Social Tokens: Promoting Community Benefits & Fair Monetization

Social tokens are building decentralized online communities where everyone benefits without a middleman. This article discusses the basics of social tokens and provides relevant examples to illustrate the concept.

What Are Social Tokens?

Social tokens are digital tokens on a blockchain that allow creators to monetize experiences and services. The token can increase in value, and it can be resold by the token holder.

Social tokens are just like any other cryptocurrency. However, these tokens are created explicitly to empower a community and enable its community members to build a solid social bond around a specific individual or brand.

Anyone can create a social token. Whether you're an individual or a business, you can join the social token space and launch a social token to enrich the experience of your followers and clients. As more people use the token, its value will rise proportionally to the contribution of social token holders.

Benefits of Social Tokens

Unlike crypto tokens, social tokens mainly derive their value from the reputation of the content creator, and from the exclusive benefits that token holders receive in the form of engagements and experiences.

For instance, upcoming artists can launch a social token to offer a highly personalized experience to their followers. When the followers buy the token, they contribute to funding the artist, and receive exclusive benefits such as early access to music albums, the opportunity to engage in live Q&A sessions, invitations to special events, and private meetings. As the value of the token rises, both the artist and the follower benefit.

From a business perspective, social tokens can prove a goldmine. For startups, they're an ideal source of funding and improving fan engagement. For well-established businesses like Coca-Cola® and Apple, it's a perfect opportunity to enhance brand value by giving token holders early access to privileged content and new products. Since the amount of tokens is limited, rising demand increases their value.

People often think that brands can achieve similar results through a subscription service. While this is true to a certain extent, social tokens hold monetary value, which can increase substantially with time. In addition, users can exchange them among themselves or give them to others. This tangible nature makes them different from typical online membership schemes.

How Do Social Tokens Work?

Social tokens are created by platforms that build them on top of blockchains such as Ethereum.

Following a model similar to that of crypto, social tokens are often traded on platforms like Rally. Since they hold value, you can buy and sell them as easily as any other digital asset. Some well-known social cryptos are Global Coin Research (GCR), Whale (WHALE) and Julien Bouteloup (JULIEN).

The popularity of social tokens stems partly from the need to cut out the middleman. In a typical Web 2.0 environment, social platforms such as YouTube, TikTok and Facebook take the lion's share of fees from creators and brands, which can reduce the potential income generated by the content creator. Similarly, social platforms also control brand followers without giving them any tangible benefit.

Social Tokens: Who Benefits?

In contrast, social tokens use the blockchain to access a decentralized environment, in which content creators can easily market their products without the cost and regulatory constraints imposed by social platforms. In this setup, the popularity of a content creator can increase in direct proportion to the value of its social tokens.

Organizations and brands aren’t the only entity to benefit from social tokens. In fact, these creator coins are tailor-made for individuals and influencers. Just like the brands themselves, individuals can create and sell social tokens for funding, and to improve their reputation through market capitalization. A social token is to an individual what stocks are to a brand.

Social tokens are proof that the internet has moved from Web 1.0 to Web 3.0. In Web 1.0, the “information economy,” search engines such as Yahoo and Google enabled people to retrieve useful information. The trend gave way to Web 2.0, the “platform economy,” where Facebook and YouTube allow users to create content. Now, with Web 3.0 — the “token economy” — users can retrieve information, create content and contribute to the success of a platform. This brings creators and consumers together, paving the way for a more decentralized “creator economy."

Types of Social Tokens

There are two main types of social tokens: Personal tokens and community tokens. Since content creators are continuously finding new ways to use such tokens, you may also come across new terms, such as “participation tokens” and “social platform tokens.” These categories are sometimes described as distinct types of social tokens that don't fall into either of the two main types listed at the beginning of this paragraph.

To help explain, here’s an overview of each one.

Personal Tokens

Also called “creator tokens,” personal tokens are established by individuals to monetize themselves, and to provide privileged services to their followers. Anyone — celebrities, artists, athletes, and members of the general public — can create personal tokens to help boost their careers or notoriety.

Before the introduction of blockchain and the creator economy, music legend David Bowie used asset-backed securities, Bowie bonds, to enhance his music career. Holders of the Bowie Bond were promised a return of 7.9% per annum for ten years on the royalty earned for the streaming of David Bowie’s music.

Nowadays, prominent artists are offering similar incentives through the launch of their social tokens on the blockchain. In 2020, the Grammy Award-winning artist, André Allen Anjos (better known as DJ RAC) introduced RAC, the social token of the racOS platform. The holders of the token can enjoy various perks, such as exclusive music playlists, token airdrops, and access to the artist.

Alex Masmej, a French entrepreneur, tokenized himself by selling ALEX to his crypto enthusiasts. This helped him raise the needed capital to form his own social platform in the U.S. Besides other incentives, token holders will receive a share of Masmej’s future income for the next three years.

