Social Token Paradox
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Originally published on Mirror.
In the metaverse, when we look in the mirror, who do we see?
Last week, John Palmer wrote about new Internet logic. He argued that the next wave of companies built in web3 will need to build on a new “mental model” of the Internet.
John is right, and many aspects of web3 have already done so. The decentralized publishing platform Mirror (where this piece is hosted) puts power in the hands of writers. Royal, which recently launched, lets fans buy ownership in their favorite artists. The distributed hard drive Arweave offers a permanent repository for information. And The Graph sorts through it all by allowing its community to query and curate its vast store of data.
Across all these verticals, web3 is rethinking the Internet. Many of these projects, using this new Internet logic, will become the building blocks for a new economy. But social tokens today still have yet to adopt the latest mental model. If the goal of web3 is to overturn the Internet status quo, then the structure of social tokens today is fundamentally flawed from the ground up. Tokenized communities are centered around what you have — often social or financial capital — while they should instead be centered around what you do.
Today, decentralized communities, or DAOs, are primarily valued proportionally to their token price. When the value of a token goes up, so does the value of its community. And when the token price is higher, the community naturally becomes more desirable to join. We saw this over the last few weeks as decentralized community Friends with Benefits ($FWB) skyrocketed to nearly $200 a token.
The problem here — in what I call the Social Token Paradox — is that with this mental model, tokenized communities are incentivized to uphold exclusivity. Let’s work backwards: if you want your community to be valuable, you need your community’s token to go up in price. This makes sense, sure. But to make the token go up in price, you have two choices: you can either increase the price of the token, or you can decrease the number of tokens available to prospective members. Either way, this…
