Metaverse Carnival 2021 Keynote Recap | Social Tokens: User-generated Capital for a Web3-first World
How social tokens are a new asset class? What kinds of Web3 primitives are useful for social tokens? Let’s hear Sid touch upon how social tokens fit in with some of the larger themes like NFTs, metaverse, and DAOs and continue to dive into the different types of value sources for social tokens.
We’ve captured the full learnings and video from Sid’s sharing below. Fairly high level with enough technical details that you don’t want to miss out!
Hey, everyone, this is Sid Kalla, the co-founder and CTO at Roll. Today I’m going to talk about social tokens as user-generated capital for a Web3 first World. Let’s rewind like 20 years towards the start of the online social world. Pretty much everything we know about the social world today, from sending tweets, posting images, sharing videos, all of these activities very broadly can be classified as user-generated content. In that world, the value that’s generated by individual creators or communities or groups pretty much mostly gets captured at the platform later. That’s why companies like Facebook are valued at close to a trillion dollars. Yet users obviously don’t nearly make as much. We’re now entering a world powered by blockchain technology. That’s pretty much like based on the ethos of Web3 that we ride on. This really allows creators not just to make content, but really to make their own capital. Crypto is leading the shift from user-generated content to user-generated capital.
We can now create capital around content, which is pretty much the world of NFTs that you might be familiar with, and you can create capital around community. That’s the world of social tokens. So crypto uniquely enables digital scarcity by owning social tokens in a community - you own a piece of that community in perpetuity. Social tokens are becoming pretty much increasingly necessary as we enter into new computing paradigms like the Metaverse, for example. We cannot make the same mistakes that we made with traditional Web2 platforms where the platforms have all the power and the community pretty much has none.
It’s pretty devastating if Facebook were to become the dominant metaverse platform. It’s just too much power with a single entity. Instead, what we really want, what we really need, is communities to easily be able to flow between different metaverse platforms really without losing their identity so that you’re not tied to the platform, the underlying platform itself. Social tokens allow communities to capture most of that value that they create and then move it across the web. Whether it’s traditional Web2 platforms up and upcoming Web2 platforms, Web3 platforms or even the newest metaverse platforms. How cool with that?
Let’s talk about some basic economics of social tokens. The first thing that we talk about is to ensure that there’s a supply cap again, like with the ethos of crypto enabling scarcity. This is in contrast to some doubts that have chosen to mint as many tokens as they deem necessary based on governance. But we believe this is a flawed model for the long-term success of a community because it’s not respecting basic property rights because a majority of the people in the DAO can vote to essentially make someone else’s stake worthless. That’s not a good guarantee for someone to be able to invest their time and money into something instead of having a fixed supply.
What we’re really ensuring is that you can own a piece of this community forever. As an example, all the social tokens that we issue at Roll have a maximum supply of 10 million units. So say we are minting like a dollar IOSG token on Roll for this amazing community that IOSG has curated over the years. What this means is that if you were to own, say, ten thousand of these IOSG tokens with a given cap of 10 million, that means you will own 0.1 percent of the supply and no one can take this away from you. Social tokens are also fungible tokens, which means that one IOSG token in our example, is the same as any other IOSG token. They’re also divisible up to 18 decimals, usually. So this means that they are a superior form of money inside the community. This is as opposed to some other primitives like nonfungible tokens(NFTs), which are unique per token and therefore become very hard to divide and then also transfer value between one to the other. Once a social token is established inside a community, it can very easily function as a medium of exchange pretty much as money inside a community, both for large and small transactions. So, for example, the original promise of the web was around microtransactions that never panned out, but that will be possible with social tokens inside of each community that adopted. The initial distribution of social tokens is also a pretty important primitive.
So you want to reward people who have already contributed to making your community valuable. After that, you want to incentivize behaviors that the entire community generally deems valuable. So in our example, that would be people who have already made IOSG successful up to this point, including the community that they are curating around themselves. The founders and many other investors, the teams, everyone. Going forward, the community can then decide who to reward. For example, let’s say a new project comes into the fold. You know, they can reserve certain tokens for that project. Or if someone were to put an event like this together for the broader community, that’s pretty valuable. They earn some IOSG tokens. We also found that vesting is a pretty key economic primitive for social token communities. This ensures that the creator is in it for the long run because most of the economic value that’s created is in the future and not the present. It really just like helps reduce short term thinking from community leaders, encourages building for the long term health of the community, just aligns incentives for the long term essentially. At Roll, the default duration right now is about one year, but we let the communities choose their own vesting period at launch. So again, like in the IOSG token, they can decide to invest for 1 year or 5 years or even like 10 years.
