If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about social tokens.
- The term “social tokens” might not mean what you think. Often, social tokens are assumed to be a fungible currency that relates to an individual. Think $RON coin for football player Ronaldinho. This is just part of the story. The social token category includes NFTs and currencies used by groups.
- Running an economy has benefits. Starting a social token can be an excellent way to raise financing. It can also turn followers into investors and align a group around a common cause.
- New tools have made tokenization easier. Platforms like Coinvise, P00LS, Rally, and Strata have made it easier to create a social token. These products help with definition, distribution, and management.
- Liquidity can be hard to come by. A true economy requires a market. Social token projects often struggle to create sufficient liquidity given the upfront capital needed. As a result, even popular social tokens may not be available for trading.
- Composable economies will unlock innovation. The social token movement opens the door for new financial interactions and organizational structures. We can expect creator ETFs, decentralized record labels, and even short calls.
At some point in the process of devising a tech satire, you might come up with an idea like this:
What if every person in the world had their own currency? (No, no, no. Not like everyone had money. This isn’t a utopia.) I mean, like everyone had a token or a coin of their own that other people could buy and sell and maybe pay with. If you wanted to hang with your friend, you’d spend their token, and if they wanted your help moving, they’d buy and spend yours. Every human on earth would have shareholders, a market cap, maybe even a Board of Directors. Wild!
After a moment, you would dismiss this thought.
Too broad, you might think. Even in this – the age of social media, the era of quantification, the grand epoch of comparison – surely no one would choose to be erased by a blanket of human balance sheets.
Perhaps because of this logical stairstep, the fact that social tokens exist – and are not, for example, sitting on the cutting room floor of the Black Mirror offices – seems like evidence we live in dark times.
And yet, dismissing social tokens as doomed and dystopian may be a mistake. After all, the internet is studded with successes that sound bleak and soft-headed.
What if you could use your phone to summon a stranger’s car?
What if you could sleep in a random family’s spare bedroom?
What if you could sort sexual partners by channeling a windshield wiper?
What if you turned yourself into a human advertisement for skinny tea?
What if JPEGs were really, really expensive?
Chris Dixon famously wrote, “the next big thing starts out looking like a toy.” Looking at businesses like Uber, Airbnb, Tinder, Instagram, and Bored Ape Yacht Club, we might easily say, “the next big thing starts out sounding terrible.”
Social tokens may well be the next big thing. Today’s piece will explain why they may even be a good one. Here’s what we’ll discuss:
- What’s in a name? Social tokens can take a range of forms. We’ll outline examples, explore different iterations, and broadly make sense of the category.
- Tokens and value capture. Creators often struggle to capture the value they create on social media platforms and beyond. Social tokens may change that equation and offer other advantages.
- The case for investors. Consumers have driven demand for social tokens, both of the fungible and non-fungible variety. These assets serve as a novel form of patronage and as intriguing investments.
- What it takes to tokenize. Starting an economy is not trivial, though new tools have made it more accessible. Nevertheless, the creator or group in question will need to think through incentives, governance, treasury management, and more.
- The vulnerabilities of social economies. As with real-world economies, social tokens possess vulnerabilities. These include market volatility, logistical complexity, regulatory uncertainty, and psychological pressures.
- A weird frontier. We have only seen the very beginning of what social tokens can do. If they become widespread, we may see many new industries and assets take off.
Let’s start with a little definition. The world of “social tokens” needs it, given the many forms currencies can take. While sometimes attached to the economic output of a single individual, they can also link to a community. Some prefer the more specific terminology, “creator tokens” and “community tokens.”
We can look at a few examples in each category to better understand the (often murky) delineations between the two. For example, here’s a sampling of creator tokens:
- $ALEX. When startup founder Alex Masmej wanted to move from Paris to San Francisco, he found a clever way to finance his trip. He raised $20,000 in exchange for $ALEX tokens. Holders received a percentage of Masmej’s future salary, up to $100,000. They also received access to a private Telegram group run by Masmej.
