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The Rise of User-Generated Capital: Bridging the Creator Economy and Decentralized Finance

Messari

Jan 29, 2021 ⋅  16 min read

This article is a guest post from the Messari community. Bradley is the Co-Founder and CEO of Roll, a financial operating system for the creator economy, built on Ethereum.

Overview

In this post, I’ll introduce the emerging phenomenon of “User-Generated Capital”. This pertains to communities, creators, and other individuals utilizing blockchains to create their own digital assets, digital money, or other stores of value that are both specific to their community and can be owned and utilized independent of platforms.

I’ll go over why this is happening right now, the purpose of user-generated capital, give some thoughts on where the category is heading in the medium-term, and share some insights on what we’re learning at Roll by creating and supporting over 300 communities that are spearheading the concept.

First, a quick overview of how we arrived at this point in time.

History of User-Generated Content

Over the past 20 years of user-generated content – or more broadly, consumer social – we’ve seen the economics of the web increasingly bend towards creators.

The social tools of the 2000s unearthed concepts like messaging (posts, blogs) and community formation (Myspace’s top5, Reddit’s subreddits), followed by tools for broadcasting these messages to wider audiences (tweeting on Twitter, reblogging on Tumblr) later in the decade.

Self-expression then exploded in the 2010s with online video. Platforms like Snapchat, TikTok, and the rise of Youtube and Twitch expanded the creator economy to hundreds of millions of users.

With the birth of a new online maker culture, content creators began to crave the monetization of these communities. In the mid-to-late 2010s platforms like Patreon, OnlyFans, and Substack began to explicitly address this by allowing users to directly pay their favorite creators for certain “rewards” (typically access, goods, services, and experiences). With features like “Subscribe” on Twitch and “Join” on YouTube, creator monetization at scale was born. Li Jin and others have done a great job of covering creator monetization in depth over the past few years.

The Problem: The Hamster Wheel

However, there’s always more to the story. Likes, follows, and subscribes have become the “currency” of these platforms, which largely determine the payout and even visibility of its creators. Moreover, the ability for your content to even be seen (and monetized) is largely determined by a platform’s algorithms, which change constantly. For creators, the hamster wheel of content can accelerate at any time and will never be owned by the creators themselves.

“For those who have not yet met the new [monetization] threshold, keep creating and building your audience” - Susan Wojcicki, CEO of YouTube.

If platforms can shift how monetization occurs on their network, they will almost always do so for any reason they see fit and any time they please.

Time and again we’ve seen platforms scale and end up in competition with their users, dismantling away some of the core features that attracted creators in the first place.

As platform saturation occurs, sustainable monetization is now, almost exclusively reserved for the most elite creators on the network, or in other words, the most elite hamsters on the platform’s wheel. Stop to consider the Hamster.

So what can we do? Is there another model creators can use to further benefit from community building on the internet? Answering these questions requires an even more macro view of what is actually happening.

User-Generated Content to Capital

“It is now apparent to us that the future of capital is user-generated.”

The “media” in social media refers to the collective means of mass communication we use to interact on the internet. Over the past 20 years, the media of the above platforms, as well as their concepts and motivations can be summarized under the category of user-generated content.

We’ve gone over how and why the tools or “currency” (likes, follows, and subscribes) utilized on user-generated content platforms were never designed to be owned by creators. As a logical extension of the current creator economy, instead of producing content for a platform that can wantonly adjust how creators are monetized, if they want to truly own their own capital, they will need to create it themselves. It is now apparent to us that the future of capital is user-generated.

Opportunities for User-Generated Capital in the Creator Economy

Blockchain and decentralization allow this type of capital ownership and creation to happen by design, not only among digital creators, but among members of their community as well, all from day one. Web3 is so singular to this vision of capital ownership, that we will likely look back on this period of time as a paradigm shift in the creator economy, from monetizing user-generated content to the next phase: creating user-generated capital.

We can now begin to see user-generated capital as part of the creator economy and dive deep into its ownership design. Two categories begin to emerge: NFTs and social money.

NFTs or non-fungible tokens (ERC-721 tokens for the initiated) have a years-long history as user-generated capital starting in 2017 with CryptoKitties, a digital breeding game that allows its users to own the assets (digital cats) they produce, independent of platforms.

These digital cats become user-generated capital when they can be integrated into other applications outside of the CryptoKitties platform (aptly named the Kittyverse).

Other versions of user-generated capital in the NFT space can include Axies from the Axie Infinity and Moments from NBA Top Shot. Axies are creatures that can be collected, bred, owned by their users, and integrated into an expanding universe of games. Flow’s NBA Top Shot enables its users to own plays or “Moments” from NBA games to showcase and soon play competitively against other users. Crypto-art has also emerged as an ownable asset that can be displayed and utilized across platforms.

There’s another emerging category in the user-generated capital space that has the potential to be just as, if not more ubiquitous than NFTs. Whereas NFTs are collectible and provably unique assets that can be owned, we are starting to see the rise of creators, communities, and artists minting their own digital money (ERC20 tokens) that is branded and specific to their audience. We are beginning to call this social money and see boundless potential in the category.

