On the eve of the community token explosion: This is the most potential incremental market for crypto finance to connect with the real world

Original source: Chain News

Original author: LeftOfCenter

It’s time to revolutionize the Internet charging model with tokens. The road to revolution should start with creative people and creators.

With the rise of the creator economy, knowledge content products are being produced and disseminated on the Internet at an unprecedented rate, and many creators have gained many fans and even monetized. The era of "Creation for All" has quietly arrived. But nowadays, most creators still cannot make a living from this. The fundamental reason is that there are structural problems in the Internet revenue model: that is, the adoption of a free product model subsidized by advertising is not real market pricing, which leads to the dilution and dilution of the income of most long-tail creators.

As the crypto economy continues to develop, the Internet has begun to transform from Web 2.0 to Web 3.0. Whether it is content creation, music distribution, platform infrastructure, or various Web 3.0 tool products with different functions, the ecosystem around creators and community economy is gradually improving, which makes the implementation of the ownership economy possible:

Creators can use their future revenue capacity as value support to issue tokens, and fans can purchase tokens to "invest" in creators and share their future economic success; this also opens up additional sources of funds for creators and opens up a new way to interact with fans.

Unlike ICO, which is widely criticized for issuing coins out of thin air, community tokens are issued based on certain value support. They may be the creator's profitability, popularity/popularity or reputation. The open and permissionless characteristics of cryptoeconomic primitives can promote the formation of a fan-oriented value discovery market. Compared with physical objects on the chain, this value native to the Internet community is easier to capture.

Before the solution for real asset on-chain is perfected, community tokens may become one of the most promising incremental markets for connecting to the real world.

The rise of the creator economy

The creator economy is on the rise.

The creator economy is not a trendy label, but a structural change that is quietly happening, and it has already happened in the Web 2.0 era.

An important piece of evidence is that for a long time, a large number of platforms connecting creators and consumers have appeared on the Internet, covering almost all categories, from music, education, knowledge sharing, blogs, pictures to videos, etc.

On such online platforms, people make a living by selling their skills, knowledge and creativity on a platform in a way that is independent of traditional organizational forms. The products or services sold include but are not limited to writing, video, games, film shooting, education, music and other categories. Eric Feng, a former partner of Kleiner Perkins, calls this group of people Digitally Native Vertical Creators (DNVC) for direct-to-consumer brands.

a16z investor Lin Ji calls this the Creator Economy and essentially distinguishes it from the gig economy that has been popular in recent years. She believes that the gig economy is a labor commoditization model caused by homogeneity and scale effects in a division of labor society, while the creator economy emphasizes making a living with heterogeneous skills. It is a passion economy that can sustainably accumulate personal brand effects and audiences, has autonomous creativity, realizes individual creativity monetization (Monetizing Inpiduality), and has sustainable development attributes.

As human civilization gradually matures, human needs have also evolved. As a "worker", work is not just for making money, but to combine career development with a sense of accomplishment and freedom, that is, work is meaningful in addition to making a living. With the rise of the Internet and the emergence of various platforms that directly connect creators and consumers, a new employment model transformation has been catalyzed. The market that was only a matchmaking market in the past can no longer meet people's needs, which has brought opportunities for new creator platforms.

A 2017 study by the McKinsey Global Institute showed that 20% to 30% of the working-age population in the United States is engaged in "independent work", which is what we often call "freelancing". In addition, the proportion of job opportunities carried by digital platforms such as Uber and Etsy is also growing rapidly, and this trend has covered the entire industry, from digital natives who monetize their personal interests as YouTubers, podcasters and game anchors to those non-traditional creators, such as teachers, salespeople, farmers, chefs and buyers, are all transforming to digital media self-employment.

Most people can’t make a living from this

On the surface, this seems like a good business.

YouTube, Instagram and TikTok have many household names, and the media often exaggerates the stories for one reason or another, which makes people mistakenly think that these platforms are full of money-making opportunities.

