An Overview of Social Tokens
With increasingly more attention paid towards the creator economy – where individual content creators build globally-recognizable online brands – greater emphasis is also placed on how creators can monetize their offerings without sacrificing significant economic rents to third-party platforms. One path to a financially free creator economy has been opened thanks to the advent of social tokens, blockchain-based assets issued by creators as a decentralized avenue for monetizing their efforts. Interest in social tokens has skyrocketed, with their total market capitalization at the time of writing standing at over USD$430M, a more than fourfold increase from where it was less than a year prior.
This article will provide a high-level introduction to the emerging social token asset class. In particular, the following subjects will be covered:
A Primer on Social Tokens
Broadly defined, social tokens are digital assets which fulfill a monetization function for brands and individuals. In addition to the traditional avenues for monetization, including sponsorships and paid advertising, social tokens provide a novel method for content creators to derive financial rewards from their active efforts. In practice, social tokens can be issued by brands either through a sale process or as a gratuitous reward to their existing community. Further, tokens can act as a medium of exchange for specified goods & services or as a medium for administering tiered community membership. Overall, social tokens can be viewed as being backed by the reputation and cachet of the underlying brand or individual. Accordingly, greater value should accrue to those tokens which are issued by well-regarded entities.
The advent of social tokens is especially alluring for creators in that, as with many of the core technologies and tenets of the crypto-sphere, they help to eliminate rent-seeking middlemen and allow communities to capture more of the value they create. By utilizing social tokens, brands no longer have to play a subordinate role to centralized platforms which host their content and have the authority to censor, demonetize, and demand exorbitant cuts of the financial upside. By offering a new apparatus for commercializing and monetizing creative work, social tokens ensure that community-created value can be wholly and inviolably enjoyed by the community.
Naturally, the promise of social tokens cannot be one-sided as they would otherwise cease to command much in the way of social value. While brands can no doubt benefit from issuing dedicated social tokens, community members who collect these tokens also stand to realize tremendous upside. As mentioned, social token owners can enjoy exclusive access to community perks and content by virtue of their holdings. Beyond the utility function fulfilled by these social tokens, having a vested stake in a community implies that an individual member’s financial return will be inherently tied to the growing prominence of that community. Accordingly, in being loyal to a brand and helping to drive its growth, community members can share in the economic gains of the wider faction.
Part-and-parcel with their role of monetizing the efforts of content creators and their community members, social tokens also fundamentally serve as a mechanism for incentivizing community engagement. The founders and creators of different crypto subcultures can make tokens available in the form of rewards to community members who take on certain actions or behave in certain manners. For instance, tokens can be distributed to users who are active and collegial in the community Discord and make substantive contributions to community-wide calls. This model of encouraging sustained engagement is especially powerful given that tokens can develop their own markets and early holders can realize substantial gains. In sum, social tokens drive community cohesion and serve as a tangible sweetener for the active engagement of community members.
It is critical to note before continuing with further discussion that social tokens are not themselves NFTs. In being minted under the ERC-20 standard, social tokens are fungible, which is to say that a given token is one-to-one interchangeable with other tokens of the same type. However, this new asset class is still inextricably linked with the NFT world. Many CryptoArtists have leveraged social tokens as a novel and crypto-native method for engaging with their communities, and some tokenized communities have even been formed around the collection of valuable NFTs.
The Social Token Ecosystem
To give a more concrete perspective on the uses of social tokens in practice as well as the tools that have developed around this asset class, the following provides a brief exploration of some of the key products in the social token market:
Tokens & Communities
In a nod to the popular crypto jargon for wealthy large-scale token collectors, $WHALE represents a social token that is backed by an expanding portfolio of high-value NFTs, collectively referred to as ‘The Vault’. The community and associated social token were launched by renowned NFT collector WhaleShark Pro, whose portfolio once stood at USD$2M but has since ballooned to USD$56.7M on 13,218 NFTs at the time of writing. Only 10M tokens are ever to be issued, and the proceeds from token issuance are reinvested in growing The Vault and by extension driving appreciation in the price of $WHALE. The project’s motivation was to create an asset-backed token – something akin to the deprecated model of the US Gold Standard – but to have the intrinsic value of the token derived from a basket of highly sought-after NFTs.
