Exploring the future of Web3 social networking (3): How to use token incentives to create a digital economic ecology?

By PAUL VERADITTAKIT

Compilation: Deep Tide TechFlow

This article is the third in a series on decentralized social by Pantera Partner PAUL.

This series explores how today’s technologies and trends are solving a range of problems in decentralized social networks, with specific explanations and explorations of each problem.

The first article in the previous issue: “Exploring the future of Web3 social interaction (1): From 0 to 1, using social graphs to complete the cold start of applications”

The second article in the past issue: “Exploring the future of Web3 social networking (2): Personal identification and cryptography technology to solve user identity problems”

In 2017, a group of MIT Media Lab researchers claimed in Wired magazine that decentralized social networks “will never succeed.” In their article, they list three impossible challenges:

1. The problem of attracting (and retaining) users from scratch
2. Issues of handling user personal information
3. User-Facing Advertising Issues

In all three cases, they argue, existing tech giants such as Facebook, Twitter and Google simply leave no room for any significant competition due to their extensive economies of scale.

Now, things that were once hailed as “impossible” no longer seem so out of reach, and we seem to be at the dawn of a conceptual shift in social media networks. In this three-part series (this is part three), we’ll explore how new ideas in decentralized social networking (DeSo) are solving these “old” problems, including:

1. Use open social layers to solve the cold start problem
2. Use personal identification and cryptography technology to solve user identity problems
3. Use the token economic model and incentive mechanism to solve the income problem

In this article, the author mainly discusses the third point, which is the way and examples of using the token economic model and incentive mechanism to solve the income problem.

Create a “killer app”

The ultimate question of whether Web3 social as a vertical will succeed is whether it will produce a new “killer app” that, like TikTok or Instagram before it, offers a truly novel social experience to engage users at scale. Without this “killer app”, all infrastructure developments such as decentralized social graphs and human identification protocols will lose a large part of their intended purpose.

However, the problem with these “new social experiences” is that they are almost unpredictable. Despite the mantra of “build a killer app” repeated over and over, no one knows exactly what form that app will take – after all, you’re essentially trying to predict where human behavior is headed. In this article, instead of trying to do the impossible, i.e. concretely predict what the next “killer app” in the social space will look like, I will try to explore two high-level strategies - by adding Web3 functionality to enhance existing social experiences and create a Web3-first social community, and describe some of the projects that are following these potential innovation paths.

Enhance existing social experiences through tokenization

The easiest way to build a Web3 “killer app” is to add some new functionality to an already existing mainstream social platform. The most common is to add “additional Web3 functionality” in the form of tokenization, such as the X-to-Earn project.

One of the most interesting projects along this path is Reddit’s Moons program, which launched in May 2020 to reward users for posting and curating content on the r/CryptoCurrency subforum. Reddit Moons are an ERC-20 token issued based on Arbitrum Nova, with issuance based on the “reputation” a user has gained on Reddit, which is calculated based on the likes and dislikes a user receives. Moons allows users to decide the future distribution and overall development direction of Moons in community votes.

Reddit Moons’ overall token economic strategy has also been appreciated by the community, with monthly issuance declining by 2.5%, bringing the token’s annual inflation rate closer to 1%. As a result, the “reputation-to-Moons ratio”, the number of Moons a user earns through “reputation”, is believed to steadily decrease over time, making Moons more scarce in the long run, hopefully increasing their value.

Reddit is a particularly interesting case,** integrating Web3 functionality (in this case Moons tokenization) into an already existing “killer app.” **Of all the major social media platforms, Reddit is arguably the most decentralized and community-driven, thanks to its unique “sub-forum” structure that allows these platform enclaves to have a large degree of autonomy and self-management , rather than forcing a traditional top-down approach to content management. Arguably, these design decisions make Reddit one of the most appropriate platforms to experiment with Web3 mechanisms. In fact, Moons is just one example of Reddit’s innovative Community Points program, which allows subforums to launch their own ERC-20 tokens and provides an Ethereum-based wallet called Reddit Vault to store these tokens. In addition to Moons, r/FortniteBR’s Brick tokens are another notable example of this scheme.

As of August 2023, Reddit Moons has gained some traction after being listed on several major centralized exchanges, including Kraken. However, despite the instant euphoria of these token “surges,” it remains unclear whether this simple “post and make money” mechanism will succeed in the long-term. Based on the above data and August 12th price data, Reddit “Maxers” earn about $4,200 in Moons,** while the median income is only about $0.90. **

It’s a sobering statistic that reveals a fundamental problem with the money". **Also, revenue tends to be skewed towards a small number of users, so the average user may not enjoy much of the “make money” part, even if they participate in “X” activity. Ultimately, users can become disillusioned with these meager earnings, and in cases like StepN, push projects down the road to collapse.

Therefore, for a simple “social make money” project, too much emphasis on “making money” may not be sustainable in the long run. Instead, a novel social experience must be created for the end user, one that the user is willing to pay for, not pay to get paid for. This is highlighted by the recent buzz around the friend.tech project on the Base network. Friends.tech is essentially a “stock market for X (formerly Twitter) profiles,” where users can buy and sell individual “stocks” of X (formerly Twitter) influencers. By owning an influencer’s “stock,” users promise increased access (such as through private chats and other exclusive perks), and users are free to trade those shares.

