10 Key learnings in designing social tokens answering the “Social token paradox”

What is a “social token”?

Some people talk about “Creator tokens” or “Community tokens” referring to the same thing. It can be a token referring to a particular individual/influencer, but it can be much more than that: Social token networks have the potential to represent the digital economy of us.

The Social Token Paradox

Gaby Goldberg defines the fundamental dilemma of social tokens:

10 key learnings in social token design

Here I summarize all the bullet points up front:

1. Align effective altruism with self-interest in economic set-up

Effective altruism is a philosophical and social movement that advocates “using evidence and reason to figure out how to benefit others as much as possible, and taking action on that basis”.

2. Work-in and Buy-in shall have a healthy balance

Extending from the first point, many tokenized communities are centered around what members have instead of what they do within the community. How to fine-tune the healthy relationship between these two raises two fundamental questions:

3. Social tokens can bring extra network productivity

Let’s take a step back and think about why would people purchase social tokens. Mario Gabriele addressed this question in his article Social Tokens: The Economy of You :

4. Reputation’s signal is stronger when it is non-transferable

Once the social token economy is not dependent on exclusivity (status) only, capital will no longer be the primary symbol of the network. Instead, how community members contribute value to the network becomes an important metric for network coordination. These actions represent reputation within the social network, and this can be a stronger drive than pure economic incentives.

Reputation’s value

We all know reputation is valuable, but how much does it worth? Here’s another interesting observation to help us understand the common contradiction in reputation social networks:

5. Maintain a healthy balance between inflation and user growth

Inflation for a social network can be healthy. New users entering the network have plenty of incentives to bootstrap at the beginning, but this can also negatively affect the interests of the existing users if inflation is less rewarding for the internal contributors to do their continuous work.

  • Demand from new users: Expansionary stage can create excessive demand for network tokens. It’s healthy to answer high demand with higher inflation, but protocols need to keep in check the dynamics between internal participation and reasonable token purchasing power (price) to not create debts of growth and blast.
  • Network participation from existing users: This is the domestic labor drive. When the token price is appreciated, it further incentivizes community members to provide work. Meanwhile, newly minted tokens (from the community’s value generation) reduce the upwards pressure on the token price, and a lower token price might decrease internal motivation to contribute to the network.

6. Facilitate long-term participation and new demand

The difficult parts of managing social tokens are their thin liquidity and fragile nature in the market movements. Projects often do liquidity mining to reward holders, but this cannot solve the lack of liquidity completely due to a lack of social demand and the right toolings facilitating them. Here is some thinking on how to grow a bigger pie:

Explore new demand

Social tokens have the potential to be integrated into the crypto economy at large. It might be utilized to pay services, rent assets, stake into different protocols to earn yields, or lock to increase our social signals further in our friend circles and propagate our beliefs. Builders can constantly explore facilitating the social token’s new utilities, and provide the tech and infrastructure supporting them.

Combine with Defi-toolings to expand the network capacity

Social tokens are rather fragmented. They are on different networks and hard to communicate with each other. We need better platforms to connect these micro-economies so that our communities can be part of a larger ecosystem. This can create value discovery and exchange across projects, forming a more multi-disciplinary market of social interests, and potentially we can all utilize this joined liquidity to patch the thin liquidity gap and grow the space as a whole. If we dive deeper here, the intersection of Defi and social tokens has the potential to unlock entirely new assets and mechanisms that do not exist yet. Even developing some proper governance mechanisms based on locking and staking for social governance, can already generate additional long-term incentives for social token holders if they wish to align with the network deeper.

NFTs can help to generate network revenue

NFTs are different kinds of animals representing our social identity, ownership, and reputation. They can also bring additional revenue for creators and pour their revenue inside social networks in the early bootstrapping stage. This can bring some extra rewards for token holders and expand the network’s scope and interactions in a beneficial way. From the user’s perspective, owning NFT brings them ownership and extra fun, trading them builds their broader social connectivity, and all of these are healthy dynamics for the network.

7. Aim at positive value accrual to escape Ponzi

Now we are already in the deep water of the social token economy. Things are properly set up, we gained our first users, tokens launched, and things are getting more exciting, or scary at the same time. How can we validate if we are doing the right things and continue to patch the gap for mass adoption?

Network value accrual helps to validate a social network’s lifespan

The simple answer, networks need to accrual value in time. This value here is a broader concept than revenue itself. Does the network bring value to people? Does the world become more colorful from the existence of these communities? Do people have better services with better ownership and aligned morals? Does the network have an internal free market in place to accommodate people’s nature of value exchange? Printing more tokens as the only way to present the economy’s growth is definitely not a sustainable way. Here are my thoughts on how to validate the network value accrual:

Value accrual validations:

  • A meaningful purpose
  • Positive externality
  • Internal value consumption
  • Be careful of the debt of growth

8. Build a diverse community early

Go to market in web 3 is go to communities. Having an authentic community is the best counterforce to the crypto’s volatile nature. Understanding the community’s strengths can nurture the social network with tremendous power.

Again, reputation can encourage positive engagement

Money is not the ultimate drive for social networks, reputation is. Instead of creating investors that only have the purpose to exit, having a reputation backing their activities can keep users stay in the network for a much longer term. The easy solution here is to make a user’s reputation score a multiplier of their final rewards when they have a positive impact on governance or community works, so even without monetizing it directly, it does have an impact on further incentivization for good deeds.

9. A social network shall be fun-first

Never forget that a social network is emotional, functional, and altruistic. Its strength lies in all the emotional values it brings to its users in their daily lives. In social networks, the network value relies on user-to-user instead of user-to-platform. And this emotional value shall be put ahead of any monetization goals as a higher mission. Because without a proper “Why”, the “How“ and “What” will inevitably be shaking in the wind.

10. The key logic shall be on-chain

It is understandable that in order to get the expected user experiences, the current social networks have to leverage the centralized backend or cache layers to get things going first. But what needs to be addressed is that such compromises might decrease the transparency and trust of the network, and might put a threat to the project’s business model. Thus, the network’s core functionality and economy logic shall be on-chain.

It’s a great time to be a creator in Web 3

Web 3 technology offers unprecedented creativity and flexibility for all sovereign individuals. For the first time in history, we have a promising future with fair ownership, openness, and composability. And we have merely taken the first steps of building social token networks.

What is t2?

t2 is a decentralized publisher and a social network around what we read. It is a world of narratives where your attention nurtures creators and subcultures and helps them grow. It restores the beneficial relationships between readers, authors, and communities and makes us more connected through what we love.

Author:

Mengyao Han, Founder @ t2.world

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