Community Tokens

Community tokens, or community coins, are created by organizations or by a group of people to market their respective brands to followers. Similar to members of a club, token holders can get exclusive benefits reserved for that particular community. These benefits are somewhat identical to benefits offered by personal tokens, but they may also give you governance rights and a share of the company's revenue.

Community tokens are launched mainly by a decentralized autonomous organization, or DAO. Unlike the creators of personal tokens, the organization overseeing a community token already has a large following, which makes it easier to market it.

For instance, when CoinDesk launched its DESK token in 2022, it marketed it during its much-awaited annual Consensus festival, which is attended by thousands of members. To show its gratitude, CoinDesk rewarded attendees at Consensus 2022 with DESK tokens. The attendees could also use these tokens to buy items at the event.

WHALE is another example of a community token. It derives its value from rare and valuable NFTs in an art collection known as the WHALE Vault. Since the project’s initiation in 2019, the value of the stored NFTs has increased from $500,000 to more than $70 million. WHALE token holders have directly benefited from the enhanced value. Besides access to exclusive Discord channels, events and giveaways, members can also rent and purchase NFTs from the Vault.

Participation Tokens

Participation tokens are sometimes described as a subcategory of community tokens. Users can earn these tokens by participating in the development of a project. For instance, the KAI token from TAIKAI is an example of community engagement. Universities and organizations can use these tokens to reward contributors who wish to participate in creating different types of projects.

TAIKAI also encourages students, freelancers and startups to create projects and contribute to proposals. The best proposal receives KAI tokens and prizes. Backers and experts who contribute to the project also get KAI tokens.

Friends with Benefits is another similar initiative. The FWB token brings together artists, creators, thinkers and Web 3.0 enthusiasts to collaborate on a variety of projects. Successful teams receive hefty rewards for their contributions. Token holders are also rewarded for creating a summarized version of the content that other members can pay to unlock.

Social Platform Tokens

Social platforms tokens are distributed by platforms that support their creation and trading. Examples of social platform tokens include Rally, TryRoll and BITCLOUD.

Rally is a popular social token platform that enables individuals, celebrities and organizations to create their own social tokens and NFTs. Since its launch, RALLY has gained tremendous momentum, manifested in its market capitalization of over $8 million in just a couple of years. Since Rally is a sidechain of the Ethereum network, the only drawback of the token is that it can only exist on the Rally network.

In contrast, TryRoll offers users the chance to create an ERC-20 token that they can share with others on different platforms. It also offers custodial Ethereum wallets that are capable of sending social tokens to any address that supports ERC-20 tokens. However, TryRoll is not the easiest platform to use, and it has a high network fee.

Pros of Social Tokens

Social tokens are fueling the creator economy, in which the two major stakeholders — the content creator and the token holder — collaborate to enhance a brand’s value.

The following is a brief list of the many benefits these stakeholders enjoy:

Fair Monetization

Traditionally, social influencers have used sponsored posts, advertising and subscription models to attract new followers. In this setup, the social platform has often received a big chunk of revenue, depriving content creators of reasonable profit. However, social tokens have changed this dynamic by letting content creators earn direct revenue and share benefits among their followers.

Community Engagement

Social tokens have given fans new ways to interact with content creators, helping them become a part of the creator's journey. In return, the community receives a more personalized experience that strengthens the bond between the two. For instance, fans of Lil Yachty received handmade boxes and gift packages from the rapper's mother after the launch of his YACHTY token.

Pledge of Loyalty

By purchasing creator coins, fans are, in effect, pledging their support to the project. Unlike stocks and bonds, the value associated with each token is enforced by smart contracts. This means that there’s minimal conflict, because everything — from exercising users’ rights, to the extent of enforcement and how those rights are exercised — is written in the smart contract. This configuration ensures that there’s no need for third parties and negotiators to settle disputes.

Security

Social tokens are secured by blockchain technology, in which data is structured into blocks, each of which contains a bundle of transactions. Every new block is connected to all preceding and subsequent blocks in a way that makes it practically impossible to tamper with the data. Therefore, it's nearly impossible to hack into a blockchain. It's only when such creator coins are moved into a wallet that they become truly vulnerable. Even so, well-known digital wallets adopt extremely strict security mechanisms that make social tokens one of the safest digital assets you can own.

Cons of Social Tokens

Before investing in a social token, it's sensible to consider the following drawbacks.

A Risky Investment

Social tokens are a financial instrument, which means that there’s risk involved in holding them for investment purposes. While their values can increase substantially, remember that not every token has a value behind its project. This is particularly true for social tokens, which don't have the backing of large venture capital firms that only invest in viable opportunities. If the creator of a social token decides to back off from the project, there’s no way for you to recoup your investment.