According to Forbes, the highest-earning YouTuber in 2019 was Ryan Kaji, who was only 8 years old. He earned $26 million from unboxing videos, the Dude Perfect team, which became popular with sports tricks videos, earned $20 million, and beauty blogger Jeffree Star earned $17 million. The above is limited to advertising or sponsorship. Some smarter people have begun to monetize their traffic dividends. For example, Huda Kattan, a Middle Eastern beauty influencer, started her own business and developed the eponymous beauty brand Huda Beauty, which has a market value of $1.2 billion.

Apart from those inspirational success stories and the beautiful vision portrayed by the media to the public, the data tells us the other side of the matter.

According to data, in 2017, 17 million creators in the United States earned about $7 billion on a total of 9 platforms. However, the reality is that the real money-makers are concentrated in the top players, and most creators cannot make a living from this. In fact, only  3% of YouTube channels earn above the poverty line, which means that 97% of people are struggling below the poverty line, and it is far from enough to make a living from this.

In addition, most ad-supported platforms, such as Instagram and TikTok, do not share revenue with users. In this case, the only way to monetize is to gain a large number of fans and then sell their own products.

Like the Internet itself, in fact, the creators on these platforms are also a power law distribution with a long tail. The power law distribution is the Matthew effect, which in this case means that a small number of people have the majority of the benefits, while the benefits of most people are very small, because of the winner-takes-all principle.

The Internet revenue model has structural problems, and the free model cannot maximize platform revenue

The fundamental reason for this problem is that the Internet revenue model has structural problems: the adoption of a free product model subsidized by advertising is not true market pricing, which will dilute and thin the income of most long-tail creators.

In fact, most traditional companies set prices by repeatedly testing customer willingness to pay and the competition process. However, the two-sided market based on digital information products is not the case. The reason is that for products that are generally based on the Internet business model, the scale effect of the network is the key to their success. In other words, for an industry without technical barriers, the key to its success or failure is the size of the network.

In order to expand this network effect, these platforms generally adopt economies of scale based on the demand side. Specifically, the platform will subsidize most consumer users with a free model to quickly seize the user market. On the other hand, there will be some monetized revenue sources for subsidies.

Most of the current mainstream Internet platforms adopt this model, including YouTube, TikTok, Pinterest, Reddit, Tumblr, Google Search, Facebook and other platforms. Content consumption is free, so that the user scale can be quickly expanded. On the other hand, they will rely on advertisers' paid income to subsidize creators on the platform with certain indicators.

This will cause the revenue to eventually flow to the head creators, and most of the long-tail creators will not be able to get a share.

An effective improvement plan is to adopt a differentiated pricing model, that is, to attract some consumers to make purchases (or generate more consumption) with a tiered pricing model, thereby minimizing consumer surplus.

Consumer surplus is the difference between the price a consumer is willing to pay and the price they actually pay. It is located on the supply and demand curve between the equilibrium price and the demand curve. In a market with a downward sloping demand curve, some consumers are willing to pay more than the market price.

For example, if the market price of a latte is $5, but you are willing to pay $10, your consumer surplus is $5. There may be other pricing demands from consumers in the market, ranging from $20, $15, $12, and $9. In this case, if people can buy goods according to their own wishes, there will be more consumer surplus, which is the total income paid minus the total income at the market price. All other things being equal, the lower the market price, the more consumer surplus there is; the more elastic the consumer demand, the more consumer surplus there is.

Perfect differentiated pricing means that the price charged by the merchant to each type of consumer is just within the consumer's willingness to pay, minimizing the consumer surplus and maximizing the merchant's profit.

How much are people willing to pay for digital content?

Under the free model of advertising subsidies, a unified free pricing model is adopted, which obviously cannot achieve effective differentiated pricing. For highly flexible cultural and creative products and services, there is still a lot of room for consumer surplus to be tapped, and it is an industry that is extremely suitable for differentiated pricing models.

In fact, the differentiated pricing model is one of the important characteristics of fan economics, that is, providing services by meeting the needs of different loyal fans. The inherent attributes of the cultural and creative industry are naturally in line with fan economics, because cultural and creative products have different values for different people, especially for hardcore fans, who may be willing to pay a higher premium to buy idol products.

