8 min read

Vellir #11 → Religion meets capitalism

Social tokens represent the intrinsic value of a community, brand or person. They are where religion meets capitalism, with implications for consumer behaviour, advertising and corporate structures.
Vellir #11 → Religion meets capitalism
Photo by William White / Unsplash

There has been a lot of focus on cryptocurrency prices of late. Understandably given they’ve been crushed. But thankfully, web3 isn’t just about token prices, speculation or DeFi, and there are other reasons to think that blockchain technology could be interesting.

One of the areas we’ve been looking into is social tokens. In this note we take readers through what they are, the different types of social token that are being developed, and more importantly, why they matter.

But let’s start at the beginning.

If web1 was ‘read only’, enabling users to surf the internet and access information and web2 was ‘read-write’, with apps that allowed users to connect, create content and communicate from anywhere, web3 is ‘read-write-own’, with users owning their data and content, and, by extension, the upside from their contributions and online activity.

When you post on Instagram (a web2 platform), you get a dopamine fix from the likes you receive, but you don’t meaningfully gain from having contributed your data to the network. Worse than that, your data is processed and sold back to you in the form of advertising. Worse still, unless you happen to own shares in Meta (the company that owns Instagram), you don’t gain from the value of the company increasing in value either.

The premise of web3 is to turn this around, providing to those who contribute value in a network a share of the upside and in turn creating a new ‘ownership economy’.

What innovation might there have been if everyone who contributed to the building blocks of Google’s code gained a share of the upside? Or if Uber drivers owned a stake in the firm’s value that they created by using it?

We’re going to find out, in part through social tokens.

What are social tokens?

Gemini defines a social token as:

“a cryptocurrency, or crypto token, that is structured around a particular brand, community, or individual. Social tokens typically grant their holders some sort of increased access to the brand, community, or individual they represent — whether that be a line of communication, exclusive products, event access, or governance rights.”

The Defiant adds an important note around giving people an ownership share:

“A social token represents a fractionalized share in the intrinsic value of a community, brand, or human. It’s a form of the ownership economy giving participants exposure to the growth trajectory of whatever the community is clustered around as well as the potential to help shape that trajectory.”

Social tokens therefore really just combine economic incentives with the benefits of membership. They are new ways of coordinating online activity and communities, and create space for new business models and interactions to take place. In essence, they are a core facilitator for the ownership economy.

Let’s look at what that means in practice.

Forefront points to many different types of social tokens:

Source: Forefront

To take a few more specific examples.

Personal tokens enable an individual to create their own token. Few people might want to buy $JONNO, but they might well buy $BECKHAM if it meant they got special access to his content, or perhaps early access to particular high value merchandise. Platforms like Rally are enabling anyone to create a market for their personal brand. For instance, musician Mark de Clive-Lowe has launched the $MASHI coin to support his work. He is experimenting with buying back his music catalogue from record labels and giving his audience and fans interesting rewards for holding his token. Other people have been experimenting with giving token holders a share of their future income (e.g. $ALEX), though this would have the characteristics of a security, which creates a number of regulatory challenges.

Community tokens go beyond an individual and allow groups to organise around shared goals or initiatives. Friends with Benefits ($FWB) is perhaps the most famous community token. It’s a “cultural crypto community”, with token gated access to online spaces and in person meet ups. It’s a bit like a digital Soho House membership, but with parties.

Source: FWB

We also talked about Global Coin Research in Vellir #8, which is a tokenised community, but with a specific use case around investing.

Creator tokens look a bit like fan clubs e.g. for bands; while brand tokens represent a tokenised version of any brand. These token labels clearly overlap – for instance, it’s possible or even likely that an individual’s token is really just a representation of their personal brand.

There are unlimited ways that creators and brands can use social tokens to reward their communities – from giving tokens for participation in events or other activity; creating social value for a community; to providing perks whether related to access, status, events or content. These are all providing the token with intrinsic value. So far, only the obvious things have been developed and there is an open canvas for creative people to explore.

Because tokens are liquid, they have a market price that fluctuates over time, as you can see from the list of social tokens below. This means that they can be exchanged for other tokens or fiat currency at anytime, such that membership or fandom becomes an asset: you might buy a token because you want identify with a group, get access to rewards or a particular event, but also because you think the artist/community/brand in question is going to become more popular and the asset will go up in value.

Source: Forefront

But why do they matter?

