Social Tokens — Enabling the creator economy to flourish within social media platforms
For a long time, creators — whether it be writers, artists, musicians, or thought-leaders — have been restricted in their ability to monetise their work. Current platforms like Twitter, Instagram or Facebook offer little means to monetise their content. Creators are often forced to turn towards product endorsements, partnerships and merchandise to earn.
Even for the most successful content creators, the landscape is quite bleak. Youtube takes 45% of the advertising revenues creators generate for the platform, Spotify returns 70% of profits to the ‘right holders’, while other direct subscription platforms like Substack and Patreon can take up to 10% of profits.
A big pain point for these creators is the sense of ownership and control. They are at the mercy of existing centralised platforms who can change terms of service, demonetise their content or reduce their reach at any time. Or, worst case scenario, have their account removed and lose their entire following and previous backlog of content. YouTube, for example, has a reputation of aggressively demonetising content that might be considered sensitive.
The necessity for artists and content creators to find new ways of monetizing their work during COVID-19 has likely catalyzed an increased attention to the idea of social tokens. Social tokens are one of the many innovations the crypto space has brought forth in recent years. Enabled by blockchain technology, it provides a way for creators to interact with fans in a direct-to-consumer manner on their own terms.
Interestingly, centralised platforms have seen the threat of this advancing technology in attracting the top creators and are desperately trying to reinvent their model to offer more creator programs and rewards. This increased competition in the market is a great thing for the creator economy, as their value to these social networks is recognised more and more.
The promise for creators is that by moving away from centralised platforms, they can control the means of production, distribution, and commercialisation directly. The social tokens space is extremely novel and evolving rapidly with many projects finding new ways of growing and strengthening communities and allowing creators and fans to connect in more meaningful ways. Jan Baeriswyl of Edge and Pace has most eloquently explained what social tokens are and how they will integrate into the future of social media.
Social tokens — digital assets backed by the reputation of a brand, individual, or community
Social tokens are crypto assets that primarily describe social relationships (as opposed to economic or legal relationships). Social tokens overlap with other classes of crypto tokens, such as ‘utility’ or ‘governance’ tokens. However, there are distinct differences. Governance tokens derive their value from the control they give over the valuable resources of a given community, whereas the value of social tokens comes from belonging to the community.
The notion of intrinsic community value and the status conferred with social tokens are key differentiators from governance and other utility tokens. However the community creates its value, social tokens allow it to more effectively capture and distribute the fruits of its collaboration to its members.
Social tokens are typically centred around either an individual or a community, and can therefore be called either personal or community tokens.
Personal tokens are created by and centered around individuals (usually, individuals with a public profile like entrepreneurs, content creators or artists — that’s why they are also called ‘creator tokens’). Most personal tokens we’ve seen so far can be redeemed against services provided by their creators.
A range of different mechanisms have been experimented with, some of which produce tokens with a clear financial aspect like ‘token-redeemable-labour’ or ‘income share agreements’, while other tokens look more like loyalty points or club memberships. How these tokens are then ‘redeemed’ for services or grant access is entirely up to the creators themselves. They have control and propose the terms.
Another specific kind of personal token popularised by social media platform BitClout, we can refer to as a ‘clout token’. This aims to measure the social reputation of influencers through market mechanisms, allowing people to speculate and trade on the creator’s tokens like the stock market. It is not necessarily linked to anything tangible, rather consumer sentiment. The founder of the token gets rewarded from a fee on all trading transactions.
Community tokens are centered around communities rather than individuals and are often used for memberships that regulate access and participation within the respective community. This token-gated access is the main use case for most of today’s community tokens.
Current implementations of community tokens often involve a communication platform like Discord, Slack, or Telegram that is regulated by a token. This means that only people with the right tokens can enter the platform: Either a certain amount of tradeable tokens or an access NFT. Token-gating is often achieved through tools like CollabLand or Unlock.
These essentially work in the same way access key cards or company badges are used in the physical world. Examples of token-gated communities include Karma, a group chat limited to a maximum of 650 members, gated by its own community token.
In addition, community tokens can be an effective tool to set incentives for desired behavior within a community, for example incentivising contributions and disincentivising freeloading. A token can also meaningfully enhance community cohesion and identity and outperform conventional ‘points’ (from loyalty badges to Reddit karma) for a number of reasons.
- Tokens can’t be taken back again and are portable outside of the platform and therefore truly owned.
- In successful cases, tokens end up being used for voting/decision-making and therefore as a means of control over valuable resources.
- As a result, they sometimes develop a market value themselves and, if liquid enough, allow early contributors to exit with an upside comparable to early startup employees at IPO. The shared ownership from the beginning glues token-based communities together.
These advantages of social tokens hold no matter whether the focal point is an individual creator or a broader community. In fact, most social tokens might start around an individual creator and over time develop into a community token.