As Kevin Kelly, founding executive editor of Wired magazine, put it, “True fans are the kind of people who will buy everything you do. They’ll drive 200 miles to hear you sing. They’ll buy the hardcover, paperback, and audiobook versions of your books. They’ll pay for the ‘best of’ videos on your YouTube channel on DVD. They’ll come to your meetups once a month.”

“If there are about 1,000 true fans, then you’ll have a lot of fun.” class="Apple-converted-space"> 100 such die-hard fans, even if you may not become rich, at least you no longer need to worry about your livelihood. ”

According to Kevin Kelly’s concept of “One Thousand True Fans”, anyone engaged in creative or artistic work, artists, musicians, photographers, craftsmen, actors, animators, designers, or authors, etc., can make a living as long as they can get a thousand loyal fans.

a16z partner Li Jin believes that in fact only   100  true fans are enough, and creators can segment the audience and then provide tailored products and services at different prices. According to her, humans are currently in a trend of unbundling from the employment system, and many people are turning from corporate employment relationships to independent individual businesses. This is also the creator economy that she has been paying attention to.

In fact, free is no longer the best model, and there is increasing evidence that people are willing to pay for digital content. Most traditional news publications have successfully established paid platforms. The Washington Post, the Financial Times, Business Insider, the Wall Street Journal, and the New York Times, which is often mentioned as a classic case (its subscription revenue is currently twice that of advertising revenue), have all proved the feasibility of the subscription model; Spotify's monthly active subscribers account for half of the total number of users.

Internet products begin to explore multiple monetization models

Since the advertising model is unreliable, it is better to make money directly from consumers.

In fact, some Web 2.0 platforms and tool providers have realized this change and have created more diversified monetization models for the core users of the platform - creators, in addition to advertising.

For example, the world's largest UGC video platform  YouTube, which initially only had advertising revenue sharing, now provides creators with multiple monetization channels including brand cooperation, live broadcast rewards, stores, paid subscriptions, etc.  TikTok , the overseas version of Douyin, launched a creator fund in July this year, planning to invest $200 million to support this creator program, and will also launch a tipping mechanism similar to Bits.

In addition, compared with the Medium model, creator platforms such as Substack  are often more attractive to creators because it provides content creators with a solution of self-setting pricing power, allowing creators to set prices independently. Usually, content creators can set a monthly subscription model (at least $5 per month), and the platform Substack will extract 10% of the fee.

Patreon  is another fan-paid subscription model platform worth mentioning. Patreon is a platform for creators to sponsor. It allows creators to set up their own membership plans. The forms of creation are quite wide, including but not limited to photography, porn game developers, independent musicians, YouTube talk show hosts, video directors, painters, writers, etc. The sponsorship mechanism is mainly set by the creators themselves. It is very flexible and can be paid monthly or by the piece. It also provides fans with advanced features with more permissions. Generally speaking, the higher the fee, the more permissions and rewards you will enjoy. Of course, creators can also simply share free content to readers, or publish their creations to get sponsorship profits, or even get a stable income to make a living.

For example, Saifedean Ammous, the author of The Bitcoin Standard and an economist, has opened his own membership plan on Patreon, which is divided into three tiers. The first two tiers are US$25 and US$50 per month respectively, and enjoy the same privileges, including allowing sponsors to directly access the manuscripts in progress, participate in online live courses, join online forums and Telegram groups, etc.; the highest tier is US$300 per month, in addition to covering the privileges of the first two tiers, it also provides a one-hour Austrian economics course per month and private lessons on the latest Bitcoin research.

Of course, it is also possible that fans do not seek specific returns at all, but simply want to support creators to complete something they want to accomplish. Therefore, Patreon is somewhat less like a buyer-seller relationship, and more like one party willingly sponsors the other party by giving back to express gratitude, which lacks the mandatory nature of a buyer-seller relationship.

A series of emerging platforms such as Substack that directly connect consumers and creators give creators a pricing power, based on which a market can be formed, and consumers in the market vote whether the product has value by paying. If they are willing to pay for it, a value market based on the work is formed.

That is to say, as more and more such platforms emerge and are gradually adopted by creators, individuals whose value was previously difficult to quantify in large organizations can use these markets to form free pricing for their works.