- $RAC. Musician André Anjos, better known as “RAC,” released a social token to reward fans. Supporters could earn tokens by subscribing to RAC’s Patreon or redeeming the purchase of a special edition cassette tape. Owning $RAC unlocks a Discord server, merch drops, and other benefits.
- $ISH. DJ Vivie-ann Bakos, known as BLOND:ISH, unveiled $ISH as a way to create a broader ecosystem. Holders receive early access to music, merch, and a future NFT drop, among other incentives. Owners also receive additional content, including remixes and edited tracks.
- $BOI. Using one $BOI unlocks one hour with designer Matthew Vernon who provides consultation on UI/UX, front-end development, and prototyping. Vernon has worked with crypto projects like Set and Akropolis.
- $JROCK. UCLA Bruins guard Jaylen Clark debuted $JROCK last year. The currency gives holders access to merchandise, ticket raffles, behind-the-scenes footage, and workout videos. Clark was the first NCAA athlete to launch a social token.
As demonstrated by the examples above, value varies across projects and can be tied to different sorts of individuals, though all connect to an individual’s output. An interesting quirk of these projects is that they are ephemeral by default, thanks to a pesky thing called “mortality.”
Some creators accept this from the outset, giving their economy a natural ending point. For example, in our discussion, Alex Masmej noted he thought “$ALEX token will end one day.” After all, he added, “in a way, it succeeded already.” Social tokens that focus on achieving a specific goal – moving to San Francisco, for example – do not want to last forever.
Others may look to build beyond themselves by creating a broader, self-governing community. Though not en vogue yet, you can imagine how this might play out. If social tokens had existed in 1995, for example, a young British author short on cash might have launched a currency to support the creation of her fantasy series. $ROWLING could have given supporters access to early drafts, doodles, and control over a portion of her estate.
Community tokens orient themselves differently, representing the economic output of a group rather than a person. Examples include:
- $FWB. Though Friends with Benefits started as a casual group chat, it has developed into crypto’s cultural center. Entrance to this virtual Soho House and its assorted perks requires ownership of the $FWB token. Different levels of access are tiered by holding size.
- $GCR. Research organization and investment firm, Global Coin Research, runs off of its native token, $GCR. Owners get access to content, research calls, and events. If your holding is large enough, you can also access private investments.
- PROOF. Though more frequently thought of as fungible, social tokens can also take non-fungible forms. The membership NFT for Kevin Rose’s PROOF Collective is a social token. It grants access to a private community and special benefits, including future NFT drops.
- $APECOIN. Designed to “drive culture forward into the metaverse,” $APECOIN is the creation of Yuga Labs, Bored Ape Yacht Club maker. BAYC owners were dropped $APECOIN, a governance token for a related DAO. Merchandise, games, and events are also accessible to holders.
- $PEOPLE. In November 2021, ConstitutionDAO raised $47 million to bid for the US Constitution. Contributors to the auction received $PEOPLE, a native token. While no explicit promises were made, $PEOPLE was expected to become a governance token for the associated DAO. The bid failed, but $PEOPLE lives on.
By default, community tokens seem to have a longer life span than creator tokens – even beyond the initial wishes of those that launch them. When ConstitutionDAO failed in its bid, the core team wrote on their website that they believed “this project has run its course.” Yet, six months on, the Twitter account associated with the project has reached 72,000 followers, and $PEOPLE has a fully-diluted market cap of $185 million. Improbably, it remains alive and theoretically valuable – the community will not let it die. Instead, it exists in a state of potential energy that might be repurposed into a new initiative – perhaps the creation of a TwitterDAO, for example. Time will tell whether community tokens achieve the longevity of other successful organizations, but at the very least, they are less fragile.