Communities are already taking over the internet and social tokens give them the tools to capture and distribute value, and eventually even govern themselves effectively. It is important to note that we are still at the very beginning of this development and there is likely much more innovation to come down the road.
What makes Social Tokens Valuable?
Social tokens, as ERC20 Ethereum tokens, are freely transferable and therefore tend to be tradeable within a platform or listed on exchanges. As a result, they have a (fluctuating) market price, giving them a clearly defined value. Early members can use these markets to ‘cash-out’, and new prospective members use them to buy their way in.
Intrinsic community value
Social tokens are on one hand the entry key to a community and at the same time a financial instrument tracking the perceived value of that community. Most of this value is socially constructed and therefore difficult to quantify directly. We refer to this as intrinsic community value (ICV), giving members access to a community.
ICV is the value members get from being a part of the community. This value can take many forms but usually is mediated by exclusive access, including access to information, to talent, to deal-flow, or to expertise, to events, etc.
There is also an undeniable socio-emotional element involved: status. Being a member of the most popular communities confers exclusive status and sense of identity. This can include fan loyalty for your favourite artists or sports clubs, or within wider movements and communities. Eg. by showing off your Cryptopunk, you self-identify either early to NFTs and/or rich enough to spend 100s of thousands on a pixelated JPEG.
In the case of some social tokens, there is an aspect much more straightforward to value: financial flows. These financial flows can either be direct (in the form of dividends) or indirect (as token buy-backs) and make the tokens that confer them applicable to valuation by the traditional Discounted Cash Flows method.
The direct variants are cash flows that are directly paid out to token holders, like dividends in a limited corporation. An example is an Income-share-agreement with token holders. However, considerations around security laws might make this option less attractive in the future, and tokens with direct value flows will likely be regulated more strictly. This is why indirect value flows have gained popularity over the past years.
Most indirect mechanisms work through token buy-backs, whereby the tokens are bought back from the open market by the treasury of the community at a predetermined rate. Typically, the tokens acquired are burned, that is to say, permanently removed from the supply. This is how value is indirectly transferred to token holders: If the supply decreases while the demand stays the same, the token price goes up and distributes value to token holders proportionally.
In addition, a popular mechanism for increasing token value is by offering products and services exclusively (or at a discount) to token holders.
At Waivlength we are especially excited to explore these new frontiers of Crypto Social. Social tokens might just be the future of social media altogether. A core objective of the Waivlength platform is to enable the creator economy to flourish and we see amazing potential for social tokens to assist in this. We will be enabling recognised content creators that have shown loyalty to the Waivlength platform over a defined period of time the privilege of launching their own creator token.
A fantastic advantage that Waivlength has is how it can link an ‘income share agreement’ directly with their revenue generated on the platform. With large reward pools for content creators distributed through the social consensus protocol, fans and followers have opportunities to share in a creators’ growth and success.
Initial coin offering prices can be weighted on their value as determined by the social consensus protocol and token price can be linked to some tangible value, rather than purely speculation. This can serve to bolster a tightly-knit fan base and an ICO launch could serve as a timely fundraiser for creators at times where capital is needed.
The comprehensive and customisable messaging servers within Waivlength can allow for exclusive access and groups to be managed entirely in-house. Whether it’s a token-gated community, exclusive chat rooms, AMA sessions, live shows or content, Waivlength can provide a hub for creators and communities to prosper.
Of course, creator coins can be designed in many different ways, not always necessarily income sharing. Before the launch of their token, creators will get to design the tokenomics and the mechanisms in which their token can be used. Waivlength will provide educational content to those seeking to launch a creator token to help it succeed. There are many considerations relating to the economics of the token, much like any crypto asset, which can be guided by Waivlength with information from current thought-leaders in this field.
Social tokens enable vast new categories of money-enabled products, from social NFT experiences to influencer stock markets. These products in turn can allow creators to earn orders of magnitude more money than on traditional social networks, while maintaining a more direct relationship with their followers.
While Waivlength developers and advisors continue to work hard over the months ahead on platform build and securing external investment, it is clear that this platform has the potential to make a huge global impact as a competitor to current mainstream social media. Learn more at www.waivlength.io where you can find a more detailed whitepaper and roadmap for the development of the platform along with contact details for the team.
There is an incoming series of articles providing more detail on how Waivlength is seeking to revolutionise the social media space. Be sure to follow so you don’t miss out.
As always, the fantastic work of others must be acknowledged for the inspiration they’ve provided. Huge acknowledgement for this article must go to Jan Baeriswyl (Twitter — @JanBrswl) for his written work on social tokens and token design. He has done amazing work in this space and those looking to further their knowledge should absolutely sign up for the Edge and Pace newsletter.