What are social tokens?
Social tokens are cryptocurrencies issued by creators to monetize their content. Often, these tokens are associated with artists, musicians, and social media influencers, but they aren't exclusive to high-profile celebrities. Any individual or brand can use social tokens to build a Web3 ecosystem.
In addition to fortifying an online fan base, these cryptocurrencies provide token issuers with a novel revenue stream. Since social tokens are on decentralized blockchains, it's easier for creators to raise funds and set perpetual royalty fees. Social tokens also provide a way for issuers to offer perks and loyalty bonuses to their fans.
The goal of social tokens is for both the content creators and their fans to benefit as the creator does well.
How do social tokens work?
Social tokens exist on top of smart contract blockchains such as Ethereum, Polygon, or Solana. Before a creator launches a social token, they typically promote it to their fans. When the token hits the market, anyone can purchase it on centralized (CEXs) or decentralized crypto exchanges (DEXs).
Social token purchasers can store them in a compatible crypto wallet and use them to access special community-oriented services. For example, some social tokens allow holders to visit private chat groups or buy exclusive merchandise. Social tokens may also double as "governance tokens," empowering community members to vote on upcoming projects and changes. While every social token has unique use cases, most give holders exclusive privileges.
Social tokens also have a transparent market value. In other words, people can easily swap their social tokens for a set amount of fiat or another crypto on an exchange. Unlike NFTs, it's easy to see how much a social token is worth on the crypto spot market.
The three main types of social tokens
Although social tokens are a new phenomenon, issuers have already developed three primary categories of use:
- Creator tokens: Also called "personal tokens," these social tokens are linked to one person. For example, an actor could issue creator tokens to their fans, granting them access to a VIP chat and exclusive content.
- Community tokens: Community tokens are used for decentralized governance. These cryptos allow holders to participate in decentralized autonomous organizations (DAOs) and vote on the future direction of a Web3 project. Community tokens often center around specific interests, brands, or charities.
- Platform tokens: Some decentralized applications (dApps) issue "platform tokens" to incentivize participation on their website. Often, people use platform tokens to tip content creators, vote on governance proposals, or pay for products and services.
Are NFTs the same as social tokens?
Since NFTs are popular with many brands and celebrities, they can be confused with social tokens. Although NFTs and social tokens share many similar features, there are important differences between these digital assets.
Most significantly, NFTs don't trade 1:1 on the crypto market. Since each NFT has a unique blockchain address, they are considered "virtual collectibles" rather than digital currencies. The exchange rate for an NFT isn't as clear-cut as for a fungible social token.
Also, NFTs can represent any form of digital media. Although the most popular NFTs are animated JPEGs, these tokens could be millions of types of digital files (such as sports clips, music, and Metaverse land). By contrast, a social token will always be a virtual currency with a clearly defined exchange rate.
Why are people using social tokens?
Social tokens provide companies and individuals with a new way to earn funds and engage supporters. While this technology is still experimental, many people are excited about the benefits social tokens offer. These include:
- Community engagement: Social tokens help individuals and companies offer rewards for their community’s support. Perks like exclusive videos, discounts, and raffles can be powerful incentives for fans to purchase coins.
- Decentralized governance: In addition to VIP experiences, some social tokens give fans a voice in the online community. Issuers gain insight into how token holders feel and what they want to see in the future, making it easier to adjust business strategies to keep the community happy.
- Passive income: Anyone who issues a social token can pre-set royalty fees for every transfer. As more people trade social tokens, creators could support themselves with a steady income stream. Issuing social tokens at an initial coin offering (ICO) could also help artists fund ambitious projects.
- Artistic independence: The decentralized nature of blockchain technology makes it resistant to censorship. Web3 dApps and cryptocurrencies make it easier for content creators to express themselves without fear of losing access to their platform.
- Investment opportunity: Since social tokens have real-world value, they could serve as a speculative investment opportunity. Although cryptocurrencies are volatile, these tokens "pay" fans for their time and engagement. As a fan community grows, early adopters could receive rewards for their loyalty.
Concerns about social tokens
Like many cryptocurrencies, the legality of social tokens is unclear. There are concerns that some social tokens are more similar to shares in a company than a decentralized cryptocurrency. If this is the case, organizations like the U.S. Securities and Exchange Commission (SEC) could regulate the sale of social tokens, similar to security tokens.
It's also unclear how legally binding the "ownership rights" promised in some social tokens are. Since crypto copyright law is so new, there’s little legal precedence for how much a token holder truly "owns" in a brand or project.
Additionally, social tokens may be a prime target for crypto scammers. Issuers with bad intentions could create malicious or misleading social tokens associated with a prominent brand. For example, a group of hackers released a fan token named after the popular show "Squid Game" in 2021. However, the SQUID cryptocurrency was a scam token with no official ties to the Netflix series. Estimates suggest the SQUID hackers stole $3.3 million from investors. Following the SQUID scam, critics argued that social tokens need greater transparency and regulatory oversight.
Examples of social tokens
Social tokens may be relatively new, but a growing list of projects are making a big impression in the Web3 industry. Here are a few:
- Chiliz: Developed by Socios.com, Chiliz is a blockchain that's best known for issuing social tokens linked to pro football. Customers can use Chiliz's CHZ cryptocurrency to access exclusive digital content related to their favorite athletes and teams.
- Rally: Created on Ethereum, Rally is a crypto platform that helps influencers and artists mint social tokens and NFTs. Rally also issues its own Ethereum-based token called "RLY" for decentralized governance and access to private social media portals.
- Whale: The NFT collector "Whale Shark" created the WHALE token to give everyone partial access to thousands of NFTs. Each WHALE token represents an ownership stake in Whale Shark's "NFT Vault" collection. These tokens also serve as membership cards to the Whale community and votes in DAO proposals.
Community-driven social tokens create new revenue streams and provide fans with exciting perks and opportunities. From exclusive merchandise and VIP chat rooms to discounted tickets and early-access promos, social tokens impact how issuers expand their reach in Web3.
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