Social tokens and social media
Given the range between creator and community tokens, the best way to think of the term “social tokens” may be as a cousin of “social media.” These descriptors exist at the same altitude, referring to broad, diverse categories but carrying identifiable meanings. We intuitively understand what is meant by “social media” even though it oversees various species: Reddit, Twitter, Facebook, Instagram, TikTok, and others. As with social tokens, some of those iterations focus on communities (Reddit, Facebook Groups), while others emphasize the individual (Twitter, TikTok).
The world of social tokens is not only analogous to social media; it is an evolution. Though we may not have initially conceived of it this way, platforms like Instagram and Twitter implicitly codified a new kind of capital: status. We may balk at having “personal market caps,” but many of us already do – it is simply denominated in the currency of followers. As social media platforms have increased in importance, the blue-chip entities of this exchange – influencers – have found ways to transmute social capital into financial capital. Primarily, this has been achieved through advertisements: take a picture of yourself with this moisturizer, share it with your X followers, and earn Y dollars.
Beyond advertising, the fundamental mechanism is the same. If you’re a Twitter influencer selling a book or a course, you act as a quasi-foreign exchange. By converting followers into buyers, you undertake moving social to financial capital.
This is a sub-optimal setup. Top creators often produce far more value for the platform on which they operate than they can capture. For example, a musician might share new tracks on Twitter in the hopes of driving listeners to buy tickets for an upcoming tour. Even if 100,000 people like the associated tweet, turning that attention into cash may be challenging. You’d have to get viewers to head to a different site, find a show near them, and pick a date that worked. Despite pleasing a hundred thousand users, the exchange rate between X and Y in that transaction is likely to be brutally low.
As we’ll discuss later, social tokens have the potential to improve upon this translation by turning followers and supporters into investors and contributors.
Becoming an economy
You might wonder: why would anyone, or any group, want to become an economy? It is, at the very least, a complicated endeavor. After talking to several creators, investors, and platform makers, there seem to be five core reasons to tokenize:
- To raise money
- To create an investor base
- To attract attention
- To align incentives within a group
- To better capture value
Let’s walk through these.
The most obvious benefit of creating a social token is that it allows you to raise financing, almost out of thin air. This is especially powerful for individuals or groups who might struggle to earn traditional funding. Alex Masmej is an example of what social tokens can unlock for those in need of unorthodox funding. In our interaction, Masmej noted that he was “broke” and needed an “original way” of making it to San Francisco. Launching $ALEX gave him the capital to make the journey and fundamentally altered his career trajectory. In his words:
I would have never made it to where I am today (founding a startup backed by Paradigm and investing through Spearhead, my first fund backed by Naval) without $ALEX. I wasn’t fundable by VCs back then and couldn’t afford to move.
All kinds of talent can benefit from this approach. The young musician, the struggling writer, the NCAA athlete without sponsorships, the emergent group chasing a crazy dream – all may possess profound gifts but have no access to conventional financing.
Among these different candidates for tokenization, who are best suited to the model? It depends on who you ask. Hugo Renaudin, the founder of P00LS, a platform for social token issuance, highlighted musical artists, saying, “Music is a natural vertical because of the utility social tokens enable — from behind-the-scenes footage to unreleased tracks and backstage passes.”
Jess Sloss, the creator of the accelerator Seed Club, pointed to a different segment: communities. “Groups of people coming together with a shared purpose, and ability to innovate and execute will create the most value in this space,” Sloss said.
A second reason to tokenize is that it, by definition, creates an investor base. There is a significant difference between a fan and an investor: skin in the game. Passive followers are incentivized to become active participants by introducing a financial component. Through their contributions, they can not only elevate an individual or group they approve of but potentially earn riches of their own.
We see this behavior already. Cryptocurrency holders shill their coins, as do NFT holders. Both parties do so, at least partially, to convert others to their cause and drive up the price. Assuming we consider NFTs a subset of the social token space – and it seems we should – the distribution advantages offered by tokenization are evident to anyone that has spent even a passing period on tech twitter. Apes, Punks, and even Foxes serve as profile pictures and the subject of conversation. Those that once expressed belief in a stock now talk their book by pointing to a JPEG or coin.