Crypto-finance and bond tokenization

A more radical improvement is to issue bonds with the creator's future income as the value support, and fans can buy bonds and allow them to trade, which can be traced back to the "Bowie Bonds" issued by the Internet musician pioneer David Bowie.

In 1997, glam rock musician David Bowie launched "Bowie Bonds", using the royalties of all his albums released before 1980 as collateral to issue bonds. These bonds were later bought by Prudential Insurance Company for $55 million. The 10-year bond has an interest rate of  7.9%, about 1.5 percentage points higher than the market benchmark U.S. Treasury bond rate.

At the time, the deal was quite advantageous to Bowie, as it allowed him to advance ten years of royalties and licensing fees without having to give up ownership of his songs.

This was a bold financial experiment. Before this, packaging illiquid assets into bonds was only common in home and car mortgages, but David Bowie first used this method on music copyrights, pioneering the packaging of intellectual property into financial products. This move was praised by many financial experts because he truly understood the value of intellectual property.

The rise of crypto-finance and its series of crypto-economic primitives can maximize the "value discovery" of intellectual property. Take basketball player Spencer Dinwiddie as an example. He launched a crowdfunding campaign called Gofundme with a target amount of 2,625.8 BTC equivalent to US dollars (equivalent to 24.6 million US dollars).

This crowdfunding is supported by his NBA contract income and tokenized bonds issued based on Ethereum for fans to purchase and invest. After months of bargaining with NBA officials, Spencer Dinwiddie received $13.5 million of his $34 million contract income in advance through this event. In return, investors can receive a monthly interest of  4.95% and have the opportunity to join his All-Star Weekend event.

Essentially, this is a way to tokenize debt. Compared to borrowing money from institutions, fans can become investors, open up additional sources of funds for stars, and interact with fans in a more diverse way. For fans, this plan allows fans to "bet" on the success of players and make money through their future performance.

Fan-oriented value discovery platform

As the crypto economy continues to develop, the Internet has also begun to transform from Web 2.0 to Web 3.0. Whether it is content creation, music distribution, platform infrastructure, or various tool products with different functions, the ecosystem around creators and community economy is gradually improving.

Zora: Helping limited issuers capture high premiums in the secondary market

Zora  is a platform for creators and designers to release limited products in the form of crypto tokens, allowing creators to issue limited edition artworks and goods in the form of crypto tokens. A token issued on the platform promises to be exchanged for a real product in the real world.

If you want to issue 100 pairs of limited edition sneakers, 100 specific tokens will be generated. These tokens can be sold and traded over the Internet, so that physical products can be dynamically priced based on supply and demand in the open market.

With buying and selling operations and transactions, the prices of these tokens will fluctuate. This means that before the token is exchanged for an actual product, the holder can still sell it for upside, or at a loss, and the resulting transaction fees will belong to the creator. When a token is finally exchanged for physical goods, it will be destroyed and removed from the market forever, and the creator will receive the income for this product at the price of the token at that time.

What Zora wants to do is to help creators/brands capture the high premiums generated in the secondary market by reshaping the buying and selling model of limited goods. For example, the Kanye x Adidas co-branded series Yeezys is priced at only $220, but due to insufficient supply, it has been hyped up to 10 times the original price on secondary markets such as StockX, but all these high premiums have fallen into the pockets of scalpers. With platforms like Zora, creators can create their own markets to achieve true price discovery and capture value from subsequent secondary market transactions.

Zora x RAC

Of course, the most noteworthy classic case is the limited edition personal token  TAPE issued on Zora by Grammy Award winner  Andre Anjos , who goes by the pseudonym DJ RAC . Each TAPE token represents the cassette version of RAC's newly released third studio album BOY. TAPE tokens were priced based on the joint curve, with an initial price of $20 per token, and eventually sold well, with prices quickly rising to hundreds of dollars.

Currently, compared with the issue price, the TAPE token has risen 83 times and is priced at $1,698.

This case proves to us that it is feasible to issue personal tokens and build fan communities based on cryptoeconomic primitives and make a living or even make money from them. More importantly, RAC also practices the community ownership economy and distributes personal tokens RAC to loyal fans and communities, which shows us that the fan token economy is not only self-consistent in theory, but also has the possibility of landing.

