We're all gonna make it - crypto communities
This article took a while to write as I dove deep into the rabbit hole of crypto communities. It includes a few updated ideas on the value of NFTs first presented in this article.
Communities, from forums to Facebook, have been an important part in the evolution and growth of the Internet. While Web2 gave us social networks and the attention economy, what I think blockchain and cryptocurrencies bring that’s new to the table is “vested communities”, or communities that are collectively and financially vested in the success of the platform through co-ownership, sharing of rewards and alignment of incentives for economic success. Today, there are three main examples of such vested communities - Non-Fungible Token (NFT) communities, social token communities and Decentralised Autonomous Organisations (DAOs).
On one level, NFT art collecting is an evolution of fine art collecting based on digital art and a community of buyers who confer value to the artwork through consensus (collectively recognising its value), exactly because the fact/state/characteristic of ownership assigned to the actual owner can’t be copied, even though the artwork as a digital file can be downloaded, copied and used by a non-owner (like a Monet print vs the original)1. In this sense, the value of an NFT collection is intrinsically tied to its community. But on another level, ownership of an NFT also binds you to a community of other token holders, membership of which may grant implicit and explicit benefits such as access to a network of other members, “insider knowledge”, exclusive events, holder-only discord channels, or minting of secondary collections. This is another sense in which the value of an NFT collection is directly derived from its community - the project can be replicated, but the community can’t. Finally, in NFT collections like Loot Project, the community actively participates in creating secondary derivative value (new NFT collections like Loot Character NFT, which can only be created by Loot NFT owners), adding to the value of the underlying NFT.
Social tokens are fungible tokens that function like in-house currencies, issued by an individual creator or brand to a community of supporters. Like NFTs, they can grant community members access to content and benefits2, and ownership verified through a blockchain ensures their authenticity and tradability. Social tokens enable fans and supporters to invest in creators by buying their tokens, essentially funding (and in some cases providing an advance for) the work of a creator, while sharing in the financial rewards of the creator’s future success by receiving a cut of the creator’s income (if this is defined in the token’s smart contract) or through appreciation in token price as the creator becomes more popular and the perceived value of the access to benefits granted by the token increases. Because of this, the community of token holders have a strong incentive to help the creator succeed.
DAOs take the concept of community investment, ownership and management a step further through governance (i.e. decision-making) by the community of token holders with no central leadership, organised around a specific set of rules defined by smart contracts and enforced on a blockchain. Treasury funds (generated through sale of tokens to holders) are accessible only with approval of members and decisions (which influence how the DAO operates) are made via proposals that members vote on. Any token holder can put forward a proposal or innovative idea for the group to consider, and disputes are resolved through voting according to the smart contract rules. From an operational perspective, the DAO is the community. Interestingly, some NFT communities lean towards DAOs with participation and voting on projects, where one NFT represents one vote.3
At some level, DAOs, social tokens and the most successful NFT collections are very similar in principle, entailing community membership, community investment, and provision and distribution of utility, benefits and returns to community members, running along a spectrum of centralisation from social tokens (most centralised) to DAOs (least centralised).
If community is such an integral part of blockchain and crypto platforms/projects, what angles or pre-requisites related to community would I look out for in investible propositions in the space?4
Degree of alignment of financial incentives between platform and community,5 including the level of community investment, mechanisms for revenue/reward-sharing with the community, and the community’s ROI. When everyone has skin in the game, the community has shared responsibility over the outcome of the platform/project, creating a financial underpinning to the “sense of community”. This is directly achieved through members buying into the community through token ownership and benefiting from any appreciation in token price, and is extended by providing utility to the community (membership benefits above, as well as creation of more value beyond launch). But it becomes more interesting when tokens confer commercial rights to their owners (for derivative work from an NFT, revenue shares from the underlying asset/rights tied to an NFT, social token or DAO token, or share of returns from productive activities of the DAO), whereupon the community evolves into an ecosystem around a valuable piece of intellectual property or proposition with more upside, more ownership and more investment in collective success.6
Tools for community management, encompassing community acquisition, engagement, contribution and reward. What is the platform/project/creator doing on an ongoing basis to grow the community, keep community members invested and engaged, increase community engagement, and enable the community to contribute to the platform/project/creator’s success and “earn” their share of rewards (beyond token appreciation from being early investors)? What community hooks and levers (like ability, ease and propensity to create or contribute to secondary derivative value à la Loot Project) are built into the platform/project? Today, much of the work of community building happens on Discord and is manually operated (sometimes with the help of Discord bots). How much of this can be automated, built into a platform (like Roll and Rally, which help creators mint their own social tokens and manage their own independent digital economies) or built as a dedicated third-party tool for crypto community management (like Collab.Land)? In other words, I think platforms/projects and tools that are good at enabling, optimising and maximising community growth, engagement, investment and share in rewards make good propositions.
So what is the long game that emerges from this model of vested communities that collectively contribute to the success of a platform and also participate in the upside? Such community-powered crypto platforms can supercharge creator economies through community participation, changing the landscape from a small number of extremely successful creators to a large middle class powered and funded by community. Today, social networks might still be the brokers of community and the gatekeepers to users, consumers, fans and supporters, but for how long, as crypto platforms and their vested communities offer better alignment of incentives and a brighter economic future?
If you liked this article and are reading it on the web or received it from a friend, please consider subscribing to my regular newsletter (so you’ll get articles like this delivered fresh to your inbox) by clicking the subscribe button below.
You can reproduce it perfectly, but you can’t fake the assignment of one “original” image specified by the NFT. In this way, NFTs define scarcity as distinct from reproducibility, and the community recognises that (in addition to associated aesthetics) as valuable.
These can include entitlement to future earnings (e.g. cut of NFT sales or overall earnings from funded project, or cut of creator's overall future earnings up to a certain amount), decision-making power to influence the creator's decisions, and fan perks like belonging to a private community, early content drops, and meet & greets.
In some of these cases, fractionalising the NFT or issuing a separate fungible token could also make sense.
I believe these ideas are applicable to both blockchain/crypto platforms as well as projects like NFT collections.
Preferably beyond speculative motivations, although even a community with speculative motivations shilling an NFT collection is still a large group of people putting their money where their mouth is.
Within the first three months, Bored Ape Yacht Club owners used their apes for lines of craft beer, animated YouTube series, painted replicas, skateboard decks and a crowdfunded ape-themed novel. Anything that owners create with their apes grows the brand and scales it as a cultural product.