Explaining the social token model in detail: everyone on the planet will have shareholders, market capitalization and maybe even a board of directors

If you only have a few minutes, here’s what investors, operators, and founders should know about social tokens:

  • The term “social token” may not mean what you think it is. Typically, a social token is considered a fungible currency associated with an individual. Think footballer Ronaldinho’s $RON coin. This is only part of the story. The social token category includes NFTs and currencies used by groups.
  • There are benefits to running an economy. Starting a social token can be an excellent way to raise money. It can also turn followers into investors and unify a group around a common cause.
  • New tools make tokenization easier. Platforms like Coinvise, P00LS, Rally, and Strata have made it easier to create social tokens. These products help creators define, distribute and manage social tokens.
  • Liquidity may be hard to come by. A real economy needs a market. Social token projects often struggle to create sufficient liquidity given the upfront capital required. Therefore, even popular social tokens may not be tradable.
  • A composable economy will unleash innovation. The social token movement has opened the door to new financial interactions and organizational structures. We can expect creator ETFs, decentralized record labels, and even empty promises.

In the process of designing a tech satire, you might come up with this idea:

What if everyone in the world had their own currency? (No, no, no, not that everyone has money, it’s not a utopia.) I mean, it’s like everyone has their own token or money that other people can buy and sell and maybe use to pay. If you want to play with your friends, you’ll spend their tokens, and if they want you to help move, they’ll buy your tokens and spend. Everyone on the planet will have shareholders, a market capitalization, and possibly even a board of directors. Go crazy with this idea!

After a while, you will deny the idea.

You might be thinking, this is too broad. Even in this age of social media, the age of quantification, the big age of comparison—certainly no one chooses to be obliterated by the blankness of the human balance sheet.

Perhaps because of this logical ladder, the existence of social tokens (and we really don’t have the ability to manipulate and design everything like the writers or editors behind the sci-fi drama Black Mirror) seem to be evidence that we are living in dark times.

However, it may be a mistake to view social tokens as doomed and dystopian. After all, the internet is full of success stories that sound bleak and weak.

Just as you can summon a stranger’s car with your phone. (alluding to Uber)

Just as you can sleep in the spare bedroom of a random home. (Alluding to Airbnb)

Just as you can swipe left and right like a wiper to filter for sex partners. (Alluding to Tinder)

As you turn yourself into a human body ad for a slimming tea. (Alluding to Instagram)

Just like JPEGs are really, really expensive. (Alluding to NFTs)

Chris Dixon once wrote: “The Next big thing starts out looking like a toy”. Looking at businesses like Uber, Airbnb, Tinder, Instagram, and the Bored Ape Yacht Club, it’s easy to say, “The next big thing sounds terrible to begin with.”

Social tokens are likely to be the next big thing. Today’s article will explain why they might even be a good thing. Here’s what we’ll discuss:

  • What’s in the name? Social tokens can take a range of forms. We’ll outline some examples, explore different iterative approaches, and explain this category broadly.
  • Tokens and value capture. Creators often struggle to capture the value they create on social media platforms and elsewhere. Social tokens could change that equation and offer other advantages.
  • Investor case. Consumers have driven demand for social tokens, both fungible and non-fungible. These assets can serve as a new form of sponsorship or as an interesting investment.
  • What does tokenization require? Although new tools make it more accessible, starting an economy is no easy task. However, the creators or groups involved need to take into account incentives, governance, financial management, etc.
  • The fragility of the social economy. Like real-world economies, social tokens have vulnerabilities. This includes market volatility, organizational complexity, regulatory uncertainty and psychological stress.
  • A strange field. We are only seeing the beginnings of social tokens. If they become widespread, we may see many new industries and assets take off.

Definition of Fluid

Let’s start with a small definition. Given that a token can take many forms, the world of “social tokens” needs it. While sometimes linked to the economic output of an individual, they can also be linked to a community.Some people prefer more specific terms, “creator tokens” and “community tokens.”