Instead of having a few venture investors, creators of social token projects can rely on an army of thousands to amplify and evangelize the cause.
A meta-point sits within the section above – namely that simply having a social token attracts attention, even outside the efforts of aligned investors. Kyle Samani of Multicoin Capital pointed to this as a critical difference: “With a liquid price, the social token itself will become a massive source of free PR.” Even in the case of a decline in value, the project may ultimately benefit; “All press is good press,” Samani added.
Does this kind of story help the NFT market? What about those that outline the fall of a particular project? While some allegations are likely to cause actual harm (fraud, for example), the memetic nature of crypto assets means there’s value in occupying the news cycle. That’s much easier with a token.
One of the most compelling benefits of tokenization is that it does what an economy should do: align incentives around desirable activities. This goes further than merely having investors that will spread your message. Indeed, engaged investors can become dedicated contributors that not only evangelize but build. Samani described social tokens as a “Schelling point for financially invested fans to self-organize.” In our exchange, Global Coin Research (GCR) outlined how their token has created alignment:
[$GCR has] tightly aligned incentives amongst members and core team. For example, we pay our core team 50% to 100% in $GCR. We also reward members who contribute their research and scout investment opportunities…in $GCR. With one asset, you can tie everyone’s focus and financial goals together to ensure the best outcomes and execution.
With native financial incentives, GCR has defrayed the cash cost of labor (with what amounts to some nifty currency arbitrage), encouraged the creation of new content, and bootstrapped decentralized deal sourcing. The GCR team later summarized the benefit of a token, saying, “The economy starts building itself once you identify product community fit.”
Tokens seem to be much better than traditional methods at capturing value. Offer membership to a private community via subscription, and perhaps you could charge $100 per year. Offer access via a limited NFT run and 1 ETH ($2,700 at the time of writing) doesn’t seem out of the question. The exchange rate between X social capital and Y financial capital appears particularly advantageous, at least for now.
There’s good reason to believe this is a true structural advantage. As outlined, social tokens turn buyers into investors and contributors, a meaningful shift that reframes one’s contribution. If there is a liquid market and the promise of making a return, willingness to pay seems likely to increase. To better understand this, we must look more closely at the value social token investors receive.
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What gives social tokens their value? The answer varies from project to project. Perhaps most important to such an assessment is the purchaser’s perspective: are they buying in to support a creator or make a return? Is buying a token a form of patronage or an investment?
Opinions differ. Hugo Renaudin of P00Ls said the greatest misconception about social tokens is that they are “tools for people to invest in creators.” He added this idea is “wrong for so many reasons,” since “social tokens are currencies for ecosystems, not investment instruments.”
Others view the matter explicitly through a financial lens, with Samani noting that the primary use of social tokens is “allowing fans of a creator to invest in that creator.”
Though not mutually exclusive, these two frameworks – patronage and investing – articulate much of the value of social tokens.
Social tokens can operate as a new form of patronage. Instead of tipping your favorite musician or cartoonist, you might choose to purchase their social token. Beyond purely altruistic motivations, you would likely be incentivized through perks. Often, these look similar to those creators and communities offer via platforms like Patreon: proximity to the creator, additional content, prizes, and private groups.
Renaudin summarized the advantages as “Access and exclusivity.” He added, “Fan value is what matters for social tokens: tokens need to have emotional value.” If you’re a supporter of football icon Ronaldinho, for example, you might find the perks of his currency, $RON, compelling. You get access to special merchandise and extra content. You may even get to watch a game with him.
When viewed purely as an act of patronage, social tokens feel a little less revolutionary, albeit more accessible, a sort of souped-up fan club. This is only part of the story.
Social tokens can serve as investments. As it happens, I have a bit of experience in this matter. In March 2021, I used Mirror to crowdfund the creation of a report on Coinbase’s S-1. Contributors received $GENERALIST in exchange for their contributions. In total, we raised 20 ETH.