Community Ownership Economy

The Internet has made the world flatter. People from all over the world, no matter where they are, can talk online based on common interests. The rise of crypto economy and Web 3.0 allows people to become a community of interests by holding the same token no matter where they are, and get incentives from the system according to their own contributions.

Imagine such a scene. You have a keen sense of smell and are optimistic about the future development potential of a creator. Then you can own part of this project by purchasing the community tokens issued by it, which is similar to buying a company's stock and betting on the company's future. Once this project succeeds in the future, it will be directly reflected in the token price. As a fan, you not only share the success of the idol, but also have a say in his income and career direction.

This is the ownership economy.

In the community ownership economy, the entire community and creators are a community of interests, and everyone works together to develop and promote products. In a creator community, community members are as important as creators, in a decentralized protocol community, the user base of the protocol is as important as the developer, and in a coin issuance project, the holders of community tokens are as important as the issuer.

With the rise of cryptoeconomic primitives, creator infrastructure platforms, and some of the Web 3.0 tools that come with them, it is possible to implement the ownership economy at a practical level.

Most community tokens are based on the ERC-20 format on Ethereum, which means that they can be traded without permission, and these tokens will generate a natural market. For community members, simply holding tokens issued by the community means participating in the community, and any relevant achievements of the community will be reflected in the price of the currency. For loyal fans of the community, they can invest a lot of time and energy to earn tokens and get due rewards. Of course, you can also participate in the market directly without participating in the community by investing money to buy tokens. That is to say, even if you are not a loyal fan, you can bet on someone's future to earn income. Betting on the future of a creator is no different from investing in a company by buying stocks.

In the case of RAC, RAC uses the same retroactive token distribution mechanism as Uniswap to give back to loyal fans, airdropping a large number of RAC tokens to platform supporters including Bandcamp, Patreon, Twitch, etc. These fans are either paying members (meaning they are willing to pay), or peripheral buyers (meaning they are loyal fans), or people who have exchanged TAPE tokens for physical tapes (meaning they are not speculative investors). This is the kind of hardcore fans described by Kevin Kelly who are willing to pay for your full set of hardcover, paperback and audiobooks and DVD versions of the "best" videos on your YouTube channel. Obviously this is a very worthwhile airdrop because it incorporates the most valuable users before into its own community value system.

In the ownership economy, a token is not just a financial investment tool, but more importantly, an equity token. For example, an issuer can set up a hierarchical community membership model, requiring a certain number of tokens in the wallet to access a Discord channel, read certain community-exclusive content, receive limited gifts, and experience early releases. Since ownership can be verified on-chain, it is very simple to verify whether you have access rights. There are now Web 3.0 community chat applications such as  Syndicate , which can verify asset ownership in a trustless way. For example, you can use Syndicate to create a Chainlink whale community, and then set the parameters of the chat group to hold at least 1,000 LINK tokens to join the group.

Syndicate User Interface

The ownership economy allows individuals to become part of the community, not only in terms of economic rights and exclusive content, but also in terms of their opinions being better heard as individuals in the community, mainly through governance voting. All of these elements will motivate the smallest member unit of the community - individuals to become active participants and evangelists in a community.

Community token issuance platforms Foundation, Roll, Fyooz

Foundation  is another token issuance platform targeting artists and designers, founded by   , former product designer of Dharma. Similar to Zora, Foundation allows artists to issue ERC-20 tokens that represent physical objects, which can then be sold on the secondary market or exchanged for physical objects. Unlike Zora, which sells tokens on the Uniswap platform, Foundation chose to develop its own protocol to make the pricing model more suitable for art sales. For example, every transaction fee generated by the secondary market transaction of works published on the Foundation platform will belong to the artist. Like Uniswap, Foundation also uses a joint curve to define the relationship between supply and price, but allows designers to customize the minimum and maximum prices of token sales, which can solve the problem that the last few items on the Uniswap platform cannot be sold because the price is too high.

