How Does Mainnet Launch Influence the Price of Tokens?

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Last updated on September 15th, 2023 at 01:34 pm

According to research by Bitcoinist, only 8% of the 80,000+ crypto projects in existence manage to succeed. On average, most blockchain projects survive for just about 1.22 years. So, when we want to measure how well a blockchain project is doing, we usually start by looking at its mainnet launch.

Now considered a cultural norm, the crypto community usually anticipates a project’s mainnet launch, hoping that it will trigger a surge in the project’s native token’s value or other related tokens, such as that of the chain the project is built on.

This mainnet launch price rally offers an objective and scientific means to assess the actual value of a crypto project and its ability to live up to the initial hype over time.

The fundamental question, however, is whether a mainnet launch genuinely influences a project’s success and if we can forecast the long-term viability of a mainnet based on its performance at launch.

Another important question is whether crypto tokens are guaranteed to increase in value upon their project’s mainnet launch.

In this article, we will explore these questions and shed light on how mainnet launches impact the crypto market, as well as other factors within the blockchain ecosystem that can influence token prices. First, let’s dive into what a mainnet is and how it works.

What is a Mainnet?

The term ‘mainnet’ refers to a blockchain that has undergone extensive testing, development, and deployment and is now operating its network using its own technology and protocol.

In other words, a mainnet represents the final stage of development for projects that have successfully completed their testnet phase. It is an independent blockchain network that facilitates the transfer of digital assets from a sender to a recipient.

On the mainnet, all transactions are recorded on a decentralized ledger and can often be updated or modified by a project team whenever necessary.

Mainnets are crucial because they demonstrate how a cryptocurrency is practically utilized. Mainnets are increasingly becoming a gauge for assessing the feasibility of a cryptocurrency project, as acknowledged by a growing number of industry experts.

Various Stages Before Mainnet

ICO Stage

In many cases, an Initial Coin Offering (ICO) takes place before the mainnet goes live, along with other fundraising and community-building initiatives. The first step in launching an ICO for a mainnet is determining how the ICO will be organized. An ICO is the Web3 equivalent of an Initial Public Offering (IPO).

Developers use ICOs to raise funds for the development of a new coin, dApp, or even a new mainnet. Investing in an ICO requires a thorough understanding of and trust in the project before committing money.

Investors and speculators place greater confidence in the project’s viability or real-world utility when it is on the mainnet because tokens on the testnet lack monetary value.

First and foremost, investors must confirm that a blockchain project has a mainnet before participating in an ICO. The existence of a mainnet or a testnet demonstrates the project’s seriousness, as both typically influence the price of the project’s crypto token.

Testnet Stage

In contrast to the mainnet, the testnet is still in development and does not operate at full capacity. Engineers usually use a testnet to test and debug a blockchain’s functionalities to ensure the system is secure and prepared for the mainnet launch.

The mainnet version of the blockchain is deployed once any bugs or other issues have been addressed and performance has been enhanced. The testnet phase is crucial because it serves as a trial run for the real thing.

For example, Arbitrum, a Layer-2 scaling solution for Ethereum designed to increase transaction speed and reduce fees, deployed a testnet before launching its mainnet.

After the successful completion of the testnet, enthusiasts who participated in the protocol testing activities received an airdrop of ARB tokens as rewards for participating. Some recipients received up to 1.4 million ARB tokens, currently worth $1.2 million.

Why Is the Mainnet Important?

Launching a mainnet can increase the value of a project’s native token, indicating the team’s successful execution of the development roadmaps outlined in its whitepaper. However, regular updates are necessary to continuously add value to a mainnet after its initial launch.

The mainnet represents the ultimate version of a blockchain or network. To minimize the risk of an attack, it is crucial to meticulously execute each step leading up to the official mainnet release. A critical function of the mainnet is to instill investor confidence and offer verifiable confirmation that the project is advancing as intended.

Analyzing Token Price Reactions to Mainnet Launches

We looked at a few notable mainnet launches and how their tokens performed in the market before and after to see if there was a pattern.

In 2021, the price of EOS surged to $22.17 in April. However, it didn’t maintain that level for long, as it experienced a significant downturn due to some negative events during its mainnet launch.

The trouble began right after the EOS blockchain launched its mainnet in June 2018. Block producers, who function as administrators of the EOS network, froze 34 accounts suspected of involvement in coin theft. Unfortunately, the block producers failed to provide clear explanations at the time.

This move stirred discontent within the crypto community as it contradicted one of the core tenets of blockchain – decentralization. The EOS team wasn’t supposed to have the authority to freeze accounts in such a manner and didn’t even consult with the EOS Core Arbitration Forum (ECAF) before taking action.

This event underscored the lack of transparency in significant decision-making processes and presented a substantial challenge for the EOS project.

