The Wealth Effect

Key Insights

• In crypto, the “wealth effect” is the phenomenon where an ecosystem's popularity is memetically driven by the appearance of wealth associated with launching new tokens.
• Based on historical correlations between Solana’s native ecosystem token market capitalization and user activity, the Solana user base could potentially increase by 30-80% following the launch of native project tokens.
• While incentives through token launches can drive initial growth, they need to be used strategically to ensure projects can retain users in the long term.

The “wealth effect” refers to the phenomenon where user growth is memetically driven by the allure of wealth created by launching new ecosystem tokens. As new, native protocols within an ecosystem launch their tokens, they introduce associated market caps. In turn, these market caps flow into DEX TVL figures and user wallets via airdrop or some other distribution method. As USD-denominated TVL spikes and as users gain more “wealth” to spend, the valuations of the base ecosystem rise. The increasing price of the base layer token attracts outside users, resulting in new activity spurred by the utility and trading of the ecosystem tokens. The interaction ultimately creates a memetically driven increase in user adoption largely on the back of the newly printed wealth.

The historical relationship between user activity and native token performance can help determine which ecosystems and applications have successfully created enduring value. For example, ecosystems that have historically shown strong correlations of wealth creation and user adoption indicate a more mercenary or profit-motivated user base. On the other hand, weaker correlations indicate users are drawn to some native use case other than pure wealth incentives.

This report projects the ripple effects of token launches on other ecosystems and provides a framework for predicting an ecosystem’s potential user growth after a new token is launched.