Explaining the social token model in detail: everyone on the planet will have shareholders, market capitalization and maybe even a board of directors

creator token

We can look at some examples within each category to better understand the (often blurred) line between the two. For example, here is a sample creator token:

  • $ALEX. When startup founder Alex Masmej wanted to move from Paris to San Francisco, he found an ingenious way to fund his trip. He raised $20,000 in exchange for $ALEX tokens. Holders receive a portion of Masmej’s future salary, up to $100,000. They also have access to private Telegram groups managed by Masmej.
  • $RAC. Musician André Anjos, better known as “RAC”, released a social token to reward fans. Backers can earn tokens by subscribing to RAC’s Patreon or redeeming for special edition tapes. Owning $RAC unlocks a Discord server, merchandise airdrops, and other benefits.
  • $ISH. DJ Vivie-ann Bakos, known as BLOND:ISH, unveiled $ISH as a way to create a wider ecosystem.Holders can get music, merchandise and future NFT placements in advance, as well as other rewards.Holders also get extra content, including remixes and edited tracks.
  • $BOI. Using a $BOI unlocks an hour of designer Matthew Vernon, who provides consulting on UI/UX, front-end development, and prototyping. Vernon has worked with cryptocurrency projects such as Set and Akropolis.
  • $JROCK. UCLA Blues guard Jaylen Clark debuted $JROCK last year. Holders of the token can get merchandise, ticket sweepstakes, behind-the-scenes footage, and workout videos. Clark was the first NCAA athlete to launch a social token.

As the above examples demonstrate, values ​​vary from project to project and can be associated with different types of individuals, although all are related to the individual’s output. An interesting quirk of these items is that they are ephemeral by default, thanks to a pesky thing called “death”.

Some creators have embraced this from the start, so the economic models they design have a natural ending point. For example, in our discussion, Alex Masmej pointed out that he believes that “the $ALEX token will end one day”. After all, he added, “in a way, it has been successful”. Social tokens focused on achieving a specific goal (like moving to San Francisco) don’t want to last forever.

Others may seek to outdo themselves by creating a broader, self-governing community that may benefit from works of more enduring value. While it’s not popular yet, you can imagine how this could happen. For example, if social tokens had existed in 1995, a young British writer starved of cash might have launched a token to support her fantasy series. $ROWLING gives backers access to early drafts, doodles, and control over parts of her property.

community token

Community tokens are positioned differently, representing the economic output of a group rather than a single individual. Examples include:

  • $FWB. While “friends with benefits” started out as a casual group chat, it has grown into a cultural hub for cryptocurrencies. Access to this virtual Soho House and its various perks requires possession of $FWB tokens. The different levels of access are graded by holding size.
  • $GCR. The research institute and investment firm, Global Coin Research, operates on the basis of its original token, $GCR. Owners can access content, make research calls, and participate in events. If your holdings are large enough, you can also get private investment.
  • PROOF. While tokens are generally fungible, social tokens can also take non-fungible forms. A member NFT of Kevin Rose’s PROOF collective is a social token. It grants holders access to a private community and special benefits, including future NFT placements.
  • $APECOIN. Designed to “propel culture forward into the Metaverse”, $APECOIN is the creation of Yuga Labs, makers of the Bored Ape yacht club. The owner of BAYC was staked $APECOIN, the governance token of an associated DAO. Holders can also earn merchandise, play games, and participate in events.
  • $PEOPLE. In November 2021, ConstitutionDAO raised $47 million to bid on the U.S. Constitution.Contributors to the auction received $PEOPLE, a native token. While there is no explicit commitment, $PEOPLE is expected to be the governance token for the associated DAO. Bidding fails, but $PEOPLE lives on.

By default, community tokens appear to have a longer lifespan than creator tokens—even beyond the initial wishes of those who launched them. When the ConstitutionalDAO bid failed, the core team wrote on its website that they believed “this project has completed its course.” However, 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. Incredibly, it’s still alive and theoretically valuable – the community won’t let it die.Rather, it exists in a potential state of energy that might be repurposed into a new initiative — perhaps creating a TwitterDAO, for example. Time will tell if community tokens can reach the longevity of other successful organizations, but at least, they are less fragile.