The ETH we raised went to the group of contributors that created the report and to illustrator Jack Butcher who provided additional artwork. Once we’d finished, we turned our output into three NFTs, which sold for more than 28 ETH. In seven days, holders of $GENERALIST secured a 40% return before fees.
This is an example, in miniature, of how social token investments can pay off. Creators can route a percentage of future earnings or product sales back to holders. (As we’ll discuss, doing so may run regulatory risks.) Alex Masmej, as we mentioned, paid back holders through an ISA model, directing a portion of his salary to owners of $ALEX. PROOF Collective has done something similar with its “reverse drops.” Holders of a PROOF NFT get special access to purchase valuable artwork at a reduced price. While this might look like patronage – it is “access” after all – it functions similarly to a dividend. Collectors pay a nominal fee to participate, getting an NFT of potentially much greater value.
In the future, we may see many creative imbrications between revenue, fungible tokens, and NFTs. Samani commented on the matter:
I expect NFTs and social tokens will be intertwined. For example, after selling some NFTs, I expect creators to route some percentage of those sales to holders of the social token or a social-token affiliated treasury.
Finally, even if social tokens do not connect to future cash flow, they may still act as investments. Like NFTs, fungible tokens may have artistic merit, as antique coins do. When describing the value $ALEX conveyed today, Masmej noted that it was “just a meme on Uniswap.” Having a few $ALEX or $PEOPLE may be like owning a little piece of internet history.
Some benefits straddle these two categories. For example, some tokens grant the holder access to a service. $BOI, the coin minted by designer Matthew Vernon, fits the bill. Every 1 $BOI grants an hour of Vernon’s time. It is not strictly patronage or investment but draws characteristics from both camps.
Social capital is another murky motivation. Coinvise, a platform to create social tokens, pointed to this as a reliable source of value, noting, “One of the secondary consequences in owning tokens is signaling reputation or ownership.” Coinvise added:
In addition to sharing economic upside and long-term alignment, tokens have quantified the depth of relationships amongst individuals, made social graphs more equitable and measurable, and most importantly, enabled better coordination mechanisms – creating gamified incentives/rewards and building programmable digital economies.
The ability to flex is arguably the strongest draw for much social token investing. There is undeniable clout in a CryptoPunk profile picture or adding “$FWB” to one’s Twitter biography in certain internet circles. In the vast plain of life online, ownership is a form of identity.
Career capital may also fall into this bucket. While “access” is often viewed as a perk of patronage, it can mean a lot more when used in the context of a true DAO. In that case, a token holder is not merely entering a group chat with their favorite celebrity but joining a team. If they wish to, they can become a real contributor, applying their skills to benefit the group. In doing so, holders can improve their skills, gain knowledge, and even earn a salary in the native currency. It is an interaction that can look like fandom at one point in time and an investment at another.
“People can earn coins by working for the benefit of the community and then use them to access more things in that community, Renaudin said. He added, “When I’m in Paris, I don’t think €1 is $1.20; I think I can get a coffee on a terrace. That’s the same for social tokens.” Ultimately, the reason to collect a social token is to be part of an economy – a crypto cosmopolis, a web3 Paris – with all that entails.
How to tokenize
Once you’re convinced that it's time to tokenize, the hard work begins. Creating an economy is not trivial, even if new tools have made it significantly more manageable. Let’s walk through the steps.
Step 1: Build a community
It’s ideal to establish a community before you roll out a token. Aligned around a relevant goal, this community will hopefully become the first holders of your token and serve as evangelists for future investors.
Spin up a Discord or Telegram and begin making plans to get going. You’ll refine your ideas and ensure the project has authentic community DNA from inception. Established creators may have a leg-up in that they likely have a coterie of fans that can be converted into a pre-token community. In these instances, the trick is to find those among the group interested in being a part of a novel experiment without alienating existing supporters.
