Social Tokens and Creator-Centric Economies

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Earlier this month, the UCLA basketball player Jaylen Clark announced $JROCK, his own social token. Holders of $JROCK will get special access to tickets, content, and merchandise.

UCLA’s Jaylen Clark, the creator of $JROCK

Clark becomes the first college athlete to have a social token, capitalizing on the NCAA’s recent rules change that lets NCAA athletes monetize their name, image, and likeness. In launching $JROCK, Clark effectively creates a digital economy around himself. This is what makes social tokens so interesting: they remove intermediaries, letting artists, athletes, and other influential people interact directly with fans.

Let’s take a step back. Social tokens haven’t received the same attention as NFTs (non-fungible tokens), DeFi (decentralized finance), or DAOs (decentralized autonomous organizations), but they’re a critical part of crypto, Web3, and the digital economy. And given that social tokens involve people—often famous people—creating their own economies, social tokens will eventually be as buzzy, disruptive, and public-facing as NFTs.

NFT search interest dwarfts DeFi and DAO search interest, but social token lags far behind; Source: Google Trends

Social tokens are different from non-fungible tokens (NFTs) in that they’re fungible: every $JROCK token is interchangeable with every other $JROCK token. Fans can trade $JROCK in a liquid secondary market; tokens can appreciate or depreciate in value over time.

September 9th 2021

Last fall, I used the example of Taylor Swift in Creator IPOs to pose the question: why can’t you invest in your favorite artists? If I’d bought “shares” in Taylor back when I first became a fan—back in her pre-Fearless, full-on country days—I would’ve earned a meaningful return on my investment and been rewarded for 15 years of evangelism. In The Digital Renaissance last March, I touched on social tokens with the example of Billie Eilish. Why couldn’t I buy $BILLIE in the early days and watch the token’s value skyrocket as Billie picked up Grammy wins and broke streaming records?

To keep things fresh, I’ll use a new example: Lil Nas X. This summer, I wrote about how Lil Nas X embodies Gen Z—and after the release of his album MONTERO last week, he might be the hottest artist in the world. Over the weekend, Lil Nas X posted a TikTok that he filmed before he got famous. At the time, he had 900 Spotify listeners; now he has 50 million.

A TikTok Lil Nas X posted that he filmed before he got famous

Say Lil Nas X had launched $NAS back then, creating 1,000 tokens each worth $100. Early fans would have snapped them up, giving him $100,000 to invest in marketing “Old Town Road”. Each $NAS holder might get a 10-minute FaceTime with Lil Nas X, access to a private tokenholder-only Discord server, and backstage passes to shows. Maybe all 1,000 $NAS holders also share 20% of future streaming royalties.

When “Old Town Road” blew up, becoming the longest-running #1 hit in history, the value of one $NAS might swell to $1,000. Those who thought Lil Nas X would be a one-hit wonder may have sold then; bigger fans held on. Today, a token might be worth $10,000 or $100,000.

Illustrative economics for early holders of $NAS

Musicians are early adopters of tokens given the industry’s predatory economics. Some artists have innovated in new ways: the Grammy-winning artist RAC launched $RAC last fall, powered by Zora protocol. Fans can’t buy $RAC; they can only earn it. RAC distributed $RAC retroactively to fans based on their fandom—whether they’d been a Patreon supporter, whether they’d bought merch in the past, and so on.

The artist RAC launched $RAC last fall

This is a groundbreaking idea: tokenized fan communities reward the most devoted and earliest fans, rather than those with the most money. To my friends’ and colleagues’ chagrin, I’ll again use the example of Taylor Swift. For her Reputation tour, Swift pioneered a new model for concert tickets: only “verified” top fans could get a first pass at tickets, with the goal of ensuring ticket scalpers didn’t take advantage of hardcore fans. But the flaw was that the model was based on monetary markers of fandom: who had pre-ordered the album on vinyl, for instance. A token-based economy would avoid this. A fan in Swift’s top 1% of Spotify listeners—but with no income—could theoretically snag front-row seats.

Social tokens better express the breadth and depth of a community. In the future, instead of measuring a creator’s clout based on her Instagram following, we’ll point to her market cap. Kim Kardashian might launch the $KIM token with 10 million $KIM in circulation, each trading at $100. That gives Kim a market cap of $1 billion.

Token market caps will let us compare the relative size and depth of engagement of a creator’s community. Say Kim’s sister, Kylie Jenner, launches $KYLIE—also with 10 million tokens trading at $100 each. But say Kylie then launches Kylie Swim (her swimwear line released last week). Kylie’s expected future earnings and cultural influence both increase, driving $KYLIE up to $200 and giving Kylie a $2 billion market cap. She’s now trading at twice Kim’s market cap. In the future, we’ll buy, sell, and compare creator tokens as easily as we buy, sell, and compare stocks today. The experience might live in a Coinbase-like interface for trading social tokens.