Once that’s set, that cannot be changed so that people know exactly the whole distribution and supply schedule over time. Once that initial distribution is figured out and you have some ways to get that into the community to earn social tokens, what really comes after a very fascinating thing is markets. This is really where the power of decentralized finance (DeFi) really shines. You can plug your social money into all of these DeFi protocols, like an automated market maker (AMM), something like Uniswap, for instance, to provide some initial liquidity. This creates a market that can then give your social token a dollar value in the traditional world, you would need a professional market maker, like Citadel or someone to be a market maker. But in the DeFi world, we can use these automated market makers where everyone can become a Citadel essentially. You’ll also earn a small trading fee that’s typically zero 0.3% while taking on some risk of impermanent loss. But this is also something of value you’re contributing to that community. To give you just a sense of what the markets really are like, just at Roll, we’ve issued about four hundred different social tokens, about 10 percent of them. So about 40 of them right now have an active market in this way. The total market cap of all of these is about 250 to 300 million dollars, depending on the market. Now this is just with 40 social tokens, right? So think of a world in which the scales to tens of thousands or even millions of different communities.
So it’s a very valuable primitive that people can use in the traditional social world. Things like “likes and retweets” are really the currency of these platforms. But in this new world that is enabling like liquidity is what matters. You can incentivize your community to start providing liquidity to your social token by rewarding them with additional social tokens for the people who provide liquidity. What this really enables is creating deeper liquidity pools. The market makes it easier for people to enter and exit the community by buying and selling the social tokens of that community. But at the end of the day, ultimately the price is, of course, determined by the market. Even if you set the price too high or too low, people are going to buy and sell and make decisions based on that. There’s more liquidity on the price will just converge to the market consensus quicker.
Another thing, we’re kind of hearing a lot about DAOs (decentralized autonomous organizations) and social tokens really are the most basic form of DAO that you can really form. Over time, you can progressively decentralize this DAO while you have the time to set the direction that the community should go in, especially in the early days, which is really important and also integrates very well with NFT communities that have capital assets in the form of a piece like art or gaming. So people with the social tokens get the voting to decide, for example, at what price to list or what kind of NFT to buy and so on. Once their social token has a dollar value, you can send a portion of that to the DAO under the community’s control. The community will then collectively decide where and how to deploy this value. Remember, now there’s a dollar value with the markets. In our example, an IOSG DAO can then decide to buy tokens in another DAO or swap tokens with another DAO. Or you could purchase some high-quality NFTs that the community believes in. We’ve even seen does in a social token does invest in equity in startups. So pretty much how the treasury is used is very specific to each community, but it’s a very wide-open canvas. The assets of the DAO hold are, of course, not limited to social tokens, it can hold ETH, NFTs or other tokens. What matters is that the community collectively governs this over time. The IOSG which was initially in control, can pretty much completely decentralize the system right by giving a majority of the IOSG tokens to the DAO, just letting the community thrive pretty much independent from that initial issuance that we saw. A big part of what really makes social tokens valuable is, of course, also the ability to use them on existing platforms, right? So that’s your Facebook and Twitter.
But also, like future platforms, we strongly believe that the next billion users in crypto are going to come through these existing communities that already exist on platforms today, right? The future generation of the platforms will natively integrate social tokens. So all this is to say that the infrastructure layer becomes extremely important. This is why a company like Roll, for example, is really building those APIs for Web2 platforms. If you’ve ever seen things like sign in with Twitter or sign in with Facebook in the future, you’ll see like sign in with Roll, you can connect your Roll wallet and all of a sudden that Web2 APPs pretty much can behave in these Web3 primitives that we just talked about.
In conclusion, social tokens really allow you to create capital around the community. It’s not tied to the underlying platform like Facebook. They can move from the physical space for the digital space to the metaverse, to any other future computing spaces, all while retaining their economic value. They can trade freely on the open market. They can plug it into DeFi primitives like automated market makers. They’re very interoperable with DAOs and NFTs and they can really move the capital from one platform to another very easily. Whether it’s a Web2 or Web3 platform, social tokens really are a new asset class that we believe will redefine the social web over the next decade. Thank you all very much.
❄️ About Us
IOSG Ventures, founded in 2017, is a community-friendly and research-driven early-stage venture firm. We focus on open finance, Web 3.0 and infrastructure for a decentralized economy. As a developer-friendly fund with long-term values, we launch the Kickstarter Program, which offers innovative and courageous developers capital and resources. Since we consistently cooperate with our partners and connect with communities, we work closely with our portfolio projects throughout their journey of entrepreneurship.