Regulation

There is no global regulation in place to scrutinize social tokens. Hence, content creators may have to deal with several legal gray areas, which can include liability issues and false advertising concerns. From a consumer perspective, the law is still ambiguous about the extent to which consumer law will protect the purchasers. It's also the reason why borrowers of social tokens see a large list of disclaimers that may favor the token issuer in case of a legal battle.

Social Tokens vs NFTs

Social tokens aren’t NFTs, or non-fungible tokens. NFTs are unique, which means that they have distinctive features that make them different from other units. On the contrary, social tokens are fungible, since each unit of the social token has a similar value.

For ease of understanding, you can compare an NFT with a work of art. Every painting is different. This is why every artwork — or NFT — differs in value. Social tokens, however, are just like any other cryptocurrency. You can compare them to Bitcoin, because the value of each BTC is similar to that of another BTC.

The two terms are often confusing, because several content creators monetize both NFTs and social tokens. For instance, an artist can use NFTs to monetize personal artwork, while also releasing a social token that gives the holder access to personal Q&A sessions or art lessons.

Examples of Successful Social Tokens

It's said that the first social tokens were launched somewhere in 2020. WHALE is often called the first social token, launched by a private collector of NFTs, WhaleShark. Similarly, some credit Spencer Dinwiddie, the Brooklyn Nets point guard, who tokenized his NBA contract for $34 million back in 2019.

Irrespective of the debate, both of these early projects have found traction, which is a testament to the success of social tokens. Here’s a look at some other successful projects, in order to visualize the impact of social tokens on our lives.

ALEX

As mentioned earlier, ALEX is a social token created by an aspiring entrepreneur, Alex Masmej, to finance his crypto-related projects. Before COVID-19, Masmej had founded the first successful crypto art–backed loan instrument, but couldn't gain the required momentum due to financial debacles he subsequently faced during COVID.

In a bid to work on a more sustainable project, he created the ALEX tooken and sold it to his followers in exchange for some of his future income for the next three years. The sale helped Masmej raise $20,000 in a mere 100 hours. During the crypto frenzy, the market value of ALEX exceeded $2 million, which reflects the utility of crafting such personal tokens.

RAC

The objective of the RAC token created by musician André Allen Anjos was to reward loyal fans by giving them access to various perks and exclusive content. Accordingly, 25,000 RAC were distributed to loyal fans, who had supported DJ RAC since his early days back in 2009.

Existing supporters of DJ RAC on Patreon, holders of RAC merc and DJ RAC’s Twitch supporters also received a fair share of these tokens. In the future, subscribers to RAC can also benefit from the variety of perks reserved for its online communities. Since its launch, RAC has evolved into one of the most successful personal tokens to date.

JROCK

Jaylen Clark, the UCLA basketball player, is the first college athlete to take advantage of the social token. By creating the JROCK token, Clark’s followers can interact directly with the player and help him sustain his career. Token holders can get early access to exclusive merchandise, ticket raffles, behind-the-scenes footage and workout videos. Since JROCK is traded on the secondary market, token holders can also benefit from an increase in its value.

GCR

GCR is the native token of research and investment firm Global Coin Research. The community uses the token to fund various investment initiatives. In turn, members have access to private seminars, where they can interact with NFT artists and invest in upcoming projects. The organization also arranges weekly hangouts for learners and investors. Since the launch, GCR has gained more than 30,000 members, who have contributed over $31 million to the project.

WHALE

Launched in 2020, WHALE was created by a pseudonymous NFT collector known as WhaleShark. The value of the token is derived from WhaleShark’s personal NFT collection. As one of the most successful social tokens, it strikes a fine balance between wealth preservation and growth speculation. As of 2022, the collection is valued at $73 million, a phenomenal contrast to its original $500,000 market value.

STEEM

STEEM is the native currency of the social platform, Steem. The project's goal is to let users earn by contributing to the development of the platform. Anyone can become a stakeholder by creating content and earning rewards in the form of STEEM.

According to the official website, the organization has distributed nearly $59 million in rewards to its contributors. Remarkably, the Steem platform processes more transactions than the Ethereum and Bitcoin blockchains combined.

The Future of Social Tokens

Creating a social token is akin to building your own online community. It’s unlike anything you’ve experienced, because it allows both the content creator and token holders to work together in creating brand value. Instead of using social media to engage followers, content creators are more likely to use a social token to let everyone benefit from community engagement and potential price increases.

Moreover, social tokens aren’t going anywhere — because they have plenty of value and utility to them. Take WHALE, for example. The market value of the token has actually increased more than the underlying NFTs upon which the token is built. Similarly, Rally has already become the leading global platform for anyone to create social tokens with ease.

Closing Thoughts

There’s no doubt that we're quickly moving away from Web 2.0 to Web 3.0. Existing Web 2.0 social platforms actively control their members — without benefiting either influencers or users. It's just a matter of time before the Web 3.0 "token economy" takes over from social platforms.