This narrative illustrates how swiftly token prices can decline following a mainnet launch, emphasizing the substantial impact of investor sentiment on the market.

VeChain (VET)

VeChain launched its VeChainThor mainnet on June 30th, 2018, during a tough time for the cryptocurrency market. Unlike EOS, VeChain’s mainnet had more modest expectations and received a positive response.

The VeChain ecosystem uses two unique tokens: VeChain Token (VET) and VeChainThor Energy (VTHO). The former is used to transfer value across VeChain’s network, while the latter is used as “gas” to power smart contract transactions.

Before the mainnet launch, VeChain’s native token, VET, had reached an all-time high of around $0.280991. However, its value dropped sharply after the launch (as seen on the chart) and is currently trading at $0.01569, with a market capitalization of $1.21 billion.

Despite the price decline, VeChain achieved a significant milestone after its mainnet launch: it reached 10 million blocks without any network issues. While this may seem smaller compared to Bitcoin and Ethereum, it highlights VeChain’s stable, scalable, and secure network.

There isn’t a single conclusive explanation for VTHO’s steep decline. However, indicators point to generally bearish conditions of the cryptocurrency market during that time.

LUNC

Terra-Luna’s infamous 2022 crash is now old news, but the million-dollar wipeouts that kickstarted domino-like fallouts and the ongoing crypto winter are pretty hard to forget. LUNA, Terra’s native token, took a 99% plunge after the ecosystem’s algorithmic stablecoin, UST, lost its 1:1 peg to the US dollar.

The now-embattled Terra CEO, Do Kwon, proposed his “Terra Ecosystem Revival Plan 2 (LUNA 2.0)” to restructure and rebuild the ecosystem and subjected it to a community vote per governance protocols.

The Terra community overwhelmingly voted in favor of the creation of a new blockchain with a new native token to salvage what was once hailed as the ‘strongest developer ecosystem in crypto,’ permanently, leaving behind LUNA and failed stablecoin, UST, to form a new native token, Luna Classic (LUNC).

On the first day of LUNA 2.0’s introduction (May 31st, 2022), LUNC reached $25 but quickly dropped to $8.56 within the first hour. Evidently, still haunted by the ecosystem’s implosion, most investors, desperate to recover losses, panic-sold their LUNC holdings right after the launch, dumping on other slower-to-sell holders.

Aptos

This is another example of a cryptocurrency project that experienced a surge following its mainnet launch. Upon its launch on October 18, 2022, Aptos’ native token, $APT, briefly soared to $59.39 but dropped by approximately 45% to $8.15 on its first day of trading, according to CoinGecko. Currently, APT is trading at $5.58.

In response to community concerns about its tokenomics, the Aptos Foundation airdropped approximately 20 million APT tokens to early network participants.

Upon its launch, the project received a mix of praise and criticism. Initially, it faced criticism due to issues about centralization and a lack of transparency in its tokenomics. However, Aptos has gained considerable momentum and is emerging as a promising Layer 1 blockchain.

This transformation was largely driven by its prominent founders, Mo Shaikh and Avery Ching, who have made commitments to technological innovation and enhancements in security and scalability.

Do Mainnet Launches Affect Token Prices Long-Term?

As we’ve established, mainnets play a pivotal role in boosting investor trust, often resulting in significant value surges for tokens upon launch. However, based on the case studies we’ve examined, it becomes evident that the initial price surge tends to taper off in the weeks following the mainnet launch.

This phenomenon could be attributed to two factors: either an overestimation of the project’s worth or intentional value inflation to boost token sales. Both scenarios are plausible in the current market climate. Consequently, predicting the precise impact of mainnet launches on crypto prices remains challenging due to the industry’s relatively lax regulatory structure.

For a cryptocurrency project to achieve long-term success and value growth, it must continually refine and enhance its mainnet’s capabilities—a critical characteristic exemplified by two leading crypto projects, Bitcoin and Ethereum.

For instance, BTC increased from $4,140 to over $4,370 following the introduction of Segregated Witness (SegWit), with similar effects observed when the Lightning Network and Taproot were implemented.

In the case of Cardano, the launch of smart contracts on its mainnet in September 2021 significantly boosted the value of its native token, ADA, from $0.3 to $3. This illustrates how technological advancements on the mainnet can significantly influence adoption and the associated cryptocurrency’s value.

In Conclusion,

The success of a mainnet launch is closely tied to the overall success of a blockchain project. However, while many investors see a project’s mainnet launch as a potential indicator of its future performance, it does not always guarantee substantial price gains.

The complexity and evolving nature of the crypto market highlights the importance of thorough evaluation and ongoing analysis when assessing the long-term impact of mainnet launches on token prices.

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

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