business ideas still apply in this space, but founders need to be creative in order to stand out.

Fundamentally, a staking business tends to make two types of mistakes. One mistake is to think that they can just run the old business playbook without thinking through the unique nature of crypto. They will seek venture funding, want to become a unicorn, run business with financial spreadsheets, scale the operation quickly in a land grab, spend money in BD and marketing, and enjoy spotlights in conferences, talks, press releases. This mistake explains the rise and fall of some OG validators.

The other mistake is the opposite: the founders think that crypto business is so unique that they do not need to follow any old business playbook at all. They will start the validator as a hobby, hustle for new networks without guiding principles, remain unclear about their target customers, do everything (marketing, BD, etc) on an ad-hoc basis, claim to be in it for the public good but then complain when they miss a foundation delegation. This mistake explains lots of small independent validators that have never managed to break out.

In my view, the only way to survive and thrive in the staking business is to avoid these two types of mistakes. Crypto business is just a business, so founders can benefit greatly by reading Ben Thompson, Clay Christensen, Chris Dixon, Marc Andreessen, etc. In fact, I do not think that I could've formulated Polkachu the business so clearly from Day 1 and made it a breakout success without the thinkings and writings of these giants. On the other hand, the unique nature of crypto is enabling many new business models and strategies. We are only touching the surface, and Polkachu's playbook is not the only viable playbook. What if a crypto Ben Thompson does not charge for subscription, but monetizes on staking? What if a crypto Charli D'Amelio tiktoks her way into the top Solana validator and makes millions along the way?

So that's the real meta playbook.

P.S.: To make sure that this essay is focused, I have dropped off a few other core strategies about how we run Polkachu the business. If there is public interest, there might be a Part 2 of this essay.

Open source components; close-source integration
Open to partner with everyone, except for those who dis-intermediate our direct relationship with customers
Governance participation as marketing
Avoid spotlights whenever possible