Social Tokens and Social Media

Given the range between creators and community tokens, most people may think that the best way to use the term “social token” is as a “cousin” of “social media”. These descriptors exist at the same height and refer to broad, distinct categories, but with identifiable meanings. We intuitively understand what “social media” means, even though it represents a variety of products. Reddit, Twitter, Facebook, Instagram, TikTok, and others. Like social tokens, some of these iterations focus on the community (Reddit, Facebook groups), while others focus on the individual (Twitter, TikTok).

The world of social tokens isn’t just akin to social media; it’s more of an evolution. While we may not have such a concept at first, platforms like Instagram and Twitter imply a new capital: status. We may be uncomfortable with having a “personal market cap”, but many of us already do – it’s just denominated in followers’ tokens. As social media platforms have grown in importance, the blue-chip entities of this communication — influencers — have found ways to turn social capital into financial capital. This is mostly achieved through advertising: Take a picture of yourself using this moisturizer, share it with your X followers, and earn Y dollars.

Aside from advertising, the basic mechanics are the same. If you’re a Twitter influencer selling books or courses, you’re playing a quasi-external communication role. By converting fans into buyers, you take on the task of transferring social capital to financial capital.

This is a suboptimal setting. Top creators often generate far more value for the platforms they operate than they can capture. For example, a musician might share a new track on Twitter, hoping to nudge listeners to buy tickets for an upcoming tour. Even with 100,000 likes on related tweets, turning that attention into cash can be a challenge. You have to send the audience to different sites, find a venue near them, and choose a suitable date. Despite pleasing 100,000 users, the exchange rate between X and Y in this transaction may be unbearably low.

As we will discuss later, social tokens have the potential to improve this conversion by turning fans and supporters into investors and contributors.

become an economy

You might ask: why would anyone or any group want to be an economy? At least, it’s a complicated endeavor. After speaking with several creators, investors and platform makers, there appear to be five core reasons to tokenize:

  • To raise funds
  • Build an investor base
  • draw attention
  • Adjust the incentive mechanism within the group
  • for better value

Let’s take a look at these core factors.

To raise funds

The most obvious benefit of creating a social token is that it allows you to raise money almost out of thin air.This is especially powerful for individuals or groups that may have difficulty accessing traditional funding.Alex Masmej is an example of how social tokens can be unlocked for those in need of unorthodox funds.During our interaction, Masmej noted that he was “penniless” and needed an “original way” to get to San Francisco. Launching $ALEX gave him the capital to make this journey happen and fundamentally changed his career trajectory. In his words:

I wouldn’t be where I am today (founded a Paradigm-backed startup and invested through Spearhead, my first Naval-backed fund) without the $ALEX token. Back then I couldn’t be funded by VCs and didn’t have the money to move.

All types of talent can benefit from this approach. Young musicians, struggling writers, NCAA athletes without sponsorships, emerging groups chasing wild dreams—all may have deep talent without access to traditional financing.

Of these different tokenization candidates, who is the best fit for this model? It depends on who you ask.Highlighting music artists, Hugo Renaudin, founder of social token distribution platform P00LS, said: “Music is a natural vertical because social tokens enable utility – from behind the scenes to unreleased tracks and backstage passes. “

Jess Sloss, creator of accelerator Seed Club, points to a different area: community. “A group of people who come together with a common purpose, as well as the ability to innovate and execute, will create the greatest value in this space,” Sloss said.

create investors

The second reason for tokenization is that, by definition, it creates a base of investors. There’s one notable difference between fans and investors: “in-game skins.” Passive followers are motivated to become active participants by introducing a financial component. Through their contributions, they can not only advance the individuals or groups they recognize, but also potentially gain their own wealth.

We’ve seen this behavior. Cryptocurrency holders advertise their tokens, as do NFT holders. Both sides do this, at least in part, to get others to join their cause and drive prices up. Assuming we view NFTs as a subset of the social token market – and it seems we should – the distributional advantages that tokenization offers are obvious to anyone who has spent some time researching Twitter tech content of. Apes, punks, and even foxes can be the subject of profile pictures and conversations. Those who once said they believed in a certain stock are now talking about their book by pointing to a JPEG or a token.