Roll is the earliest platform product to enter this field. As a community token issuance platform for creators, Roll aims to help content creators establish a monetary relationship with fans, and is committed to introducing community token technology stacks to residents living in Internet communities, allowing creators and their fans to easily earn, spend and trade community tokens.

Roll makes it easy to issue and distribute your own community currency by providing a set of tools for community platforms. At the same time, issuers can also customize the value of the currency, that is, the way to obtain and consume the currency is determined by the issuer, allowing the community to capture value.

Roll was founded by  Bradley Miles  and  Sid Kalla , both of whom worked at CoinDesk. It has currently received two rounds of financing, with a total financing amount of US$2.7 million. The first round of investors include BitMEX CEO Arthur Hayes, VaynerX founded by Internet celebrity Gary Vaynerchuk, venture capital funds Techstars Ventures, Hustle Fund, Techstars NYC, and iFabric Ventures, IOSG Ventures and William Mougayar in the second round.

Unlike most crypto projects, Roll has not issued its own tokens, but has been moving forward in an orderly manner in terms of product growth and the introduction of creators. Roll has currently introduced 300 creators to join, and introduced star rappers such as  Akon  to issue personal tokens on Roll. In September this year, the total market value of community tokens issued on the platform was close to  250 million US dollars. Roll will continue to cooperate with a series of musicians, creators and organizations next year, and will allow these organizations and individuals to create community tokens based on Roll infrastructure and APIs.

Fyooz is a newly emerged community token issuance platform that allows ordinary people to participate in investing in artists, brands, talents and other projects, and share the success of their idols' careers, not only in the workplace, but also in the economy. It is worth mentioning that Fyooz is incubated by the decentralized autonomous organization  DuckDao  with a strong community foundation, which means that Fyooz has the community gene to attract fans.

So far, Fyooz has attracted attention through collaborations with two rappers,  Lil Pump  and  Lil Yachty . Among them, rapper Lil Yachty released his personal token  YACHTY, which sold out in 22 minutes at a price of $15. According to the Fyooz app, the transaction generated a total of $276,006 in revenue. YACHTY token holders have a variety of exclusive rights related to Lil Yachty, including receiving a blind box prepared by Lil Yachty's mother Venita McCollum (Venita McCollum has published the book "Raising a Rapper"), obtaining personal items from Lil Yachty's career, and participating in online parties with him. Another rapper, Lil Pump, plans to issue a personal token  PumpCoin on Fyooz in early 2021. PumpCoin will allow fans to interact directly with the rapper himself and interact with Lil Pump in other unspecified ways. Due to SEC regulations, PumpCoins are only available outside the United States.

When we talk about the ownership economy, it is not limited to creators, but actually applies to a broader range of creators, that is, those who contribute time, energy or money to become part of a community and bet on its future by holding community tokens, such as decentralized autonomous organizations Duckdao and  DXdao  and  Karma DAO.

Are community tokens a bubble?

Cryptocurrency and blockchain are often criticized as bubbles, scams and pyramid schemes because they are not connected to the real world. Some people even believe that cryptocurrencies and blockchains without incremental markets can only be maintained by zero-sum games, and will eventually collapse and return to zero over time. However, we believe that before the real asset chain scheme is perfected, community tokens may become one of the most promising incremental markets to connect to the real world.

Why do you say that?

Unlike ICO token issuance, community tokens have certain value support, but this value was intangible before Web 3.0, and it was diluted on the Internet platform in the form of advertising revenue at most. Generally speaking, the issuers of fan tokens have a certain popularity. The tokens they issue are essentially endorsed by the reputation of the initiator. The issuance method is also a fair distribution. The tokens have no value at the beginning. The founder will make the initial distribution through custom rules and keep a part of it. As long as there are fans willing to pay, it will generate value. The more popular the issuer, the higher the price of the token.

Compared with physical objects on the chain, Chain News believes that this value native to the Internet community is easier to capture. With a series of simple and easy-to-use token infrastructure, various    tools, and most importantly, popularize the benefits and use cases of community tokens to non-crypto native creators, and help them extract the community value scattered on various Internet platforms and return it to the value creators-community initiators and their community members. This is exactly what platforms like Rally, Roll, and Fyooz are currently trying to do.

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