Earlier this year, TenX founder Julian Hosp, introduced a phenomenon he’s dubbed the Idea Execution Paradox. The phenomenon describes how a company with an unreleased product has an easier time increasing the price of its token than a company with a working product.
Without a working product to root investor's expectations, a company is able paint a grandiose vision and make gargantuan promises. Stakeholders optimistically close the gap in their minds and envision the product at an optimal state. Once a working product is released, the reality sets in, and the product either does not live up to its marketed hype or the long development timeline required to meet the promises made is realized and pumps the brakes on investors’ excitement and speculation.
An unreleased product is by all means an imaginary product, especially to those outside of the development team. It's difficult for an imaginary product to have pitfalls. A product that doesn’t exist can't be slow, can't have a clogged network, and can't fail from unforeseen bugs. The public perception of an imaginary product is guided by the team's marketing efforts, and the team will predictably only have positive things to say about the project.
As such, imaginary products are prone to "irrational exuberance".
The cryptocurrency space is rife with examples of the Idea Execution Paradox. Take, for example, projects that have unreleased products that are marketed, intentionally or not, to be the "Ethereum Killer". Without a working product, it’s difficult for investors to actualize execution pitfalls -they can only speculate on how much better it will be compared to Ethereum.
Even worse, because this speculation narrows in on Ethereum's weaknesses, it effectively discounts Ethereum’s strengths. For example, out of all cryptocurrency projects, Ethereum has the largest organic developer community, the most comprehensive set of developer tools, the most extensive developer documentation, and the most extensive corporate and government adoption. Ethereum's large network effect is difficult to build and will take time for any team to match. However, building adoption only becomes a challenge once a team has released their product - before then, it's very easy to ignore this impending uphill battle and speculate on how the unreleased product will be better to use than Ethereum.
Another example to consider is Steem. Steem is a zero transaction fee, 1-3 confirmation time blockchain designed for a social network. In terms of usage, it's one of the most successful blockchains to date, boasting more than 60,000 daily active accounts and over 150,000 comments and posts made daily. If Steem was still being developed and marketed as a blockchain that would have free transactions, fast confirmation times, and would host the largest cryptocurrency social network - investors would be going nuts for it. Yet, because Steem exists, it's hard to speculate on it and there has been little enthusiasm on social media.
As amusing as the Idea Execution Paradox is to observe, it's unfortunately being abused by cryptocurrency developers at the expense of naïve investors. Developers presiding over projects with unreleased products need only invest in a marketing budget to profit off of uninformed investors and disappear into the night like bandits. Unethical tactics like announcements of announcements, fake social media accounts, and overhyped partnerships with legitimate businesses have served these unscrupulous developers well in maximizing speculation on their imaginary products.
At the end of the day, without regulatory oversight, it's on the individual investor to independently diligence popular projects. Keep in mind the psychological ramifications of the Idea Execution Paradox, and how it can be leveraged to siphon hard-earned money from the ignorant to the undeserving.