Instead of just a few VCs, creators of social token projects can rely on thousands of followers to amplify and promote the cause.

draw attention

One of the meta points in the section above is that simply owning a social token can attract attention, even beyond the efforts of aligned investors. Kyle Samani of Multicoin Capital noted that this is a key distinction.”With a liquid price, the social token itself will be a huge source of free PR.” The project may end up benefiting even as its value falls; Samani added: “All news is good news” .

The rise and fall of the floor price and market cap will certainly attract attention. This week, publications such as The Wall Street Journal falsely reported that NFT sales were down 92%.

Are such reports helpful to the NFT market? What about the stories that outline a project’s decline? While some allegations may cause actual harm (such as fraud), the memorability of cryptoassets means capturing news cycle value. With tokens, this is much easier.

Adjust the incentive mechanism

One of the most compelling benefits of tokenization is that it does what an economy is supposed to do: align incentives around desirable activities. This goes one step further than just having investors who will spread your message. In fact, participating investors can become dedicated contributors, not only preaching but also building. Samani describes social tokens as “a focal point for self-organization by fans of financial investments.” In our exchange, Global Coin Research (GCR) outlined how their token created a docking:

[GCR has] tightly coupled incentives between members and the core team. For example, we pay the core team 50% to 100% in $GCR tokens. We also reward members who contribute their research and scouting investment opportunities…$GCR. With one asset, you can tie everyone’s attention and financial goals together to ensure optimal outcomes and execution.

With native financial incentives, GCR already pays the cash cost of labor (equivalent to some interesting currency arbitrage), encourages the creation of new content, and leads to decentralized transaction sourcing.The GCR team later summed up the benefits of the token, saying, “Once you determine the community fit of the product, the economy starts to build itself.”

capture value

Tokens appear to be much better at capturing value than traditional methods. Offers memberships to private communities through subscriptions, maybe you can charge $100 a year. Providing access via a limited run of NFTs, 1 ETH ($2700 at the time of writing) also doesn’t seem out of the question. The exchange rate between X social capital and Y financial capital seems particularly favorable, at least for now.

There is good reason to believe that this is a real structural advantage. As mentioned above, social tokens turn buyers into investors and contributors, a meaningful shift that reframes one’s contributions. If there is a liquid market and there is a promise of a return, the willingness to pay seems to increase. To better understand this, we have to look more closely at the value that social token investors get.

Investor value

What makes social tokens valuable? The answer varies by project. Perhaps most important to such an assessment is the buyer’s perspective: Are they buying to support a creator or to earn a return? Is buying tokens a form of sponsorship or an investment?

Opinions vary. The biggest misconception about social tokens is that they are “a vehicle for people to invest in creators,” said P00Ls’ Hugo Renaudin. He added that this idea “is wrong for many reasons. Because social tokens are tokens of the ecosystem, not investment vehicles.” The motive is not to earn returns. Others look at the issue explicitly from a financial perspective, with Samani noting that the primary use of social tokens is to “allow a creator’s fans to invest in that creator.”

While not mutually exclusive, the use of these two frameworks — sponsorship and investment — elucidates the value behind the token. Social tokens may also offer advantages beyond these categories.

sponsor

Social tokens can operate as a new form of sponsorship. Instead of tipping your favorite musician or cartoonist, you can choose to buy their social tokens. In addition to purely altruistic motives, you may motivate yourself through welfare. Often, these look similar to the perks that creators and communities offer through platforms like Patreon: access to creators, additional content, prizes, and private groups.

Hugo Renaudin of the P00LS sums up these advantages as “access and exclusivity”. “The value of fans is the crux of a social token: the token needs to have emotional value,” he added. For example, if you are a supporter of football icon Ronaldinho, you may find the benefits of his token $RON compelling. You can get special merchandise and extra content. You can even watch games with him.

