Why Alienate your Fanbase with Tokens?

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Introduction

👋 Welcome back to another edition of Sporting Crypto!

This 6-month period between April & October gives you a great sense of where the market is in Web3.

Both from the bleeding edge crypto-native perspective and from the more mature enterprise side. This is because we’re in crypto conference season and you can feel enthusiasm or lack thereof in the room.

I think we’re in for exciting announcements and interesting market moves between now and the end of 2024.

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Why Alienate your Fanbase with Tokens?

The Sporting Crypto Newsletter is supported by The HBAR Foundation.

I often have ideas to write about for the newsletter, but sometimes I am unsure how much of a fit they are for Sporting Crypto — but when I saw Iggy Azalea and Caitlyn Jenner launching memecoins, I thought what better time than this to discuss where we are in the crypto consumer lifecycle and where it goes from here.

How do you onboard a mass audience when tokenisation’s lowest-hanging fruit as a use case is inherently speculative?

Discussed in this edition of Sporting Crypto:

1. Tokenisation in consumer applications 💸a) Why are tokens magical?b) Why tokens aren’t always necessaryc) Dangerous Waters

2. Analysis & Concluding Thoughts 🧠a) The paths to mainstream

Tokenisation in consumer applications 💸

In the Web3 tech stack, tokens (non-fungible ones) have been incredibly important.

They are the bedrock of decentralisation, composability, borderless transactions and so much more.

They are magical.

Take Ethereum for example.

Ether ($ETH) is burned as ‘gas’ for transactions to pay validators who secure the network and ensure it’s sufficiently decentralised. Ether was also sold to fund the development of the network.

So in this instance, the token was necessary to:

1. Generate funds for the network

2. Decentralise the governance of the network

3. Create a sustainable sink (gas) for transactions on the network

This is one example, and there are plenty more where protocols have developed a native token for a network, platform or application.

But because crypto is permissionless, anyone can do anything, within reason. And because the technology is decentralised, there is no ‘right’ way of doing anything.

So when you see Iggy Azalea, Caitlyn Jenner and a bunch of former rappers and athletes start creating memecoins and dumping them on retail buyers — it’s not because people in crypto think this is ‘the future’ — it’s because you can do anything on permissionless technology. For better, or often, for worse.

In my opinion, and I’m not a lawyer, I think legally this will come back to bite many of these celebrities — as we saw during the NFT cycle of 2020/21.

History doesn’t always repeat, but it does often rhyme. NFTs are different to memecoins, but speculatively speaking — they rhyme.

Why tokens aren’t always necessary

On episode 2 of the Sporting Crypto Podcast, we were lucky to host Sillytuna as a guest, and he struck a chord with the ‘Party in the basement’ analogy:

Over the last 12 months, we have seen more cocktail parties that our parents think are safe, such as Bitcoin ETFs and increased Stablecoin usage, but the party in the basement (Tokenisation of everything, memecoins and scams) is still loud. Maybe louder than it has ever been.

Many have looked at the party in the basement and thought “How does that work with a huge consumer brand?”

Spoiler: it doesn’t. 

But let’s explore what I mean here.

Attaching a token to your proposition for the sake of it doesn’t make any sense. Especially if your proposition is consumer-facing, to a non-Web3 audience.

Can you name a brand or mainstream consumer project that has crossed that bridge successfully?There are incredibly few.STEPN and Axie Infinity have both shown huge scale but massive boom and bust cycles, where their token economies have been in flux. In Sports, Karate Combat is the best example but it is still super early in its lifecycle, even if the signs are positive so far. I've had conversations recently with products and communities that have big B2C audiences, who have been convinced by a VC, influencer or consultant that launching a token is the best way to scale, drive revenue and retention. This has been a trend — mostly driven by VC investors — that has forced many entrepreneurs, game creators and more to add a token to their offering.The reason behind this is liquidity. Tokens allow investors to sell in a much easier and faster way compared to equity. And I’m sure, that seeing the memecoin market explode — like the NFT market — many brands with audiences the size of Iggy Azalea are being seduced by the idea of launching a token (not necessarily a memecoin) making a lot of money and not having to do much work.

For consumer-facing audiences or fanbases, we have yet to see sustained success with anything that uses tokens to underpin their proposition.

I’m not talking about a memecoin with 20,000 crypto-native holders, I’m talking about propositions that have millions of users or a huge audience.

Let’s take Reddit for example.

There are 33 million + people that hold a Reddit Collectible Avatar and Reddit have issued 37 million+ Collectible Avatars on their platform.

The Web3 element was simple; making Reddit profile pictures digital collectibles that are tradeable and ownable. Simple.

