Exploring the Future of Web3 Social (Part 3) How to Incentivize the Creation of a Digital Economic Ecosystem with Tokens?
Future of Web3 Social (Part 3) Incentivizing Token-based Digital Economic Ecosystem Creation
Author: LianGuaiUL VERADITTAKIT
Translation: Deep Tide TechFlow
This article is the third in a series of decentralized social articles written by LianGuaiUL, a partner at LianGuaintera.
The series explores how current technologies and trends address a range of issues in decentralized social networks, providing specific explanations and explorations for each problem.
Previous first article: “Exploring the Future of Web3 Social (1): From 0 to 1, Cold Starting Applications with Social Graph”
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Previous second article: “Exploring the Future of Web3 Social (2): Solving User Identity Issues with Personal Proof and Cryptographic Technology”
In 2017, a group of researchers from the MIT Media Lab claimed in Wired magazine that decentralized social networks would “never be successful.” In their article, they listed three impossible challenges:
- The problem of attracting (and retaining) users from scratch
- The problem of handling users’ personal information
- The problem of user-oriented advertising
They believed that in these three cases, existing tech giants like Facebook, Twitter, and Google, due to their extensive economies of scale, left no room for any significant competition.
Now, things that were once considered “impossible” seem less out of reach. We seem to be in the dawn of a conceptual shift in social media networks. In this three-part series (this is the third part), we will explore how new ideas in decentralized social (DeSo) solve these “ancient” problems, including:
- Using an open social layer to solve the cold start problem
- Using personal proof and cryptographic technology to solve user identity issues
- Using a token economic model and incentive mechanism to solve revenue issues
In this article, the author mainly discusses the third point, which is the way and examples of using a token economic model and incentive mechanism to solve revenue issues.
Creating “Killer Apps”
Whether Web3 social can succeed as a vertical field ultimately depends on whether it can generate a new “killer app” that provides a truly novel social experience, like TikTok or Instagram before, attracting users on a large scale. Without this “killer app,” much of the development of infrastructure (such as decentralized social graphs and human identity verification protocols) will lose a significant part of its expected goals.
However, the problem with these “new social experiences” is that they are almost unpredictable. Despite repeating the mantra of “building killer apps” over and over again, no one knows exactly what form this app will take – after all, you are actually trying to predict the direction of human behavior. In this article, I will no longer attempt the impossible task of specifically predicting what the next “killer app” in the social field will look like. Instead, I will attempt to explore two high-level strategies – enhancing existing social experiences by adding Web3 features and creating a Web3-first social community, and describe some projects that are following these potential paths of innovation.
Enhancing Existing Social Experiences through Tokenization
When it comes to building “killer apps” for Web3, the simplest approach is to add some new features to existing mainstream social platforms. One common way is to add “additional Web3 functionalities” in the form of tokenization, such as X-to-Earn projects.
One of the most interesting projects on this path is Reddit’s Moons initiative, which was launched in May 2020 to reward users for creating and curating content on the r/CryptoCurrency subreddit. Reddit Moons are ERC-20 tokens issued on Arbitrum Nova, with the token supply based on the “karma” earned by users on Reddit, calculated by the number of upvotes and downvotes received. Moons allow the community to vote on the future allocation and overall development direction of the tokens.
The overall tokenomics strategy of Reddit Moons has also been appreciated by the community, with a monthly supply decrease of 2.5%, resulting in an annual inflation rate of approximately 1%. As a result, over time, the “karma-to-Moons ratio,” which represents the amount of Moons earned through karma, is expected to steadily decrease, making Moons scarcer in the long run and potentially increasing their value.
Reddit is a particularly interesting case as it integrates Web3 functionality (in this case, tokenization through Moons) into an already existing “killer app.” Among all mainstream social media platforms, Reddit can be considered the most decentralized and community-driven, thanks to its unique “subreddit” structure, allowing these platforms to have a significant degree of autonomy and self-governance, rather than adopting a top-down approach to content management. It can be said that these design decisions make Reddit one of the most suitable platforms to experiment with Web3 mechanisms. In fact, Moons are just one example of Reddit’s innovative community points program, which allows subreddits to launch their own ERC-20 tokens and provides an Ethereum-based wallet called Reddit Vault to store these tokens. In addition to Moons, the Brick token from r/FortniteBR is another notable example of this program.
As of August 2023, Reddit Moons have gained some attention after being listed on several major centralized exchanges, including Kraken. However, while the “moonshot” of these tokens brings immediate joy, it remains uncertain whether this simple “earn money by posting” mechanism can succeed in the long run. Based on the data mentioned above and price data from August 12th, Reddit “Maxers” earned approximately $4,200 worth of Moons, while the median income was only around $0.9.
This is an alarming statistic that reveals a fundamental issue with the X-to-Earn model: you don’t earn much money, or at least far less than the “life-changing money” that such projects sometimes advertise. Additionally, income tends to be skewed towards a few users, meaning that regular users may not benefit much from the “earn money” aspect, even if they participate in the “X” activities. Ultimately, users may be disillusioned by these meager earnings, potentially leading projects towards collapse, as in the case of StepN.