When viewed purely as an act of sponsorship, social tokens feel less revolutionary, albeit more accessible, a fortified fan club. This is only part of the story.

invest

Social tokens can be used as investments. As it happens, I have a little experience with this issue. In March 2021, I used Mirror to crowdfund the creation of an S-1 report on Coinbase. Contributors get $GENERALIST in exchange. In total we raised 20 ETH.

The 20 ETH we raised went to a group of contributors who created the report and Jack Butcher, an illustrator who provided additional artwork. Once done, we turned our output into three NFTs that sold for over 28ETH.Within seven days, holders of $GENERALIST received 40% of their returns (excluding fees).

This is a miniature example of how investing in social tokens can pay off. Creators can return a percentage of future earnings or product sales to holders. (As we will discuss, doing so may have regulatory risks.) As we mentioned, Alex Masmej pays holders through an ISA model, directing a portion of his salary to the owners of $ALEX. PROOF Collective’s “reverse drops” do something similar. Holders of PROOF NFTs have access to special opportunities to purchase valuable artworks at low prices. While this may look like a sponsorship — “access,” after all — it functions like a dividend. Collectors pay a nominal fee to participate and get potentially more valuable NFTs.

In the future, we may see many creative combinations between income, fungible tokens and NFTs. Samani commented on the matter:

I expect NFTs and social tokens to be intertwined. For example, after selling some NFTs, I would expect the creator to transfer some percentage of those sales to social token holders or social token affiliate coffers.

Finally, even if social tokens are not tied to future cash flows, they can still be used as investments. NFTs are often likened to visual art, while even fungible tokens can have artistic value, like “antique coins”. In fact, when describing the value that $ALEX conveys today, Masmej pointed out that it is “just a meme on Uniswap, if you have more than 5000, you can get into a Telegram group”. Owning some $ALEX or $PEOPLE can be like owning a little bit of internet history.

other

Some benefits span both categories. For example, some tokens grant the holder the right to use a certain service. The token $BOI, minted by designer Matthew Vernon, fits this bill. Every $BOI earns one hour of Vernon’s time. It’s not strictly a sponsorship or investment, but draws features from both camps.

Social capital is another obscure motivation. Coinvise, a platform for creating social tokens, points to this as a reliable source of value, stating: “One of the secondary values ​​after owning a token is a sign of reputation or ownership.” Coinvise added:

In addition to sharing economic upside and long-term consistency, tokens quantify the depth of relationships between individuals, making the social graph more fair and measurable, and most importantly, enabling better coordination mechanisms – creating games Incentives/rewards to build a programmable digital economy.

The ability to be flexible is arguably the strongest appeal of many social token investments. In certain internet circles, CryptoPunk’s personal photos or adding “$FWB” to one’s Twitter bio has an undeniable influence. In the vast majority of online life, ownership is a form of identity.

Professional capital may also fall into this category. While “access” is often seen as a patron’s perk, it’s even more meaningful when used in the context of a true DAO. In this case, token holders don’t just enter a group chat with their favorite celebrity, they join a team. If they want, they can become a true contributor and use their skills to benefit the group. In doing so, holders can improve their skills, gain knowledge, and even earn wages in native tokens. It’s an interaction that is superstition at one point and investment at another.

“People can earn tokens by working for the benefit of the community, and then use them to acquire more of that community,” Renaundin said. “When I’m in Paris, I don’t think 1 euro is $1.2; I think I can have coffee on the terrace. The same is true for social tokens,” he added. At the end of the day, the reason for collecting social tokens is to be part of the economy — a crypto-cosmopolitan city, a Paris of the web3 — and all that comes with it.

How to Tokenize

Once you’re convinced it’s time to tokenize, the hard work begins. Creating an economy is no easy task, even if new tools have made it significantly more manageable. Let’s go through these steps:

Explaining the social token model in detail: everyone on the planet will have shareholders, market capitalization and maybe even a board of directors

Step 1: Build a Community

Building a community is ideal before you launch your coin. Around a related goal, this community will hopefully be the first holders of your token and serve as an evangelist for future investors.

