The Future of Content is Public or Token-Gated (Part 2)
Why creator tokens are better monetization strategy than cryptomedia
Welcome to the second edition of Black Box. Last time, I argued that content owners should forfeit either rights or access to maximize earnings, with mass media giving up rights. This is the second part of that strategy. Hope you enjoy!
New tech, old problems
There has been a lot of excitement around cryptomedia, or the marriage of rights and access using NFTs. The content in question is usually curated in the sense that its intended audience belongs to a particular community, such as a newsletter or piece of art. On paper, curated content makes good cryptomedia because their specificity selects for interested people, who in turn may become fans. This is important because fans have a higher willingness to pay than the general public. And tech thinkers love to talk about how few true fans a creator needs to be able to support themselves on their content.
I agree that web3 technology offers new ways for curated content to optimize price, and indeed advocate for one in the next section. But the idea that content can be “both freely accessible and have economic value”, as Rex Woodbury puts it, is a crypto daydream.
The existence of technology that enables content to be both media and market does not imply appetite. To start, the idea that public content can have private value makes no sense to most people. Western tradition especially has long held exclusivity as the defining characteristic of ownership. I personally struggled with this idea when I started exploring web3, and I was actively trying to understand it as someone who works at a startup with crypto plans and follows people in this space. Most people don’t have the benefit of that context and don’t care; they just want to see the Mona Lisa. The ones on Google Images don’t have to be the original to serve that purpose.
Even if people get over this apparent paradox, most will not want to own public content. Half of Americans don’t even own stock, and NFTs are subject to much wilder price fluctuations than most stocks. The level of financial sophistication (and for the foreseeable future, technical sophistication1) needed to manage and trade cryptomedia is accordingly much higher. As the 50% statistic has not improved for decades, and is in fact part of a decline, I believe the majority of people will never be cryptomedia investors. Web3 idealists should remember that early adopters are nothing like the average user it will have to serve if it goes mainstream.
Another complication is some people will view buying cryptomedia as a donation instead of an asset. Content faces a peculiar challenge when it comes to pricing because it is information. In classical economics, information is considered an input to price — you need to know what you’re evaluating in order to put a price on it. But evaluating content would require consuming the content itself. It would be as if smelling a burger and eating it were the same thing! And by definition, paying for something whose existing price is free is a donation. This may sound like a trivial distinction, but it may have a big impact on ownership: when the perception of curated content switches from a public good with private value to a pure public good, it becomes subject to the free-rider problem2.
It’s the incentives, stupid
Since web3 cannot reconcile rights and access, which monetization strategy should curated content use? Despite the previous section, I think cryptomedia is right to focus on curated content’s ability to price discriminate. This is a valuable advantage over mass media, and it should be exploited in a price strategy. The implementation I suggest uses creator tokens to change the incentives of leaking by replacing access with self-interest.
Specifically, token gating turns curated content from a one-shot game to a repeated game. Unlike a paywall, token gating is based on persistent value. As long as there is new content and demand for that content, creator tokens will have value. Furthermore, that value belongs exclusively to their holders. This means creator tokens fit within our traditional understanding of ownership; combined with their fungibility, they look and behave like currencies. There is no conceptual hurdle that fans need to cross to participate, nor a requirement to understand and actively manage risk3. More importantly, exclusivity disincentivizes token owners from leaking since doing so would lower the value of their holdings4. The source of value shifts from mandated exclusion to voluntary abstinence. And fans explicitly benefit when the value increases because that is also the price they receive when they sell tokens to other fans.
Token gating disincentivizes leaking even more when creator tokens are exchanged as gifts. If a token is obtained as a gift from the creator rather than by purchase, it becomes a manifestation of the relationship between creator and fan. People self-reinforce the positive views that others have of them, so recipients are more unlikely to leak than if the tokens were purely financial because leaking in this case is a violation of personal trust. Similarly, creators could encourage fans to share their content — and thereby grow their audience — while minimizing leaking by allowing fans to gift tokens at a discounted rate. Friends of fans may not care about the impact leaking has on the value of their few gifted tokens, but they will care about the impact on the fans’ holdings. (The discount makes sharing more generosity than sacrifice.)
This isn’t just all theory. Patreon recently announced that it is exploring creator tokens after the idea came up repeatedly in community feedback. This followed an update to its terms of service last October that allows its users to gift creator coins minted on other platforms; they were completely forbidden previously. Patreon’s change of heart towards web3 perfectly supports my strategy for monetizing curated content. For one, Patreon considered and explicitly rejected NFTs (and thus cryptomedia) as the mechanism because it thinks that they fail to create a “sustainable recurring future for creators”. It also chose to allow only gifting to start, even though the fact that Patreon doesn’t manage the tokens means it easily could have enabled purchasing too. I believe that this was a conscious decision aimed at seeing how strong non-financial disincentives to leaking are. Finally, the significance of the very pioneer of paywall experimenting with price-based monetization should not be overlooked.
Of course, there are also companies focused on creator tokens. Roll and Rally are among the most prominent of these, and both have seen explosive growth. Roll, which serves crypto-native creators and fans, has signed on more than 350 creators since its founding in 2019. Over $2 million of creator tokens are bought and sold on its platform every day. Rally, its non-crypto-native counterpart, has amassed more than 200 creators in just over a year. Impressively, three-quarters of those creators have token market caps in the six figures. The success of Roll and Rally shows there is appetite for creator tokens and supports the idea of using them to achieve higher prices for curated content5.
Together with Squid Game, these developments signal that rights and access are already decoupling. Creators will soon experience a middle squeeze, with those in mass media forced into quantity and those in curated content turning to price. As this becomes the norm, enforcement will no longer be a major problem. And the resulting revolution in the creator-consumer relationship will make the future of content better for everyone. ∎
Special thanks to the readers who got through both parts. You can find the complete article on my Medium. See you in two weeks!
This is already a strong barrier to entry, but I am not stressing this point since many web3 companies are trying to make crypto more user-friendly and less expensive (e.g., Solana-based dapps).
Li Jin may argue that these are not fatal issues, but in practice most creators will never get to 100 true (and NFT-fluent) fans. Put another way, low ownership perpetuates creator power laws, especially given the importance of liquidity.
This is especially true if the creator token uses a bonding curve (like Rally) to limit volatility from speculation and eliminate the need for counterparties. Token gating therefore needs fewer fans to function properly than cryptomedia to begin with.
Creator tokens with more underlying content are more valuable since their price reflects aggregate demand for that portfolio of content. Leaking effectively reduces the size of the portfolio.