This novel social experience and the ability to monetize an individual’s transaction. However, there are some doubts about whether friends.tech can maintain this early momentum and truly pave the way by tokenizing influencer profiles, or if it will evolve into another “RUG” project. Coindesk specifically pointed to the project’s lack of documentation of an effective privacy policy and data collection practices, as well as a lack of a roadmap or white paper. Additionally, it’s unclear how the platform and the influencers within it will fulfill the promised “access” to “shareholders” to truly create a new form of social experience. Still, friends.tech is an impressive experiment in turning tokenization itself into a new form of social experience. **

Build the first social community in Web3

Rather than trying to add Web3 features like tokenization to an existing Web2 social platform geared toward a completely different revenue model, another approach to creating a “killer social app” in Web3 is to build it from the ground up, starting with a unique Launched within the crypto-native community and culture.

Phaver is a prime example of a “Web3 first” social community. Built on top of Lens’ social graph (and recently integrated with Cyberconnect’s social graph), Phaver has attracted the attention of the Web3-native community through its integration with other Web3 social identity technologies such as NFT communities and soul-bound tokens. It is a platform with a unique dual-token model, using a novel scoring system consisting of “reputation” and “points”, allowing users to earn rewards and privileges on the platform by leveling up.

“Cred” is basically a user’s credibility on the platform. Users can increase their credit by linking soul-bound tokens or NFTs to their accounts, as well as through daily interactions on the platform. Depending on the quality and engagement of their own posts, users will be rewarded with “points” that can eventually be redeemed for Phaver tokens. Importantly, the higher a user’s “credibility,” the more points they can earn for a post.

Because users must link soulbound tokens and certain NFT collectibles (such as Cryptopunks and Bored Apes) to earn “credibility,” this provides a useful way to differentiate users from bots on the platform. In fact, it’s almost like a kind of “proof of stake” for social identity. As a result, Phaver suggested that projects could use their “reputation system” to prevent airdrop bots and ensure the user is a human, not a bot — without requiring any retinal scans.

As can be seen from the above, Phaver creates a novel token economic system to create a Web3-first social community. But for Phaver, like many web3-first social apps, the main challenge is expanding beyond the native Web3 audience to users who don’t have any Web3 experience and don’t know what a Bored Ape or Soulbound code is. coins, while giving these users a clear reason to use the platform. Although Phaver claims it follows a “web2.5” model, allowing users to sign up without a Lens profile, Phaver’s “unique experience” relies heavily on Web3, which comes with an educational cost that could become Significant barriers to widespread adoption.

Another noteworthy project inspired by the Web3 community subculture is POAP, born out of the crypto space’s unique “conference culture” and annual global event series such as ETHGlobal. Basically, POAP is an NFT, or ERC-721 token, minted through a POAP smart contract that digitally represents a user attending an event or conference, and is stored on-chain in an immutable manner. Since 2021, POAP has issued more than 6 million such NFTs, working with internationally renowned brands such as Adidas, Vogue, Github, and the U.S. Open. Perhaps the most interesting part of POAP, however, is how it serves as a social primitive, as a way to initiate social networking and find others with similar interests and networks.

Additionally, events, conferences, and conventions are things that don’t require specific knowledge of Web3 to understand—it’s easy to imagine Comic-Con, World’s Fair, and the National Gallery of Art implementing POAP-like mechanisms for various communities and subcultures. However, the core question is how to maintain the usefulness of these POAPs, whether through loyalty programs that reward participants, transaction opportunities or exclusive events, ultimately enabling the launch of new social communities and thus creating a new form of digital social experience.

in conclusion

So how exactly do we create that “killer app”?

Ultimately, the long-term success of **Web3 social must lie in creating a new form of social experience, not copying some Web2 mechanism and calling it special just because it is “on-chain” and “tokenized”. **Instead, there needs to be a qualitatively new experience, specifically one with Web3 as its inspiration and cultural roots - whether it’s the NFT community, asset tokenization, or crypto conference culture.

What’s more, while tokenization and other Web3 mechanisms open up many new app designs, for a “killer app” to scale beyond crypto-native users, there must be an understandable Use cases** (such as event attendance) instead of being filled with Web3 terminology and concepts. Essentially, Web3 social must leverage the distribution and abstraction techniques of traditional social media (like TikTok or Instagram) to “go viral.”

Since social media is ultimately a way for users to express their personality and personal preferences, any successful Web3 social media needs to have an open design space, giving users enough “blank canvas” to create their own use cases. Often, the reason why a social application “pops” is completely different from its original goal. For example, it’s impossible for TikTok as a company to anticipate all the different fads and challenges that arise on the platform. The power of such a platform lies precisely in the open creativity platform it unleashes for such an application. Only when Web3 adopts this design decision, rather than focusing on financialization and on-chain imitation, can we truly start building a new “killer app” that extends Web3 social to become only “social.”