The Nash Effect.
TL;DR: If you want to contribute to the overall success of Nash, learn about the Flywheel Effect. The compounding returns of collective staking will drive the initial growth, which I call - The Nash Effect.
Like many community members, I’ve been tracking Nash since the start. When I saw Fabian presenting NeonExchange (hereafter Nash) for the first time at the Amsterdam NEO meet-up in January 2018 (which I organized with Balder and Dean), I was hooked on the vision. I knew I wanted to be part of this project and the community. I’ve been searching for ways to contribute my knowledge, skills, and network to help make Nash a big success. This “article” is my first contribution, hopefully, it will lead to a few more in the future if people like it.
Since the launch of the community platform, I’ve been thinking a lot about ideas and concepts for growth when it comes to Nash. I have a 10+ year background in conversion optimization, so I’m naturally intrigued by how to build (online) models for growth and how to maximize user acquisition and adoption. I’ve mainly been thinking, “How do I model a concept that supports ‘growth’ and where can we leverage the collective intelligence of the Nash community.”
How can we, as a community make a collective impact on the success and growth of Nash?
What drives the growth and builds momentum?
I am a fan of mental models. Mental models are how we understand the world. Not only do they shape what we think, but they shape the connections and opportunities that we see. Mental models are how we simplify complexity, why we consider some things more relevant than others, and how we reason. Some of the well known mental models are for example Pareto’s Principle, Compounding, or Social Proof.
To provide more insight into what drives growth and builds momentum, I’d like to introduce the concept of feedback loops. All complex systems are subject to positive and negative feedback loops whereby A causes B, which in turn influences A (and C), and so on – with higher-order effects frequently resulting from continual movement of the loop.
The feedback loop of Amazon
A well-known example of feedback loops is the one of Amazon. It was drawn and conceptualized by Jeff Bezos and his team in 2001, which they called The Virtuous Cycle. Jeff Bezos was inspired by Jim Collins, who coined the concept of feedback loops “The Flywheel Effect” in his bestseller Good to Great (must-read).
The goal of Amazon is to offer customers the greatest possible selection at the lowest prices while maintaining the best customer experience.
Amazon’s flywheel model uses lower prices to attract more customers, which attracts more third-party sellers, which in turn drives greater selection and lower costs. Greater selection attracts more customers, and so on, setting the ‘virtuous cycle’ in motion at Amazon.
And most importantly, when you optimize any part of the Amazon flywheel, it pushes the other components forward, accelerating the entire feedback loop.
The Flywheel Effect
So, The Flywheel Effect looks at the interesting phenomenon of compound energy effects created when a flywheel is set in motion. When a flywheel starts spinning, it develops a momentum of its own, making it easy to accelerate faster. Within the business context, the question becomes, how to keep the flywheel (Nash in this case) spinning only by using its own momentum?
In order to better understand the flywheel effect of growth, let’s break it down into a few key concepts:
Momentum — Newton’s First Law states that an object will remain at rest or in uniform motion in a straight line unless acted upon by an external force. Flywheels (being massive, heavy objects) are hard to get moving. But if they get moving, they are likely to continue.
Feedback Loops — The faster the wheel is spinning, the easier it is to add incremental speed. The faster it moves, the more energy it generates. The more energy it generates, the more people are excited and want to help spin it.
Compounding effect on return on effort —The flywheel effect isn’t created from a single push. It’s not because of the first push or the fiftieth or hundredth. It’s the continuous small inputs (pushes) that add up into an impressive output. This is an important concept in understanding true growth.
Network Effect – Network Effects are the most powerful source of the Flywheel Effect (The Nash community & users). This is because Network Effects can become a “runaway feedback loop”, meaning the output of a reaction becomes its own catalyst. Or simply explained: As the number of buyers and sellers on Nash Exchange increase, liquidity increases and transaction costs decrease. This then attracts a larger number of buyers and sellers to the Nash exchange.
The Nash Flywheel
Logically, every business has its own unique flywheels and growth loops. So I’ve been working in the past months to visualize and create the flywheel of Nash with the intention to educate ‘growth models’ and, of course, inspire the Nash community on how to help ‘push’ the Nash Flywheel. Please know, this is the first version and there are many different loops to think of, so it will evolve over time. See it as a first shot (to the moon).
Nash’s flywheel model uses staking NEX to lower supply, which creates scarcity and increases prices, which will attract more users and build more liquidity over time, which, in turn, drives greater customer experience, community, and higher profitability (staking rewards), which again increases user retention.
The flywheel framework explained:
Staking reduces circulating supply creating scarcity, which leads to a higher price.
The price increase will attract attention from the ‘crypto’ community and (social) media outlets.
This will lead to interested potential users. The UX and onboarding will convert them to new users.
The great user experience of Nash will lead to user adoption (and also user retention!), which grows the Nash community.
New users bring more liquidity, which brings more volume, higher Nash profits, and more people willing to stake because of the returns.
Liquidity helps to keep users on board, think of it as a lock-in. But the combination of all great USPs of Nash leads to…
Word-of-mouth (referrals), which increases user adoption (again). And so the loops go on…
Media attention creates perceived legitimacy, which attracts business interest.
Business interests create new business opportunities for Nash
These business opportunities bring new potential market makers, new payment gateways, merchants for the payment product, etc.
And so on, it continuous indefinitely. Every part (feedback loop) of the wheel can be optimized separately and, as a result, will accelerate the others. Beautiful.
How to Push the Nash Flywheel
I’ve deliberately visualized the flywheel with staking as a start. Primarily because this is a lever we as users of Nash control to get this flywheel running. The compounding effect on collective staking efforts builds the initial speed of the flywheel during the first growth period of Nash when it’s officially launched. This effect is what I coin as “The Nash Effect” - the collective ‘push’ for the Nash Flywheel to help it get up and rolling.
That’s what you can do to help push this. Staking NEX is logically great for the dividends, but it also serves as a feedback loop which helps Nash grow. The faster and the more we stake, the faster this wheel starts rolling!
Of course, this isn’t the only ‘growth loop’ we can create and build. The viral spread of the referral code is, of course, another one. But now that you hopefully understand the model of growth loops, we can start having quality discussions and brainstorms on how to create them. Remember, it’s about the compounding effect on return on effort. The more growth loops, the faster this wheel goes.
A task for Nash team - Make the progress visible!
The more we are aware of the results, the better. Some quoted pieces of Good To Great explain it well:
What do the right people want more than almost anything else? They want to be part of a winning team. They want to contribute to producing visible, tangible results. They want to feel the excitement of being involved in something that just flat-out works. […]
When they begin to see tangible results, when they can feel the flywheel beginning to build speed — that’s when the bulk of people line up to throw their shoulders against the wheel and push.
Help out by thinking of additional positive Feedback Loops
As I mentioned, there is a huge number of possible feedback loops in any business. The loop I created is just v1 for Nash. For inspiration, this is the full version of Walt Disney’s original sketch of his business’ feedback loops.
So if you want to help out, like this post for visibility and please leave your suggestions/ideas below in the comment section. Think about business adoption loops (e.g. new listings, market makers, fiat gateway providers), product feature loops that drive virality (mobile, extension, payments, new features) etc.
This initial model is not perfect, but as I believe in the collective intelligence of a community, feel free to provide your feedback or iterations so I can start working on a new version.