Social token paradox: diminishing returns for new nodes

In this article, investor Gaby Goldberg discussed what she called the “social token paradox”-a problem that arises in the social token community based on exclusivity. The challenge is that social tokens need to be appreciated by including new members, but these membership communities must maintain the exclusivity of their groups, otherwise the social value and utility value will decline. Therefore, the social token paradox was born.

Unless utility growth is achieved in other forms, communities based on exclusivity will face the social token paradox and are destined to repeat the vicious circle:

Phase 1 : Based on the exclusive community construction using social tokens, membership requires a certain amount of tokens.

Phase 2 : Early entrants in this group get tokens, so tokens appreciate. New entrants have also strengthened the notion that the group has exclusivity and social value, so exclusivity will increase over a period of time.

Stage 3 : At a certain threshold (depending on the group), the continued growth of new members begins to reduce the social utility and exclusivity of the group. However, as new members were forced to acquire tokens, the price of tokens rose.

Phase 4 : Eventually incentivize new members to recruit new members to ensure token appreciation. However, on a large enough scale, new members will lead to diminishing returns on the value of exclusivity. At this time, the token appreciates and reaches a peak in the number of certain members.

Stage 5 : Members sell tokens for profit or due to reduced exclusivity/utility. In the end, the community reaches a certain balance before continuing the cycle again.

Social token paradox: diminishing returns for new nodes

Non-membership tokens will not have this paradox. For example, Bitcoin each new buyer will increase the value of Bitcoin – Bitcoin scarcity increases, so all members are the same. New nodes or members of the network increase the value of the network.

The double-edged sword of exclusivity

Unfortunately, the rewards for developing exclusive communities are diminishing. More people usually means less exclusivity and therefore less social value. The exchange of monetary value for membership is the most common form of exclusivity. Country clubs, events, and subscriptions are all forms of exclusion in exchange for monetary value. Some aspects of membership are fleeting (such as events), while other aspects are recurring (such as dues).

Financially derived exclusivity or membership is a double-edged sword-it will succumb to the social token paradox. It will naturally limit the size and potential growth of the community.

Exclusivity will always exist as a value proposition, but it does not have to depend entirely on the economy.

Performance or achievement exclusivity

Achievement or performance is a signal of social value. Normally, performance evaluation may be vague, but Rabbithole has started to create on-chain records for accomplishing certain tasks. In addition, membership can be granted to individuals who have completed tasks in various DAOs (such as bronze members, silver members, etc.) or former voters. Hierarchical membership based on achievement or participation can gather individuals from different communities into one DAO or community. Imagine having some top contributors or voters from different DAOs in one DAO.

Time exclusivity

Creating memberships based on time can keep long-term players consistent and add an element that cannot be played or purchased with money. Time membership can also be combined with achievements, such as tasks that involve honing certain tasks for hours or weeks until they are completed. This model can incentivize the development of communities that require a lot of effort to join.

Experience or service exclusive rights

The shared experience unites different people, whether it is a fraternity, a college student, people in the same geographic location, or others. The experience can also be career-oriented, such as a charity affiliate or event-oriented, requiring individuals to attend an artist’s concert before obtaining an NFT with access to their Discord channel.

Final thoughts on exclusivity

This is not to say that financial exclusivity is negative-how people choose to allocate their capital, whether for activities, memberships, or other aspects, is all about weighing. Exclusivity brings value to communities based on a common purpose or goal. As the social token community seeks to expand their network, it is important to figure out ways to bring utility and value, not just financial in nature.


Posted by:CoinYuppie,Reprinted with attribution to:
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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