Start a Discord or Telegram and start making a plan to get moving. You’ll refine your ideas and make sure the project has real community DNA from the start. Mature creators may have an advantage, as they may have a small circle of fans that can translate into a pre-token community. In this case, the trick is to find those in the group who are interested in being part of the new experiment without alienating existing supporters.

Step 2: Design Your Economic Model

Once the community is formed, you can start issuing tokens. Over the past few years, several platforms have emerged that make building a social economy easier. Coinvise, P00LS, Rally, Roll, Strata Protocol and other platforms simplify the setup process with different approaches and feature sets.

Through one of these platforms, you can define the details of your economic model, including the value it conveys and the behavior it incentivizes. Creators also need to consider the project’s “shareholding chart” — who owns what and why. Projects often choose to reward early participants and supporters, carving out more segments for the core team and the wider community. The vesting of tokens usually exists over an extended period of time.

Step 3: Distribute Tokens

The platforms mentioned above make it easy to distribute tokens to groups you define. In addition to throwing tokens to team members and early contributors, you’ll want to spend some of your tokens on the community’s treasury.

You may use a variety of financial tools and platforms to manage this treasury, including Llama, Parcel, Gnosis, and Coinshift. We cover these platforms in more detail in “DAO. Absorbing the Internet.” Ultimately, the main goal is to keep funds safe, increase the value of holdings, and simplify the payment process for contributors.

Step 4: Channeling Liquidity

One of the trickiest parts of creating a token is giving it liquidity. An actual economy needs to have the ability to buy and sell assets, but for social token projects, making this a reality is costly. For example, in order to launch a liquidity pool on Uniswap or Sushiswap, creators must deposit a significant portion of their native tokens and an equal number of paired tokens. For example, if you wanted to start a pool with $50,000 worth of GENERALIST, you would have to stake an equal amount of ETH or USDC. As we will discuss later, there are serious challenges in doing so.

Step 5: Manage the Market

Running an economy is, in theory, an endless endeavor. The work certainly doesn’t stop once the tokens are distributed and liquidity is provided. Throughout the life of a project, creators and contributors must seek to add value to the project, tinkering with incentives and organizational structures.

Web3 “Weimar”

History is full of failed economies. Deflation and inflationary recessions plague almost every country in one way or another. Entire periods of national history have been marked by economic catastrophe – the Great Depression in the United States or the hyperinflation of the Weimar Republic in Germany. In Germany, the price of a loaf of bread rose from 1 mark in 1919 to 100 billion four years later.

While social token creators don’t have to deal with the same complexities as the real-world economy, they must balance the same version of challenges. The technological novelty of this market creates additional problems. We will outline the main risks and difficulties of these projects.

market movement

Cryptocurrencies are a highly volatile asset class. Social tokens can be particularly vulnerable because they are often backed by less tangible value, have shorter track records, and have shallower liquidity, making markets less robust.

Since Treasuries are likely to be held primarily in native tokens or other cryptocurrencies, a project’s effective wealth can plummet during a bear market. In early November last year, a project with 1,000 ETH hosted the equivalent of $4.8 million in loot. Today, the same project has only $2.7 million in the bank. In this case, community rewards and operator payments were affected.

This example illustrates the importance of sound financial management. Projects must balance their holdings and ensure they can survive the crypto winter. If they don’t, creators may be forced to artificially produce new “tokens” — whether NFTs or fungible tokens — or otherwise fiddle with the economic engine. Just like other economies, social tokens must withstand market volatility.

difficult organizational work

While launching a social token today is undoubtedly easier, it is still a complex process. In fact, in many ways, owning just one token complicates ordinary activities. Commenting on this fact, Renaudin said:

The hardest part is incorporating the token into everything the creator is already doing. Incorporate tokens into promotion strategies for new albums, merchandise collections, and more. So it’s really about organizing the work and making sure that every time there’s a new content or product, the token holders can enjoy the benefits.

He added, “In the end, it’s fairly easy and scalable for creators,” but getting to this point seems to be quite a bit of effort.

shallow liquidity

As mentioned earlier, maintaining liquidity is difficult for the social economy. To address this, projects often launch “liquidity mining” programs, effectively issuing rewards to those who add tokens to the pool. While this can alleviate liquidity problems to some extent, it is not a panacea.