New User-Generated Capital

Watch the video The Rise of Social Money, produced by Singularity University

“We’ve identified social money as a form of user-generated capital that can be owned and branded specifically towards a creator or community.”

In its short history, social money has begun to integrate with Web3 tooling, the rest of the internet (Web2), traditional financial markets, and decentralized exchanges.

Early examples of prominent social money on the internet include $KARMA from Andrew Lee (I’ve written about $KARMA and its significance in The Defiant last year), $WHALE, created by NFT curator and collector Whaleshark, $CHERRY from OnlyFans creator Cherry, and $HUE from content creator and musician Connie Digital. I’ll spotlight these further in this post.

Categorically, social money excludes virtual platform currency like Twitch Points but includes blockchain-based digital assets like $GCASH from video game steamer CyberGrinder. Twitch Points will likely never be accepted on Caffeine or Mixer, but wherever CyberGrinder decides to stream, $GCASH will follow.

As we’ve seen social media become the technology that enables the mass production of user-generated content across the internet for the past few decades, there are strong signals that social money will be the technology that enables the proliferation of user-generated capital across the internet for the next few decades.

We’ve arrived at the more consumer-driven term social money as we feel its ultimate purpose is to serve as a unit of value and medium of exchange for the collective capital, or social capital, of a given community (e.g. 5 $SKULL for a work of art or 100 $SKULL to join Skeenee’s community). Moreover, we believe features built around these money-like functions within a community will continue to drive the overall market for user-generated capital, which are becoming substantial.

Others have referred to this tool as a personal, or social “token”. While this is common and acceptable language for a native Web3 audience, installing and deploying user-generated capital across the traditional web will likely require simpler terms that are already familiar to mass audiences.

Own Your Own Social Capital

We see social money as a type of user-generated capital because it easily allows the dollar value of a community to be owned by the creator and their audience; quite simply, it’s a way to own your own social capital (and that of others) across the web.

From here, social money stakeholders can be subscribers, followers on social media, platforms themselves, brands, literally anyone the creator sees fit to be a co-owner of the community. Without this tool, it’s not possible to own a piece of someone else’s Youtube, Patreon, or OnlyFans. You’d need social money to create this new relation of capital ownership within a community.

Markets for Social Money

Growth of Social Money Markets on Roll.

We are no longer speaking in the abstract. In the last six months of 2020, we’ve seen over $300MM in market value get created from over 300 different creator communities on Roll. Creators have also made Roll the #1 social app on Ethereum by trading volume. We measure the value of user-generated capital on Roll through social money. You can see the live markets page for all Roll creators specifically here on our site.

Social media is shared. Social money is sent, spent, and traded back and forth everyday between members of a community, and potentially speculators that think a creator’s community may be making the next big thing. We are at the very beginning of a new type of capital that can be shared and owned across the internet.

Social Money Growth

The benefits for creating social money are pretty clear. I’ll lay out three core benefits on the creator side below:

I. A platform-independent community. Creators can form communities that literally exist independent of platforms. Imagine a creator being able to port the value of their subscription community seamlessly across any network of their choice. Creators can use tools like social money to untether their communities from platforms at any time. This is a unique value proposition specific to the concept of user-generated capital.

II. Rewarding early supporters. Do we ever really get anything back for liking, following, and subscribing? Creators now have market-based mechanisms to curate and reward community members who were early supporters. Once a market is formed, early members (folks that hold your social money) now become stakeholders and are rewarded for their participation through the potential growth of the creator’s social money.

III. Capital Formation. User-generated capital is capital. The ability for anyone, at any time, to create their own capital through a globally recognized database is likely unprecedented in the history of modern money.

When Jawed, co-founder of Youtube, created its first ever video in 2005, it would have been difficult to predict the explosion of user-generated content that would happen after. Expect something similar with user-generated capital.

Capital as a Form of Expression

The benefits of any other stakeholder for holding social money are less direct, but here’s what we’ve learned a little more than 300 creators into the concept:

I. Sense of belonging. Have you ever seen the same person retweeting, upvoting or commenting within a community? The reason here may very well be the sense of belonging they feel within a community. We’ve learned that there’s also a deep sense of connection that can be expressed by holding the social money of a digital community.

If I speak the “language” (gifs/memes) of a community and exhibit its “culture” (user behavior), why wouldn’t I have a position in the economics of a digital community as well? We’re seeing the same people who have status in user-generated content, translate that status by accumulating user-generated capital (social money and NFTs). The main difference here is capital now becomes a form of expression with a community.

II. Stake in a community. One of the great innovations that is uniquely possible through social money is the ability for anyone, anywhere to have a stake in a digital community. As the dollar value of social money grows in a community, the early stakeholders that often make a community what it is, can finally experience an economic upside.