Step 2: Design your economy
Once a community has formed, you can begin moving towards issuing a token. Several platforms have emerged over the past few years to make setting up a social economy easier. Coinvise, P00LS, Rally, Roll, Strata Protocol, and others simplify the setup process with differing approaches and feature sets.
Via one of these platforms, you can define the details of your economy, including the value it conveys and the behavior it incentives. Creators will also want to think through the “cap table” for the project – who owns what and why. Projects typically choose to reward early participants and supporters, carving out further tranches for the core team and broader community. Tokens often vest over a prolonged period.
Step 3: Distribute tokens
The platforms mentioned above make it easy to distribute tokens to the groups you’ve defined. In addition to dropping coins to team members and early contributors, you’ll want to direct some towards a community treasury.
You’ll likely use various financial tools and platforms in managing this treasury, including Llama, Parcel, Gnosis, and Coinshift. We outlined these platforms in greater detail in “DAOs: Absorbing the Internet.” Ultimately, the primary goals are to keep funding safe, grow the value of holdings, and streamline contributor payments.
Step 4: Bootstrap liquidity
One of the trickiest parts of creating a token is giving it liquidity. An actual economy requires the ability to buy and sell assets but making this a reality is costly for social token projects. For example, to start a liquidity pool on Uniswap or Sushiswap, creators have to deposit a large portion of their native token and an equivalent amount of a pair token. For example, if you wanted to start a pool with $50,000 worth of $GENERALIST, you would have to put in an equal amount of ETH or USDC. As we’ll discuss later, there are severe challenges in doing so.
Step 5: Manage the market
Running an economy is a theoretically endless endeavor. The work certainly does not stop once tokens have been distributed and liquidity provided. Throughout a project’s life, creators and contributors must seek to increase the project’s value, tinkering with incentives and organizational structure.
History is littered with failed economies. Deflationary and inflationary recessions have plagued virtually every country in some way or another. Entire periods of national history are marked by economic disaster – The Great Depression in America or the hyperinflation of the Weimar Republic in Germany. In the latter country, a loaf of bread rose from a price of 1 mark in 1919 to 100 billion four years later.
Though social token creators don’t have to deal with the same complexity of a real-world economy, they must balance versions of the same challenges. The technological novelty of the space causes additional issues. We’ll outline the primary risks and difficulties of these projects.
Crypto is a highly volatile asset class. Social tokens may be especially fragile given they’re frequently backed by less tangible value, have shorter track records, and shallower liquidity, making for a less robust market.
Since treasuries may be held mainly in native tokens or other cryptocurrencies, the effective wealth of a project can decline sharply during bear markets. In early November, a project with a treasury of 1,000 ETH presided over the equivalent of a $4.8 million war chest. Today, that same project would have $2.7 million in the bank. Community rewards and contractor payments suffer in such circumstances.
This example illustrates the importance of sound treasury management. Projects must balance their holdings and ensure they can survive crypto winters. If they do not, creators may be forced into artificially producing new “tokens” – whether NFTs or fungible coins – or otherwise fiddling with the economic engine. Just as with other economies, social tokens must weather market movements.
Though it is undoubtedly easier to launch a social token today, it is still a complicated process. Indeed, in many respects, simply having a currency convolutes ordinary activities. Renaudin commented on this fact, saying:
The hardest part is to include the token into everything a creator is already doing. Adding the token into the rollout strategy of a new album, line of merch, etc. So it’s really about logistics and making sure that every time there’s new content or product, token holders can benefit.
He added that “in the end, it’s quite easy and scalable for creators,” but reaching that point seems to require considerable effort.
As mentioned earlier, maintaining liquidity is tough for social economies. To get around this, projects often start “liquidity mining” programs, effectively issuing rewards to those that add tokens to the pool. While this can help, it is not a cure-all.