The team at Coinvise noted that “maintaining deep liquidity is quite challenging.” This is especially true given that liquidity miners tend to be disorganized, which pool to move to offers the best rewards. “Creating a liquidity pool on Uniswap might be simple,” Coinvise noted, “but it might look like it’s renting liquidity.”

Coinvise pointed to “an interesting mechanism built by Olympus and Tokemak” as a potential solution. These projects have found innovative, albeit potentially unsustainable, ways to channel liquidity. At the very least, they have shown that a rich design market still exists – further innovation may be needed to help social tokens become a truly liquid market.

hazy regulation

The Howey test determines whether an “investment contract” has occurred, which is a sign of a securities offering. The test relies on four criteria — all of which must be met:

  • An investment of money must have occurred
  • The money must be invested in a common business
  • It must be done with the expectation of making a profit
  • This profit must come from the efforts of others

Social tokens are in murky territory. The U.S. Securities and Exchange Commission has cracked down on initial coin offerings (ICOs) for complying with standards for the sale of unregistered securities. Meanwhile, tokens that are considered “mediums of exchange,” such as Bitcoin, do not meet the test. Which of these two categories do social tokens fall into?

I am not a lawyer. (In fact, I spent most of my early career trying to avoid becoming a lawyer). However, it appears that social tokens must meet at least two conditions: the investment of funds occurs in projects that look like “ordinary businesses.” Some who do so certainly hope to make a profit. Whether it comes from the work of “others” is a trickier area. The SEC’s stance suggests that the more decentralized it is, the less likely a token is to be considered a security.

Kyle Samani pointed to “regulatory risk” as a factor holding back the social token space. In his view, this uncertainty could limit the number of established creators entering the space. “Given the inherent risks surrounding regulation, existing celebrities are unlikely to be the precursors to these dynamics,” he said.”Instead, new stars with fewer losses will carve out this future,” he said.

In order to take off properly, social tokens may need more guidance from the SEC.

become money

Hugo Renaudin said: “No one, including me, wants to have a price tag next to their name. But for some creators, that’s what social tokens bring to the table. When I asked Alex Masmej to run $ When asked if ALEX had a psychological burden, he said: “No – it has become a part of my life. ‘ he continued:

Capitalism is real and the world is chaotic, like it or not. Is it more bothersome than the “like” economy on traditional social networks? I think if running your economy greatly improves your life or career prospects, it may be worth the extra mental price (we’ll all get used to it anyway).

Maybe, this is where we’re going. Today, it still feels scary to attach a currency to ourselves—to become money—but, over time, we may see it as the equivalent of online influence.

Of course, when a group manages social tokens, the burden is lessened. Coinvise said some groups have begun to establish structured downtime to prevent burnout. “It’s now popular in the community to take ‘off-seasons’ where people log off and relax on purpose, rather than an ‘always-on’ economy.”

Ultimately, as with any large-scale project, managing a social icon is hard work, but it can also be very fulfilling. “It’s [taxation]!” shared Global Coin Research, “but it’s so interesting.”

Composable economies

Perhaps the most exciting part of the social token movement is what can be done with these economies.Since these projects exist on-chain, they can interoperate with the rest of the cryptocurrency ecosystem.These “composable economies”, if successful, will usher in new financial instruments and organizations.

new financial instruments

Here’s a thought experiment: imagine you’re an investor bullish on the maker economy. You have $1 million and no special access to the private market. Where will you invest?

Perhaps the best bet is 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 can also spread your bets among the likes of Meta, Spotify, Amazon (Twitch!) and Apple (music and podcasts).

These are reasonable bets and may prove to be very shrewd, but none are truly direct investments in the creator economy movement. Each of these businesses is in some way affected by other assets or, in Spotify’s case, by its relationship with traditional labels.

