Social Money

#15: Look Up! Weekly

It was early 2018 when Bradley Miles first introduced me to the concept of Social Money (though the name was still a work-in-progress).

Social Money is a branded digital token that individual artists and creators can issue to their online communities. It allows creators to own, control, and coordinate the value that they create across media platforms. It’s kind of like a personal loyalty rewards program, but with added benefits (and risks) for both creators and consumers.

For example, Kanye West could launch his own social money called $YEEZY. Early owners of $YEEZY could exchange this money for meet & greets, early access to new Yeezy sneaker releases, and shoutouts on his next album

Bradley created Roll so that anyone could easily launch their own social money.  

Why Now?

I believe it’s an interesting time for the rise of social money because it sits at the intersection of four emerging trends:

1.       Decentralized Finance (DeFi)

2.       Decentralized Governance (DAOs)

3.       The Passion Economy

4.       The Financialization of Everything (Davey Day Trader Global)

Decentralized Finance (DeFi)

Since I first learned of social money, the crypto industry has gone through a challenging down cycle but has been slowly rebuilding. New networks continue to launch with tokens that both create and capture value for network users. These “work tokens” differ from most ICO tokens in that holders earn fees in exchange for providing a service to the network (ie: video transcoding on Livepeer).

These tokens offer a future stream of payments that can be valued using a standard discounted cash flow analysis. Sometimes payments are earned in the underlying network token, which creates a virtuous cycle that helps bootstrap the network growth.

These work tokens were the precursor to Decentralized Finance. DeFi enables borrowing, trading, and lending on public blockchains, and most DeFi networks utilize a work token model. Growth in DeFi has exploded over the last year with over $1.5B value now locked in DeFi protocols.

Decentralized Governance (DAOs)

Alongside DeFi, decentralized governance has emerged as another value-driving feature of crypto networks.

The creators of a network can program a set of rules into the network’s code and allow participants who hold the underlying network token to vote on important updates and changes to the governance code itself.

For example, holders of the native token $MKR in MakerDao are able to vote on new tokens that will be used as collateral to mint Maker’s stablecoin $DAI.

The Passion Economy

Outside of cryptoland there has been a surge in the number and quality of software tools available to individual creators that allow them to monetize digital products and services. I’m using one of them to publish this newsletter, and today the top-earning writer on Substack earns $500,000 per year from reader subscriptions!  

It feels like the golden age for independent content, as individuals have never had a greater ability to own and monetize an audience across platforms and the tools necessary to support these operations.

However, the Passion Economy has issues. First, platforms make constant updates that impact a creator’s earnings potential (ie: Instagram removing the “likes” metric). In addition, as social media platforms grapple with the complex challenges of censorship and free speech, there is real risk to creators of being de-platformed (ie: Zerohedge from Twitter). Finally, the moment your digital creation is posted to a platform, it is no longer your own. Creators have no digital property rights.

The problem for consumers in the Passion Economy is that there is no opportunity to own assets. Everything is still subscription-based. Given that readers and listeners act as marketing channel for creators, it makes sense for them to have some skin-in-the-game.

Social money is an asset that community members can be own that offers creators a direct, permissionless channel to transfer content, ideas, and most importantly value to the community.

The Financialization of Everything: Davey Day Trader Global

Over the last few months, market pundits have been baffled by the V-shaped recovery in US equity markets, which has seemingly been driven predominantly by retail investors like Barstool Sports’ CEO, Dave Portnoy (aka Davey Day Trader Global). This is why some have dubbed it the “Robinhood Rally”.

With sports out of commission and casinos closed, the stock market is the new gambling arena. Robinhood helped drive this trend (its user base has surged 50% since quarantine began). Because Robinhood has zero fees and an addicting easy-to-use interface, it makes trading stocks essentially like social gaming.

Last week, Nathaniel Whitmore put it best,

“There is a facade that we are a consumption-based economy. We’re not anymore. We’re an asset price economy.”

We’ve created an economy where finance eats everything and the Passion Economy is no exception. In an “asset price economy,” it makes sense for creators to own an asset (social money) tied to their production rather than leasing it to platforms.

