Digital assets are today’s burgeoning investment asset class dominated by a new generation of Generation Z and millennial investors, who may be causing a shift in conventional retail IR practices.
Since 2020, this global group of blockchain investors has diversified its Bitcoin and cryptocurrency portfolios to embrace decentralized finance (DeFi). These investors are buying, holding, lending and staking tokens – central to fueling use-cases and business models that make DeFi projects work. Tokens represent a tradable asset or utility that allows the holder to use it for investment or economic purposes. They are built on top of an existing blockchain network, most often Ethereum, and can serve a multitude of functions in DeFi mechanisms, such as governance and voting.
DeFi has ushered in new crowdfunding capabilities enabling companies – projects in blockchain parlance – to find buyers and liquidity for their tokens. This is done through initial distributed exchange offerings (IDOs) such as Uniswap, and initial centralized exchange offerings like Coinbase. Investors are seeking the long-term appreciation that owning an early-stage company’s token could bring, and using their token to participate in yield farming – a DeFi practice of staking or lending crypto assets to generate high returns or rewards in the form of additional cryptocurrency.
Explaining DeFi, tokens and IDOs
DeFi is financial software built on the blockchain that can be pieced together like money Legos to create almost any conventional financial service product, such as a trading exchange, derivative or insurance product. Since its debut in 2020, DeFi has grown to a total value of $180 bn at its peak in November 2021, according to DappRadar.
Blockchain companies conduct crowdfunding sales starting with conventional investor documents, such as a white paper and pitch deck. The token economic model specifies quantities of tokens issued, categories, vesting periods, lock-ups, and so on. Launchpad partners – similar to a broker-dealer or investment banker, both with their own investor community – are the first step in the presale, private sale stages until the IDO public sale. On the way to the public sale, marketing and community building are the top jobs for success.
Retail DeFi investors are Gen Z, loosely defined as age 24 and under, and millennial retail investors, aged 25-40. They are big users of social media such as Twitter and Reddit and communication platforms such as Telegram and Discord. They are part of a growing group of investors that view cryptocurrency as a viable substitute for fiat currency. Gen Z has grown up in an era of growing distrust of governments and traditional institutions: they like the anonymity, security and freedom offered by cryptocurrencies and the blockchain.
Digital asset investments are making many millennials wealthy. A survey of millennial millionaires by CNBC in late 2021 showed more than half (53 percent) have at least 50 percent of their wealth in crypto, and 83 percent of them own cryptocurrencies. This points to a fundamental shift in how retail investors approach wealth creation compared with the generation before them, which may still be blockchain-skeptical.
Community building
DeFi investors want to be engaged with the coins and companies they follow; they want to be part of a movement and a product they love. It is commonplace for a small blockchain to have up to three community managers covering engagement with communities across countries and time zones, to moderate all conversations on communications apps and set up and maintain the community policy.
The role of community manager in crypto goes far beyond simply moderating community engagement. It extends to maintaining a harmonized communication between the diverse network of investors, users and partners. Community managers have the responsibility to create robust growth strategies, engage with influencers and ambassadors, create educational content, listen to and gather investor feedback and be actively engaged in reaping returns for the blockchain.
Investor newsletters and traditional news media sources are old school and even email is a bit passé with these investors. They favor blogs for news, or podcasts. They watch YouTube influencers, or ask-me-anything sessions on Telegram. Simply social listening is not enough: more sophisticated AI and tools for sentiment tracking and entity mapping are needed to understand what’s being discussed – and who’s discussing it.
An economic moat is your business’ ability to maintain competitive advantage over alternatives. An IR moat is your team’s ability to create highly engaged and loyal long-term investors. Blockchain companies might have insights to pass on to IROs regarding the characteristics of these sticky relationships with the next generation of investors.
Linda Montgomery is a Toronto-based fintech and digital assets marketing executive and an IR professional
This article originally appeared in the Spring 2022 issue of IR Magazine.