Social tokens may offer an alternative in their maturity. If they become widespread enough, you could imagine a project creating a creator economy ETF featuring a basket of creator coins. As the space takes off, investors will have direct access to the rise of creators themselves. Over time, this may split into more targeted indices. You can set up ETFs for YouTubers, Twitch streamers, Substack writers, and OnlyFans personalities. You can further segment to create something like a “YouTube-Mukbang Index” for specific trends. While absurd from one perspective, the formation of this asset class not only brings capital to creators, but enables those who understand the trends of the times to benefit from their insights.

Explaining the social token model in detail: everyone on the planet will have shareholders, market capitalization and maybe even a board of directors

The same principle applies to community tokens. An easy way to gain exposure to the social DAO movement would undoubtedly be welcomed. (Ultimately, Seed Club’s token $CLUB could be an ingenious proxy given the accelerator’s exposure to new projects.)

Other financial instruments could also emerge, including dreaded shorts. As discussed in “Multicoin: How to Be a Rebel”, bears serve an important market function, putting pressure on scams and Ponzi schemes. They may offer similar utility in the social token space, allowing investors to squeeze bad actors and fraudsters. For example, there may be real value (and financial gain) in shorting YouTube influencers like Jack 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 the economy in the best of times is a psychological burden, going short could make it worse. We already live in a culture where it’s easy to “eliminate” dissent. Using this reflexive anger as a financial weapon can be extremely damaging, pushing those with whom we disagree into economic ruin.Furthermore, betting on success is hardly a constructive contrarian stance given the long-term nature of most social token projects.

The stakes may prove to be more beneficial to both parties. While some social token projects have encouraged such versions to generate market liquidity, other iterations may also make sense. In “Terra: The Moon Also Rises” we outline how Anchor Protocol has been repurposed as a form of payment. Rather than pre-purchasing services, projects like Pylon allow customers to stake tokens on products and “pay” through Anchor’s 18% return. Essentially, users keep their principal while paying interest.

The social economy seems to be a good fit for such a mechanism. Rather than taking huge risks to buy NFTs or tokens, contributors can stake capital and provide interest to the project. Not only is this a potential source of evergreen income (at least as long as users stay and rates persist), but it provides an easy way out for contributors – instead of selling NFTs, for example, you can simply unwind your holdings ‘s stock. This exit mechanism could be useful for economies that thrive on docking.

Finally, social tokens will almost certainly be used as collateral. Renaudin emphasized this point, saying:

I am interested in how the intersection of DeFi and social tokens can create a whole new asset class.Imagine an artist who can use their social tokens as collateral to get a USDC loan on-chain to buy a house: influence and community become assets.

In the future, we may secure real-world assets with currencies tied to potential NBA teams, musicians’ revenue streams, and social club rights.

novel organization

Just as social tokens have enabled innovative financial interactions, they may also herald new organizations.Once creators’ economic activities live on the blockchain, those who manage their capital and careers may shift.

In “Multicoin: In Search of Outliers”, we outline the company’s interest in a “decentralized record label” built on social tokens. When asked what new structures might emerge for the socioeconomic, Renaudin replied with a similar thought:

A decentralized entertainment industry! If all music artists have tokens, how should tokens try to create a fairer ownership model? This is a similar issue for other creative industries that deal with inequalities around ownership and value.

Crypto-native publishers, podcast studios, and talent management companies could all form to serve the world of social tokens. Industries with uncreative, rent-collecting gatekeepers can be particularly vulnerable.The next JK Rowling might not only have a token, but might be managed by the company equivalent of RandomHouseDAO.

“You” is an economy in waiting. The sum of your outputs can be quantified, financialized — combined with others if you wish. Far from being utopian, however, such a possibility could create greater freedom. While social tokens may seem dehumanizing and a form of obliteration, they are better understood as a reward for a previously intangible kind of value. The value of your creativity. The market cap of your network. The value of your ideas. In doing so, they introduce new problems and a wave of possibilities that could disrupt tired industries and age-old market models. On the cusp of a global recession, a new economic era may be beginning.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/explaining-the-social-token-model-in-detail-everyone-on-the-planet-will-have-shareholders-market-capitalization-and-maybe-even-a-board-of-directors/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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