Some of you are probably reading this thinking, that’s all fine – but does any of it really matter? Or is it a good thing? Well… As we see it, there are four reasons that social tokens could be important, but also a couple of genuine downsides.

  1. They align incentives.
  2. They enable the financialisation of anything.
  3. They turn marketing on its head.
  4. They create a new dimension to the traditional corporate structure.

Aligning incentives

As we stated earlier, the users of web2 platforms like Facebook, Twitter and Airbnb aren’t rewarded for the value that they create. In web3, users are owners in their respective community. This aligns value creation and value capture. It is no longer zero sum capitalism but communities collaborating around a shared goal.

Financialisation of anything

At present, social tokens tend to fall into individual, creator, brand or community based tokens. But it is possible to imagine a host of other areas too.

  • People → we’ve seen how artists could be tokenised. But so could individual graduates, or cohorts of graduates. Or perhaps a CEO’s time, creating an internal market which employees would have to bid for using their allocated company tokens.
  • Teams → Your football team could have a token, which might give you ticket rights and a vote over management.
  • Community assets → Your local park might have a token, which the proceeds from selling could be used to carry out regeneration work, with a perk of special access to an event or concert for token holders.
  • Public contributions → Tokens could be provided for contributing open source materials e.g. Wikipedia.
  • Funds → The net present value of a fund could be represented by tokens, creating a liquid market for illiquid assets e.g. the Arca Blockchain Transferred Funds issues shared as digital asset securities called ArCoin.

Tokenised tribalism

Let’s assume that many of the everyday brands that you buy today have a token. When my son watches something on Disney+, I accrue $DISNEY, or when I buy a coke I get $COKE. Now I don’t care if you prefer Coke or Pepsi, but millions of owners of $COKE might. This new Coke community has an ownership stake, and is incentivised to market that product. In some circumstances that group could become evangelical, unleashing a new tribal capitalism and turning traditional marketing upside down. Will you need paid advertising if your users do it for you for free?

It’s when religion meets capitalism.

Some might be asking whether this is really any different to stock equity or loyalty programmes? First, the vast majority of people do not have access to equity for financial or geographic reasons and therefore do not own a stake in the products and services that they consume and help to succeed. Second, while there are some similarities to loyalty programmes in terms of gaining points in return for a purchase or referral, the key difference is that tokens are exchangeable for other tokens or fiat currency, while points are generally only usable within a particular brand ecosystem.

Intangibles and a new asset class

As it stands, there are hundreds of billions of pounds of intangible assets like brand or community on corporate balance sheets. But these assets can now be monetised through tokens.

For some companies, their brand is far more valuable than a particular product, or perhaps even the company’s equity. There is now the ability to prove and grow that value, while giving users of products and services a stake in that potential. It should be a marketers dream.

All this might sound a bit far fetched, not least given crypto markets have crashed recently. Are companies really going to create tokens in this environment? It might take time, but the underlying technology and principles now exist; much like Napster - you can’t put the genie back in the bottle, even if it was Spotify that ended up owning the music streaming market.

Tokens will become a new asset class for companies, which sit alongside or above debt and equity. Equity is a claim on cash flows and revenues; debt is a claim on assets; and tokens are a claim on brand and social loyalty. It’s not hard to see how most companies will end up having a token in their capital structure e.g. Starbucks will have debt, equity and a token, which replaces their Starbucks card and means consumers have an ownership stake and the company has a new way to raise capital and reward customers.

The downsides

While this is all new and exciting, it’s not without its downsides.

Tribal capitalism might be great for advertising, but it also has social implications. Once brands are tokenised, it is a zero sum game which could create and exacerbate an us against them dynamic for just about everything (i.e. I don’t care if you buy coke or pepsi now, but I might in future…). The same is true for religion, and it’s why you have Eth/Bitcoin ‘maxis’ who are only interested in seeing one chain do well versus another.

Equally, personal tokens are monetising status and commoditising people. It’s not hard to see why this would take off, but it might incentivise different sorts of behaviour or competition between people when there is an explicit monetary value for everything. This could produce outcomes that aren’t net positive for society more broadly.

Neither, I suspect, will stop social tokens going mainstream over the next decade. But we should be mindful of their impact as the technology scales. It’s no good creating alternatives to extractive web2 platforms if they end up having even worse outcomes!

It’s a shame to end on a slightly negative note as in general social tokens are a powerful new primitive which could help creators and communities flourish.

We’re excited to see what’s going to be built next.

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