The team at Coinvise noted, “Maintaining deep liquidity is quite challenging.” That’s particularly true given that liquidity miners tend to be promiscuous, moving to whichever pool offers the best rewards. “Creating a liquidity pool on Uniswap can be simple,” Coinvise noted, “but it can seem like renting liquidity.”
Coinvise pointed to the “interesting mechanisms built by Olympus and Tokemak” as potential solutions. These projects have found innovative, though potentially unsustainable, ways to bootstrap liquidity. At the very least, they have illustrated that a rich design space remains – further innovation may be needed to help social tokens become truly liquid markets.
The Howey Test determines whether an “investment contract” has occurred, the mark of a security issuance. The test relies on four criteria – all of which must be met:
- An investment of money must have occurred
- The money must have been invested in a common enterprise
- It must have been done with the expectation of making a profit
- This profit must be derived from the efforts of others
Social tokens are in murky territory. The SEC cracked down on Initial Coin Offerings (ICOs) for meeting the criteria and thus selling unregistered securities. Meanwhile, tokens considered “mediums of exchange” like bitcoin do not meet the test. Where do social tokens fall between these two categories?
I am not a lawyer. (Indeed, I spent most of the early years of my career trying to avoid becoming one.) But it certainly seems as if social tokens meet at least two prongs: an investment of money occurs in projects that look like “common enterprises.” Some that do so certainly expect to make a profit. Whether it derives from the work of “others” is a stickier territory. The SEC’s position suggests that the more decentralized, the less likely a token is to be considered a security.
Kyle Samani pointed to “regulatory risk” as one factor impeding the social token space. In his view, the uncertainty is likely to limit the number of established creators that enter the fold. “Given the inherent risks around regulations, it’s unlikely that existing celebrities will pioneer these dynamics,” he said. “Instead, [it will be] new stars with less to lose.”
For proper lift-off, social tokens may need more direction from the SEC.
“No one, including me, wants to have a price tag next to their name,” Hugo Renaudin said. But for some creators, that is what a social token entails. When I asked Alex Masmej if running $ALEX was psychologically taxing, he said, “Not really – it’s become part of my life.” He went on:
Capitalism is real, and the world is chaotic, whether you like it or not. Is it more taxing than the “likes” economy on traditional social networks? I think that if running your economy tremendously improves your life or career prospects, it probably is worth the extra mental charge.
Perhaps, this is where we’re headed. Today, it still feels scary to attach a currency to oneself – to be money – but, in time, we may view it as equivalent to online clout.
Of course, the burden is lessened when a group manages social tokens. Coinvise remarked that some had begun building in structured downtime to protect against burnout: “It is quite popular for communities to now take ‘off-seasons’ where people purposefully log off and unwind as opposed to an ‘always on’ economy.”
Ultimately, as with any large project, managing a social token is hard work that can be fulfilling. “It is [taxing]!,” Global Coin Research shared, “But it’s so fun.”
Perhaps the most exciting part of the social token movement is what can be done with these economies. Since these projects live on-chain, they can interoperate with other parts of the crypto ecosystem. These “composable economies” will usher in new financial instruments and organizations if successful.
Novel financial instruments
Here’s a thought experiment: imagine you’re an investor that’s bullish about the creator economy. You have $1 million and no special access to the private markets. Where would you invest?
Perhaps the best bet would be Google. As the owner of YouTube, it provides at least some exposure to one of the most powerful creator platforms in the world. Of course, you might also spread your money between companies like Meta, Spotify, Amazon (Twitch!), and Apple (music and podcasting).
These would be reasonable choices but none would be a truly direct investment into the creator economy movement. Each business is, in some way, compromised by other assets or, in Spotify’s case, burdened by its relationship with traditional labels.