Ingratiating oneself into the WHALE community can be done through a number of fairly typical avenues, including participating in community events, receiving tokens through an airdrop, or buying them on an exchange. Holders of $WHALE are granted access to The Vault’s NFTs, with select holdings being auctioned off to tokenholders and community-owned NFTs generally being available for rent. Members of WHALE can also enjoy community-created perks such as branded WHALE NFTs.
In addition to growing The Vault by investing in more value-adding NFTs, growth in the community, brand, and use-cases for $WHALE are among the other foremost goals of the project. As a social token, it would appear that $WHALE has enjoyed great appreciation in its intrinsic value since launch. At the time of writing, key community engagement metrics such as Discord members and total messages sent totaled close to 20K and just over 50K, respectively. Additionally, The Vault – and by extension the NFTs available to community members for sale or rental – has also grown to include several pieces of CryptoArt, P2E assets, and sports collectibles.
Branded as a collective of artists and futurists passionate about building a Web3 future, Friends with Benefits serves as the culture-technology hybrid community to which the $FWB social token pertains. Accessing the several perks of being an FWB member, including the community’s Discord as well as community-wide events, requires individuals to hold a certain level of the $FWB token.
With respect to engagement metrics, it is clear that the FWB community trumps that of WHALE in terms of size and active involvement. At the time of writing, the FWB Discord had roughly 680K messages, and the community treasury held over USD$18M in assets.
Token Issuance Platforms
Among the de facto platforms for the issuance of social tokens, Roll facilitates the creation and management of so-called ‘fancoins’. The tokenomics of Roll-based fancoins are standardized across all social tokens launched on the platform. In particular, Roll limits the supply of fancoins to 10M, with an initial distribution to the issuer of 2M followed by a staggered rollout of 200K each month for the following 3 years. Roll also enables the redemption of social tokens for goods & services offered by the issuer as well as the distribution of tokens via airdrops.
Rally allows for the launch of creator coins through its platform. That said, Rally’s model is in many ways distinctly different from that of competing services such as Roll. For one, Rally takes a selective approach to which creators will be onboarded onto the platform and granted their own economy. Primarily, Rally seeks to service individuals and brands with established communities and well-defined plans for issuing a social token that extend beyond merely making money. The Rally platform also features a unique governance token, $RLY, which creator coin holders must convert their tokens into before cashing out.
Other value-adding features of Rally include the fact that is intentionally targeted at non-crypto-native users as well as their more technically-minded counterparts, allowing individuals to buy social tokens on the platform through either traditional credit cards or using major cryptocurrencies. Perhaps most unique about the Rally platform is that it is built on a custom sidechain which allows for inexpensive and instantaneous transactions of creator coins.
An integral part of many tokenized communities, Collab.Land offers a bot which automatically verifies a user’s wallet holdings to ensure they own the baseline amount of a social token before granting them entry to a community’s Discord or Telegram. This functionality allows for individuals and brands to enforce token-gated communities, allowing only those supporters with a deemed number of social tokens to participate in exclusive servers and channels. The Collab.Land bot is able to track wallet holdings on an ongoing basis, removing any community members whose balance of the social token has fallen below the required minimum.
A nimble and composable tool for voting on community proposals, Snapshot brings the decentralized governance of DAOs to the world of social tokens. Voting on Snapshot is free as the transactions occur off-chain, and the relative weightings of each community member’s vote can be adjusted to account for different metrics of engagement beyond merely the balance of social tokens in their wallet. By voting on proposals, social tokenholders can have a direct impact on the direction of their community. In effect, Snapshot allows for an additional layer of engagement between the issuers of social tokens and their supporters.
Fulfilling the vital role in community-building of tracking user engagement metrics, SourceCred monitors the activity of each member of a community. The precise metrics to be tracked can be customized by the community’s moderators, ensuring that only those users who participate in a desired fashion are spotlighted. As users actively engage with the community in pre-defined manners, they accumulate points. Ultimately, users who accrue the most points can be rewarded for their involvement in the community through distributions of additional social tokens.
Formed as an incubator program for social token projects, Seed Club selects small cohorts of social token projects multiple times per year and connects them to veterans in the worlds of crypto and the wider creator economy to optimize their product offerings. In return for the accelerator’s efforts, social token projects earmark 3% of the supply of their tokens for Seed Club.
