In-Depth Exploration of the Value Sources of Community Tokens

Tokenization is a mechanism that is used to incentivize networks and communities to collectively create value and enable contributors to participate and share the captured value. This is why I believe community is the most promising killer application of Web3 technology and tools. By aligning incentives among members and stakeholders, tokenized communities can maximize social capital and utility value. By issuing its own tokens, a community can become a true ownership economy, where members can directly connect with like-minded peers as well as their beloved idols, creators, and brands, while sharing the collective value they create. The value of community token assets itself will be determined by its utility value (i.e., the access, exclusivity, or benefits the asset provides within the community), social capital (community belongingness and vibrancy, member status and reputation), and the ownership value it provides to holders (community governance and resource allocation).

This is the core argument of Variant’s Ownership Economy, where cryptocurrencies unlock a new economic model of communities and networks built, operated, and owned by users. Ownership incentivizes the growth of community value and shared appreciation, further fostering network effects that rapidly scale platforms. However, for communities to be able to self-regulate and self-sustain (sovereign), consideration must be given to funding and monetization models that transfer capital resources and revenue streams onto the blockchain. Without this, communities will not be able to capture any value for redistribution or reinvestment.

Tokens are not a quick-fix solution to product-market fit. While tokens can play a role in attracting user attention and initiating initial member activation, the core value proposition of a community needs to go beyond ownership. To sustain value appreciation, communities need to be able to monetize their social capital or utility value.

Therefore, tokenized communities can provide and monetize three types of value:

1. Access/Network Value: Community access, belongingness, and connection around a common theme/mission/goal > Monetize through token-gated subscriptions, token-gated brand sponsorships or affiliations.

2. Output/Production Value: Utility, tools, products, and services provided by or for the community > Monetize through blockchain transactions, revenue sharing or royalty distribution, and token-gated business or marketplace exchanges.

3. Ownership/Governance Value: Governance and resource allocation of the community roadmap > Monetize through the sale of governance and/or security tokens as equities.

In the long run, the most vibrant communities will be those that provide (and capture) value in three aspects: belongingness, utility, and ownership. However, regardless of the monetization model a community decides to adopt, its value capture mechanisms should be broad-based rather than exploitative. The primary focus of any community token economy model should be to create and capture value through and for the community, rather than extracting and extracting value from its members or external parties. Furthermore, any value captured by the community should be directly aligned with the value co-created by its members. This does not mean that all value should be redistributed to members, but at least a portion of the value should accumulate in the community’s treasury to support ongoing initiatives.

Tokenized communities are meme-centered capital allocation networks. The value growth of community tokens is based on how effectively they incentivize token holders to fund meaningful collaborations that propagate common memes. Tokenized communities transform community members into entrepreneurs, creating a network composed of various projects, products, companies, and sub-communities that are collectively dedicated to achieving common memes or missions.

The core idea and promise of tokenized communities is to create a self-sustaining and self-reinforcing positive feedback loop, where community members actively engage, contribute efforts to gain social status, utility benefits, and/or equity, generating incentive mechanisms and network effects that encourage members to invest and contribute more. Mutual cooperation and individual initiative are the driving forces behind this positive loop, the inherent motivation that keeps the cycle running. Mutual cooperation ensures that members identify with common goals and shared values, based on the principles of symbiosis and mutual benefit, which in turn are the prerequisites for member active participation and actual contribution to the community.

Within a community flywheel, tokens act as programmable incentive mechanisms for creating and capturing value. Smart contracts will define how these tokens are acquired and what kind of value or holder rights they unlock. In other words, by programmatically encrypting tokens, community members can be incentivized to contribute and engage in order to achieve specific outputs and outcomes.

You can provide people with digital tokens to incentivize them to perform the actions you want them to, in order to create the desired results, without spending a penny, a euro, or any traditional currency. Tokens are essentially a new form of currency, created almost out of thin air. However, this currency only holds value if the underlying activities incentivized by this new form of currency are deemed valuable.

Programmable Incentives ——Lyle McKeany and Rockwell Shah (substack.com)

This brings us back to the square one. Tokens appreciate in value only when the underlying community flywheel can provide and monetize value. For a tokenized community to become its micro-economy, it needs to consider and adopt more business-like thinking and actions. This does not mean that every community or tokenized community has to be profitable, but at least value and profits should flow back to token holders to maintain the value of the token. Nowadays, many token projects are not profitable (or lack a path to profitability), or their mechanisms for distributing value and profits have clear flaws.

In the industry, there is a lot of discussion about why products that are good don’t accrue value to their token. I have delved deeper into this issue and come to two conclusions as to why this happens, and it revolves around the following three principles:

• Startups are not profitable (revenue ≠ profit)
• Profits do not accumulate to token holders (illiquid providers)
• Profit distribution mechanisms have flaws

Revenue——An Abused Word in Crypto ——Joel Davies（substack.com）

To become a community that can sustainably create value (rather than exploit value), it may be attractive to identify the truly money-making product or value proposition of the community from the beginning. However, as a staunch supporter of Simon Sinek’s golden circle framework, I advocate for first clearly defining the “Why” and “How” of the community and then considering the “What” (output, product, proposition). When applying this approach to the community, the appropriate steps should be as follows:

Why—The purpose of the community: The Why is not just about making money; that is only a result. The Why is a common goal, reason, or meme. It is the fundamental reason for the existence of your community.

How—The community flywheel: The How involves creating the right dynamics, culture, and incentive mechanisms to attract suitable members, capabilities, and resources to collectively drive core goals, missions, or memes.

What—The value of the community: The What is the comprehensive social and practical value provided by the community. When the token becomes an important tool for driving the positive feedback loop, it eventually needs to realize monetizable value.

By adopting this strategy and phased framework, it ensures that the token is not launched prematurely before establishing a “minimum viable community” and validating “community-market fit.” Starting small and growing organically from within will allow you to test and adjust your flywheel, but more importantly, gather input from a committed and like-minded core team to shape the value proposition and token model design of the community.

There is no single correct model for launching a community flywheel. Any of the three value dimensions—access, utility, and ownership—can be chosen as the starting point to kickstart the flywheel. Ownership can lead to access, just as access can lead to ownership. The DAO roadmap by Web3 Academy is based on gradually increasing the value of a token from being valueless to having value, achieving phased growth through earning, owning, token-gated utility, and eventually generating income and token liquidity. Brand communities have an advantage in building a community flywheel as they can leverage an existing brand and product foundation, allowing the tokenization to realize the production-network-ownership (utility-access-ownership) flywheel, which is a key concept in tokenizing loyalty programs or transforming brand communities into DAOs.

Ultimately, regardless of how you decide to plan your value roadmap, healthy communities are those that are able to sustain a value creation and value capture flywheel. This includes:

• Attracting capital resources or generating revenue on-chain
• Effectively distributing these resources and revenue to achieve the greatest impact (i.e., propagating the mission/goal/meme)
• Ensuring that value flows back into the community in proportion to contributions (i.e., value appreciation rather than exploitation)

This also raises a question of how communities and DAOs manage collective governance to maximize on-chain revenue. However, this is a topic that requires further in-depth research and involves monetization and governance strategies.

Although we are in an ownership economy, where users have more power and ownership than ever before, DAOs need to strike a balance and ensure they can earn enough funds to at least sustain their core team.

Disclaimer：

1. This article is reprinted from [foresightnews]. All copyrights belong to the original author [DocTom]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.