Imagine being one of Mr. Beast’s first ten followers in 2012 and receiving 10,000 $BEAST, then watching the community (and the market) grow towards his current subscriber base of 45 million people. Becoming a stakeholder, as opposed to a user, creates new levels of loyalty in a digital community

III. Speculation. The stake you have in a social money community has a dollar value. That dollar value is not being captured today. If an individual acquired a certain amount of social money in a community and wanted to trade it for another digital asset, they could do this at any time. Conversely, users can buy into a community at any time using the digital assets and often fiat currency of their choice. Yes, you can use dollars to buy social money.

Who? Creators of Social Money

There are over 300 creators on Roll that have created their own social money. Below are three to showcase how vast the category will be.

$HUE - Rewards for digital collectibles within a community. Artist and musician Connie Digital is the creator of $HUE. As discussed earlier, this type of capital is specifically valuable within his community. Connie creates rare pieces of digital art (NFTs), verifiable on the blockchain. He popularized the idea of using units of social money as a medium of exchange for digital art in 2019.

The effects here are interesting. It’s now common to see a piece sold in $HUE that isn’t necessarily from Connie. Holders of $HUE typically want to acquire more of it. In an effort to do so, they’ll list digital art pieces for sale in $HUE that are either their own creations, creations of Connie, or a re-selling of another artist.

Here, you’re seeing the community itself increase the effectiveness of $HUE as a form of money: the supply-side economy has gone from Connie alone accepting $HUE, to many more now accepting it as payment. Your inner monetary theorist may remember that money’s ability to store value in the future will depend on people’s willingness to hold it in the present.

$CHERRY - Community Access and becoming the platform (NSFW). Cherry is an adult content creator that leverages platforms like OnlyFans to monetize on the internet. Instead of these platforms retaining 20% of incoming revenue from her content, she can grow her own capital through $CHERRY, of which she is a substantial holder.

Fans of hers can go visit her Club Cherry Discord for 200 $CHERRY (hold 200 $CHERRY in your wallet to gain access) to see her content, but also a community of like-minded users that also hold $CHERRY. In essence, $CHERRY as a form of user-generated capital has allowed Cherry herself to become the platform.

$WHALE - Community Access and collateralization of assets. Whaleshark is widely known as a curator and owner of digital collectibles across the web. He’s uniquely collateralized the value of these assets into a “vault” that can be viewed here. Although the value of the assets in the vault are already in the seven-figure range, the market cap of $WHALE currently trades at a multiple of the vault’s value.

As a member of Whaleshark’s community, I can say that this is likely to do with the community of individuals that hold, utilize, and engage the $WHALE community daily.

Whaleshark has taken the community access model and evolved it even further. At the beginning of the community, $WHALE-Whales was the only accessible tier and it cost 500 $WHALE to get in, meaning you hold 500 $WHALE in your wallet to be granted access. The community has now become so valuable with AMAs, community events, giveaways, and prizes, that membership for $WHALE-Whales typically goes up 50 $WHALE every month since it’s launch in mid-2020.

As a response, Whaleshark has now created other lower tiers that also grant additional access from “Minnow” (free) to “Dolphin” (10 $WHALE).

As an end state, Whaleshark is now actively exploring new modes of governance for the community itself.

Conclusion

It’s about time social media had an upgrade. Social money enables the efficient creation of user-generated capital that can be owned across a community. This is the beginning of a change in how we understand value creation and distribution on the internet.

Similar to the posts and streams of user-generated content, social money and NFTs are the first tool of user-generated capital and can reshape the way users monetize online as producers as well as consumers.

In particular, user-generated capital platforms – loosely defined as platforms that issue branded digital assets that are specific to a community – empower users to be co-owners in the value of the content and community they’re experiencing across the web.

From our current assessment, it’s becoming clear that social money is the right category to formally establish tradable markets that are specific to a creator’s community. This is to say anyone, anywhere at any time can purchase or own a piece of a community by claiming social money. This showcases social money as a formal tool to reinforce supply-side economics in a creator economy (e.g. creators will want to continue to want to do things for people that buy their social money).

You can begin to frame a thesis around what it may be like to have an interoperable community of “subscribers: validate that you have enough social money on one app and gain access to several other experiences or virtual communities on completely different platforms.

As today’s user-generated content platforms become tomorrow’s user-generated capital networks, a significant portion of new Web3 opportunities will come from the infrastructure and applications that make use of this new category for end users.

Similar to DeFi, the composability of user-generated capital will likely warrant completely new platforms and opportunities for creators and entrepreneurs alike for decades to come. I’ll share more learnings and a potential stack for user-generated capital in the next post. In the meantime, follow the latest happenings at Roll.

Thanks to Li Jin and Balaji Srinivasan for their input and review of this post.

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This article was written by a third-party and reflects the opinion of the author. It does not directly represent the opinion of Messari, Inc. Ryan Selkis, Co-Founder and CEO of Messari is an equity investor in Roll. Our holdings and disclosures policy for employees can be found here.

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