Reddit also had a lesser-known, failed attempt in Web3, however.

Reddit’s crypto-powered ‘Community points’ rewards tokens.

This was launched in 2020, and sunset in late 2023.

It turns out, that community points that were tokenised and put on a blockchain, didn’t work as well. The tokens themselves were tradeable but also used to redeem for different perks on Reddit.

Unnecessary friction, a lack of adoption and regulatory uncertainty hindered the concept— but is the truth may be that tokens are just very difficult to mesh with large-scale consumer audiences.

Here’s a thought experiment. 

A game decides to launch a token, that they use as in-game currency — but also sell to investors as ‘equity’ at a lower price than it is expected to hit when it’s in the open market.

The game launches.

The token is listed on several third-party exchanges. It’s tradeable.

Investors are now able to sell their token allocations.

People who don’t play the game can buy and sell the token at will.

So what happens?

The token is volatile. People who are playing the game and earning the token are confused as to why it’s going up and down. Some of them have even bought the token with their hard-earned money, to buy in-game content.

The open market that is crypto playing out when you have a consumer audience on the other end of it creates so much friction.

Many have retorted that this is ‘crypto ethos’ and is exactly how it has to be.

And yet, every successful consumer-facing proposition that is to a non-crypto audience has never seen sustained success using a token.

Now, I admit — there is heavy Western bias in my analysis here because not everyone is fortunate globally to have a stable local currency. But I’m yet to be convinced that a token is necessary to execute scalable consumer-facing propositions.

🧠Analysis & Concluding Thoughts

The speculative side of crypto always explodes whenever there is a bull cycle in the market.

And with each cycle, more people and more capital are involved in this space.

This means the speculative side, the scams and the negativity are abundant.

On the other side of the coin — we have PayPal launching a stablecoin, real-world assets being tokenized and crypto ETFs. The duality of crypto is one of the beauties of it.

And consumer crypto needs its own ‘Stablecoin’ moment.

An idea, an application, a concept that just makes sense and everyone adopts it gradually.

Now, with consumer-facing applications, I think this is far more nuanced and there is less of a ‘one size fits all’ approach. But we need those moments to start happening over the next few years.

There are two paths here:

1. The crazy novel ideas that develop into ecosystem playbooks or inspire similar concepts: Karate Combat, Fantasy Top, LinksDAO, Axie Infinity

2. The sanitised but safe social layer that still has elements of speculation: Reddit Collectible Avatars, McLaren 23/23

The crazy novel ideas will have a low hit rate.

The sanitised but safe social layer, on the other hand, is controlled and is more likely to see consistent,

You can retract and expand elements that work and don’t.

You can experiment without a sense of permanence (tokens on chain).

You can ease your audience into touching some elements of Web3.

If crypto keeps building for crypto people, it will not achieve the potential revolutionary world it wants.

The Chicken and the Egg

This exchange on X (formerly Twitter) with Nigel recently stuck with me.

If there’s no speculative element, how much do you need crypto?

The chicken and the egg scenario may well be where we are right now — but I think we have already seen some examples (A la Reddit) where speculation can still be a small part of the proposition.

In an audience of 30 million, if 300,000 are financially motivated that is fine. That mix can make sense.

The cocktail party vs Party in the basement analogy that Sillytuna references makes total sense — but for consumer applications — perhaps the winning ones will find a way to create sanitised, safe propositions that also have that fun, speculative element to them but perhaps watered-down.

We’ve already seen with tokens in gaming, fan tokens and tokens attached to applications; they hardly ever work.

So here’s hoping people start working on stuff that does.

More Sports & Web3 Stories

• FIFA unveils pathway to World Cup tickets via NFTs (Read more here)

• Williams Racing & Kraken launch free-to-claim digital collectibles (Read more here)

• KuCoin Ventures and FantaGoal Partner to Build Football Ecosystem (Read more here)

• ICC extends partnership with FanCraze to launch a Web3 fantasy game (Read more here)

• Nike Dunk Genesis x RTFKT "Void" Officially Unveiled (Read more here)

• Ballerz, an NFT project, was acquired by its community (Read more here)

General ‘Stuff’ that Could Impact You

• Pudgy Penguins and Mythical Games Partner to Create AAA Mobile Video Game (Read more here)

• PayPal USD Stablecoin Now Available on Solana Blockchain (Read more here)

• Mastercard's crypto credentials P2P pilot program goes live (Read more here)

• 'The Sandbox' Launches DAO to Let Players Shape Its Future (Read more here)

• Potential US TikTok buyer plans to decentralize TikTok, could use Polkadot (Read more here)

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