Social Money’s Roll  

The biggest question I had when I first learned about Social Money is why is it any different than Patreon? After all, users on Patreon can earn all sorts of rewards and benefits for supporting creators.

As I’ve spent time considering the role that Social Money will play, I’ve realized how clearly it ties in with these emergent trends.

1.       Social Money will be integrated into the rising DeFi ecosystem – social currencies will be borrowed, burned, loaned, and pooled. You can’t do this with a Patreon subscription. Not to mention, early owners will benefit from financial incentive alignment with creators.

2.       Owners of a creator’s social money will participate in the governance of that community. This is like polls on Patreon except creators have the ability to experiment with different voting structures (ie: one token one vote, in which those with the most skin in the game have the most voting power).

Recently, Alex Masmej introduced a “control my life” feature for holders of his Social Money, $ALEX, to vote on his life decisions. In this first use case, holders of $ALEX voted on a new daily habit (running 5 miles per day).

If you’re excited about decentralized governance experiments, you should be excited about social money.

3.       Social Money represents the financialization of the Passion Economy and builds a bridge to the broader “gaming” industry. Imagine how fantasy sports and sports betting will evolve when fans actually own a piece of their favorite NBA player’s contract?

If you’re bullish on this megatrend take note: an exchange’s earnings are highly correlated to the number of assets that it offers – social money creates the largest possible universe of assets - more than 1 per individual.

Early Days

We’re still in the very early days and social money is still an experiment. But isn’t it often the case that the next big thing looks like a toy?

I’m excited to watch the industry unfold as creators continue to innovate with new models that increase the interaction & value of their communities.

I believe that Social Money may be the missing link that will enable DeFi to cross the chasm to mass adoption.

That said, I’d like to end with a word of caution: the biggest risk to Social Money is regulatory. Structured and marketed inappropriately and some offerings might look a lot like securities offerings. It’s important for individual creators who issue their own social money to adhere to strict regulatory guidance.

Let me know what you think of this post

Share

This Week’s Podcast:

Can We Humanize Media? with Panacea Media

Listen on iTunes

This week I sat down for a powerful conversation with Panacea Media - Dan O’Connor, Darryl Green, and Loretta Blackledge. Panacea shares stories of forgiveness

Both Darryl and Loretta had a loved one taken from them through murder.

Both chose forgiveness over hate.

They chose to turn a horrible loss into a catalyst for positive change, and now guide other suffering people towards grace. I was humbled by their stories.

We discussed forgiveness in the context of the current moment: George Floyd & Black Lives Matter. There’s a lot of nuance in the full conversation, so I hope you’ll listen. For example, Darryl who spends his life teaching forgiveness, did not feel comfortable sharing this message with protestors yet. He believes we first need to space for anger, grief, and pain.

If you’ve been reading, you know that I believe our current media environment is fundamentally broken. It highlights the worst in humanity by hacking our fear, hate and anger in order to monetize our attention.

As Darryl says, we can do better.


What I’m Reading

STARTUPS

The Most Famous Loop, Alex Danco

Indie.vc: Unicorns Are Out, Profits Are In, Jennifer Alsever

BIG TECH

Northface Pulls Ads from Facebook

iAddiction, Scott Galloway

MARKETS

The Zero Lower Bound of Interest Rates: How Should the Fed Respond, Ben Bernanke

China’s Recovery Continues but Wary Consumers Show Vulnerability, Bloomberg

CRYPTO

State of Stablecoins, Joel John

How Does DeFi Cross the Chasm?, Jesse Walden

MEDIA

Joe Rogan is the New Mainstream Media, Bari Weiss for the NYTimes

The Next Media Opportunity, Jarrod Dicker

RACE

Reflections from a Token Black Friend, Ramesh A. Nagarajah

A Regional Approach to School Diversity, The William & Mary Educational Review

FUN

Demo of Burning Man in the Metaverse, Password: Burn


Thank you for reading this edition of the Look Up! Weekly.

As always, feel free to reach out with feedback, guest recommendations, and ideas for future posts and episodes.

If you haven’t signed up yet and would like to receive Look Up! Weekly directly to your inbox, you can subscribe or follow me on Twitter.

Twitter