Social Tokens by the Numbers
Within the nascent market for social tokens, three coins of those mentioned previously have quickly established their dominance: $WHALE, $FWB, and $RLY. Examining the price trends for each of these tokens, it becomes immediately clear that all have exhibited substantial volatility during their lifetimes, with 2021 in particular being a period of massive highs and disappointing lows. Overall, all three tokens attained their all-time-highs during 2021, yet all of them are presently trading at significant discounts to their respective peaks. Given the rapid run-ups to each token’s high, there is little doubt that much of the price appreciation was fueled by speculative trading. The subsequent crashes have left the tokens trading at more appropriate valuations, all of which are still greater than where they were at the start of the year.
Looking next at trends in each token’s market capitalization, it again can be seen that they are trading at discounts to their respective peaks, with $WHALE falling significantly from its late-Q1 high while $FWB and $RLY sit more comfortably at relatively slight discounts to their all-time-highs achieved in late Summer of 2021.
Investing in Social Tokens
The social token market is both nascent and rather fragmented, with countless iterations of the social token framework being devised to allow individuals and brands to monetize themselves in different ways. As such, there exist several disparate social token investment opportunities that prospective buyers can take advantage of, and some that they may be best-served to avoid.
One of the first instances of a social token is commonly thought to have been the $BOI token, launched by an individual named Matthew Vernon who also goes by the alias dApp_boi. This early form of the social token was distinct from the common conception of the asset class insofar as $BOI was meant to serve as a tokenization of Vernon’s real-life time. In practice, each $BOI token could be redeemed for one hour of Vernon’s time, during which he could offer design consulting services. Such ‘time tokens’ have great merit in that they are tied to a realizable good, an attribute which in truth grants them more intrinsic value than many digital assets. Purchasers of time tokens must be able to gauge how in-demand the issuer’s services are, or how in-demand they may become based on the issuer’s growing reputation within the crypto world.
Another relatively early form of the social token was launched as a method for crowdfunding an individual’s personal life milestones, most notably their physical relocations and career changes. For instance, Alex Masmej was notable for having raised USD$20K through his personal $ALEX token to finance his move to San Francisco where he hoped to launch a crypto venture. As repayment to his early backers, Masmej proposed an income-sharing agreement (ISA) wherein 15% of his earnings over the subsequent 3 years would be distributed among the buyers of $ALEX tokens. It goes without saying that this form of human IPO is inherently risky, both due to the potential for fraud as well as the likelihood of failure. Such career tokens are substantively equivalent to early-stage venture investments, and so prospective buyers must carry out a thorough due diligence process to ensure the issuer’s intentions are pure and that they stand a reasonable chance of at least returning the initial investment through the ISA.
As an additional note on investing in career tokens and more broadly any digital asset which promises some form of cash flows, the risks inherent to the investment are compounded by the likelihood of regulatory scrutiny. Dividend-paying tokens will no doubt be assessed as securities and subjected to the same regulation as traditional equities and bonds, and so prudent investors may choose to err on the side of caution and avoid such renditions of the social token.
Returning to the more standard conception of social tokens, one can identify several investment merits to buying those which grant access to gated communities. As previously mentioned, many tokenized communities have adopted an admission model which requires users to hold a minimum interest in the community’s token before entering the exclusive Telegram and Discord servers. Within these communication channels, individuals are exposed to exclusive networking opportunities and can potentially discover new investments and deal flow which they otherwise may not have been aware of. Further, product-backed social tokens may also prove to be value-accretive investments, with secondary markets likely to be formed around the exclusive redeemed goods. Investors who have conviction in a community’s strength or in the resale value of redeemed goods would do well to buy these more common social tokens.
Of course, investors looking to speculate on social tokens may not find much value in any of the associated perks. As observed previously, however, social tokens with compelling value propositions and robust communities can exhibit substantial price appreciation. Accordingly, speculators capable of identifying the social tokens which serve untapped markets and can amass fervent communities will also be in prime position to realize substantial upside on their investments.
Whereas many products in the crypto world can sometimes present themselves as solutions in search of problems, social tokens are targeted and effective answers to the issue of centralized rent-seekers siphoning value from creators and their communities. On this basis, it would not be contentious to claim that social tokens do in fact have value beyond serving as vehicles for speculation or mere social signaling; rather, they confer true economic advantages on their holders. That said, they remain an extremely risky asset class, which is in no small part due to their relative nascence. As more creators adopt social tokens in their monetization and community engagement strategies, they will be sure to stabilize and emerge as a more viable investment option.
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