Social tokens might offer an alternative at maturity. Should they become sufficiently widespread, you could imagine a project creating an ETF of the creator economy, featuring a basket of creator coins. As the space took off, investors would have direct exposure to the rise of the creators themselves. Over time, this might splinter into more targeted indexes. You could have ETFs for YouTubers, Twitch streamers, Substack writers, and OnlyFans personalities. You could niche further, targeting specific trends to create something like “The YouTube-Mukbang Index.” Though absurd from one vantage, the formation of this asset class not only brings capital to creators but allows those with an understanding of the zeitgeist to profit from their perspicacity.
The same principle applies to community tokens. A simple way to gain exposure to the social DAO movement would undoubtedly be popular. (Eventually, Seed Club’s token $CLUB may become a deft proxy given the accelerator’s exposure to new projects.)
Other financial instruments may also crop up, including the dreaded short. As discussed in “Multicoin: How to be a Contrarian,” shorts serve a vital market function, pressuring scams and Ponzi schemes. They might provide similar utility in the social token space, allowing investors to squeeze bad actors and fraudsters. For example, there might be real value (and financial gain) in shorting a YouTuber like Jake Paul. Despite his long history of scams, he retains a large following and is the co-founder of a rolling fund on AngelList.
Of course, if running an economy is psychologically taxing at the best of times, shorts are likely to make it much, much worse. We already live in a culture prone to “cancel” dissenting voices. Financially weaponizing that reflexive rage could be extremely damaging, pushing those we disagree with into economic ruin. Furthermore, given the long-shot nature of most social token projects, betting against success is hardly a constructive, contrarian position.
Staking may prove more mutually beneficial. While some social token projects already encourage a version of this to produce market liquidity, other iterations might also make sense. In “Terra: The Moon Also Rises,” we outlined how Anchor Protocol was being repurposed as a form of payment. Instead of buying a service upfront, projects like Pylon allow customers to stake tokens to a product and “pay” for it via Anchor’s 18% returns. In essence, users pay with interest while retaining their principal sum.
Social economies seem well-suited to mechanisms like this. Rather than risking large sums to buy NFTs or coins, contributors could stake capital and give interest to the project. Not only is this a potentially evergreen source of revenue (at least as long as the user stays and rates last), but it gives contributors an easy way out – instead of selling an NFT, for example, you could simply unstake your holdings. This exit mechanism might be useful for economies that thrive on alignment.
Finally, social tokens will almost certainly be used as collateral. Renaudin highlighted this, saying:
I’m interested in how the intersection of DeFi and social tokens could create an entirely new asset class. Imagine an artist being able to take a USDC loan on-chain to buy a house with their social token as collateral: influence and community become assets.
In the future, we may secure real-world assets with currencies tethered to a research organization, the revenue stream of musicians, and the rights of a social club.
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Just as social tokens open up innovative financial interactions, they may also herald new organizational ones. Once creators’ economic activities live on the blockchain, those that manage their capital and careers may shift.
In “Multicoin: In Search of Outliers,” we outlined the firm’s interest in a “decentralized record label” built on social tokens. When asked what novel structures might emerge from social economies, Renaudin answered with a similar idea:
A decentralized entertainment industry! If all music artists have a token, how should labels work to create more equitable models of ownership? It’s a similar question for other creative industries dealing with inequalities surrounding ownership and value.
Crypto-native publishing houses, podcasting studios, and talent management firms may all form to serve the world of social tokens. Industries with uncreative, rent-collecting gatekeepers are likely to be particularly vulnerable. The next JK Rowling may not only have a token but could be managed by the equivalent of a RandomHouseDAO.
You are an economy in waiting. The sum of your output can be quantified, financialized – merged with others if you wish. And yet, rather than being dystopian, such a possibility may create greater freedom. Though social tokens may look dehumanizing, a sort of erasure, they are better understood as an attempt to reward kinds of value that have previously been intangible. The value of your creativity. The market cap of your network. The worth of your ideas. In doing so, they introduce new problems and a wave of possibilities that could disrupt tired industries and well-worn market patterns.
The Generalist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. Our work may feature entities in which Generalist Capital, LLC or the author has invested.