Therefore, for a simple “social earning” project, it may be unsustainable in the long term to emphasize “earning money” too much. Instead, a novel social experience must be created for end users, which is a process that users are willing to pay for, rather than obtaining rewards through payment. The recent discussion of the friend.tech project on the Base network highlights this point. Friends.tech is essentially a “stock market for X (formerly known as Twitter) profiles”, where users can buy and sell “stocks” of individual influencers on X (formerly known as Twitter). By owning stocks of influencers, users gain promised increased access (such as private chats and other exclusive benefits), and they can freely trade these stocks.
This novel social experience and the ability to monetize one’s X following have generated over 6,000 Ether worth of trading volume (equivalent to over $11 million) and over 230,000 transactions within a few days of the invitation-only beta release. However, there are concerns about whether friends.tech can maintain this early momentum and truly pave the way for tokenizing influencer profiles or if it will evolve into another “RUG” project. Coindesk specifically points out the project’s lack of effective privacy policies and data collection practices documentation, as well as the absence of a roadmap or whitepaper. Additionally, it is currently unclear how the platform and its influencers will fulfill the “access” promises to the “shareholders” and truly create a new form of social experience. Nevertheless, friends.tech remains an impressive experiment in transforming tokenization itself into a new form of social experience.
Building the First Web3 Social Community
Instead of trying to add Web3 functionalities like tokenization to existing Web2 social platforms with completely different revenue models, another approach to creating a “killer-level social application” in Web3 is to start from scratch, launching from a unique crypto-native community and culture.
Phaver is a typical example of the “first” Web3 social community. Built on top of Lens’ social graph (recently integrated with Cyberconnect’s social graph), Phaver has attracted the attention of the Web3 native community by integrating with other Web3 social identity technologies such as NFT communities and soul-bound tokens. It is a platform with a unique dual-token model that uses a novel scoring system consisting of “cred” and “points” to allow users to earn rewards and privileges by leveling up on the platform.
“Cred” essentially represents a user’s credibility on the platform. Users can increase their credibility by linking soul-bound tokens or NFTs to their accounts and by engaging in daily interactions on the platform. Users are rewarded with “points” based on the quality and level of interaction of their own posts, which can ultimately be redeemed for Phaver tokens. Importantly, the higher a user’s “cred” is, the more points they can earn in a single post.
Because users must link soul-bound tokens and specific NFT collections (such as Cryptopunks and Bored Apes) to obtain “credibility,” this provides a useful way to distinguish between users and robots on the platform. In fact, this is almost like a “proof of social identity.” Therefore, Phaver suggests that projects can use its “credibility system” to prevent airdrop robots and ensure that users are human, not robots — without the need to scan any retinas.
From the above, it can be seen that Phaver has created a novel token economy system to create a Web3-first social community. However, for Phaver, like many Web3-first social applications, the main challenge is to expand beyond the native Web3 audience, to target users who have no Web3 experience and do not know what Bored Ape or soul-bound tokens are, while giving these users a clear reason to use the platform. Although Phaver claims to follow a “web2.5” model, allowing users to register without a Lens profile, Phaver’s “unique experience” relies heavily on Web3, which brings an educational cost that may be a significant barrier to widespread adoption.
Another notable project inspired by the Web3 community subculture is POAP, which originates from the unique “conference culture” and annual global event series in the crypto field, such as ETHGlobal. Basically, POAP is an NFT, or ERC-721 token, minted through the POAP smart contract, digitally representing a user’s participation in an event or conference and stored immutably on the blockchain. Since 2021, POAP has issued over 6 million such NFTs and collaborated with internationally renowned brands such as Adidas, Vogue, Github, and the US Open. However, the most interesting part of POAP may be how it serves as a social primitive, as a way to kickstart social networks and find others with similar interests and networks.
In addition, events, conferences, and conventions are things that do not require Web3-specific knowledge to understand—it is easy to imagine mechanisms similar to POAP being implemented for various communities and subcultures, such as anime conventions, world expos, and national art galleries. However, the core issue lies in how to maintain the utility of these POAPs, whether through rewarding participants with loyalty programs, trading opportunities, or exclusive events, to ultimately kickstart a new type of social community and create a new form of digital social experience.
So how exactly should we create that “killer app”?
In the end, the long-term success of Web3 social relies on creating a new form of social experience, rather than just replicating certain Web2 mechanisms and calling it special just because it is “on-chain” and “tokenized.” Instead, there needs to be a qualitative new experience, especially one inspired by and rooted in Web3’s inspiration and culture—whether it is the NFT community, asset tokenization, or crypto conference culture.
More importantly, although tokenization and other Web3 mechanisms provide possibilities for the design of many new applications, in order for a “killer app” to be able to scale beyond the native users of crypto, there must be an easily understandable use case (such as attending events) instead of being filled with Web3 terminology and concepts. Essentially, Web3 social must leverage the distribution and abstraction techniques of traditional social media platforms (such as TikTok or Instagram) to gain popularity.
Since social media is ultimately a way for users to express their personality and personal preferences, any successful Web3 social media platform needs to have an open design space that allows users to have enough “blank canvas” to create their own use cases. Often, a social app becomes popular for reasons completely different from its original goals. For example, as a company, TikTok could not have predicted all the different fashions and challenges that would emerge on the platform. The strength of such a platform lies in its ability to unleash the open creative platform of such an app. Only when Web3 adopts this design decision, instead of focusing on financialization and on-chain imitation, can we truly begin to build a brand new “killer app” that extends Web3 social to become the only “social”.