It’s also important to clarify: you don’t have to be famous to have a social token.

In May 2020, a man named Kerman Kohli launched $KERMAN in what he called an “Initial $KERMAN Offering”. A former entrepreneur and venture capitalist, Kerman set out key terms for his offering:

In other words, Kerman would release 1.5 million tokens on the day of offering, each for two cents, raising $30K in total. In his blog post explaining the offering, Kerman gave his reasoning: “I believe that I can use this offering as a way to find and give back to those who will help me in my career over the next 10 years and beyond.”

And sure enough, tokenholders are rewarded with access and governance. Anyone who holds at least 15K $KERMAN (which would cost $300 at offering) gets access to an invite-only Telegram group and monthly meetings with Kerman. They can also vote on key questions like “Out of the following companies, which one should I work for?” or “Should I purchase this car or am I being too financially irresponsible?” The idea is that tokenholders have Kerman’s best interest at heart—they can be his de facto board of directors.

Holders of $KERMAN can also cash in:

There are tools that let anyone create a social token. $KERMAN, for instance, used Roll. Artists like Portugal. The Man have used Rally, “a platform for creators and their communities to build their own independent digital economies.” And there are aggregators for the economy: Seed Club is a DAO that invests in tokenized communities.

Kerman’s offering was fascinating—he pushed forward the boundaries of social tokens. But if we fast forward to 2030 or 2040, I don’t expect that everyone will have a token. Rather, high-profile people will launch tokens—people who today have a large presence on YouTube, TikTok, Twitter, and Instagram. You might participate in the digital economy of your favorite musician, actor, writer, athlete, or entrepreneur.

I also don’t expect most people to know what a social token is, what an NFT is, or what the blockchain is. The best companies will abstract away crypto complexities to bring Web3 concepts to mainstream users. Gaming—as is often the case—is a path toward mass adoption. The virtual goods market is already on track to reach $190 billion by 2025, with most of that volume residing in digital currencies—Minecoins in Minecraft, V-Bucks in Fortnite, and so on. Fortnite sold $50 million worth of NFL digital items alone in just two months—3.3 million skins, each sold for 1,500 V-Bucks (about $15).

Virtual goods are already mainstream. Bringing digital assets onto the blockchain simply unlocks scarcity, which unlocks incremental value. Blockchain games like Star Atlas and Axie Infinity are following the same mold as non-blockchain games and platforms, introducing native currencies like $ATLAS and $SLP to underpin vibrant economies. To participate in digital economies, people won’t need to understand what “fungible” or “on chain” mean—they will just need to understand that there are only X digital items in existence, or that a creator has Y social tokens in circulation.

The underlying concept of social tokens—buying “stock” in people you believe in and want to support—will make social tokens uniquely easy to grok.

One of my favorite passages to quote—and one I’ve quoted often in Digital Native—is a passage from Jeff Bezos’ 2011 letter to Amazon shareholders. Bezos was introducing three seemingly-unrelated Amazon initiatives—Amazon Web Services, Fulfillment by Amazon, and Kindle Direct Publishing—each built on the same premise: that technology renders gatekeepers obsolete. He wrote:

Even well-meaning gatekeepers slow innovation.

The promise of the internet was to remove gatekeepers. Facebook and Twitter would obfuscate the newspaper editors, Spotify and Soundcloud the record labels, YouTube and TikTok the studio chiefs. But by cutting out the middlemen, the big internet platforms became the middlemen.

While the internet has given the illusion of allowing creators to go direct to their communities, the platforms have just become the new gatekeepers. Misaligned incentives are baked into their DNA: the platforms are built for advertisers, not for creators and communities. Instagram, for instance, has a 100% take rate—in other words, Instagram has never bothered to build tools for its creators to make money.

This week, I was reading the weekly op-ed debate between Gail Collins and Bret Stephens in The New York Times. Reflecting on this moment in time, Stephens wrote:

We’re seeing a backlash to tech—a “techlash”—that largely stems from the business models of the last 20 years. Ads aren’t always bad; they can be an important part of a company’s or creator’s arsenal of monetization tools. But ad-centric business models are at the root of many of today’s problems.

Today, social tokens are nascent and speculative; there’s a lot to figure out. And they’re rapidly evolving: just this week, the founder of BitClout launched the blockchain network Decentralized Social to deliver on the promise of—well—decentralized social networks. But social tokens are fascinating because they combine investing, patronage, and gated access in unique ways—all in a cross-platform, unified architecture. The next era of the web is bringing a shift away from ads—away from attention as the product—towards digital commerce with native currencies for both individuals and communities. Social tokens will underpin this new digital economy.

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