This picture comes from the now-defunct web page for Reddit’s Neighborhood Factors documentation. It ought to function a sobering warning and reminder to all initiatives contemplating launching a token in Web3. As normal, excuses abound. Regulatory uncertainty. Scalability points. The reality is that many rewards packages endure a worthless destiny as a result of their tokenomics haven’t been rigorously thought of. Let’s now take a better take a look at what classes may be realized from this collapse, and name upon everybody constructing in Web3 to take heed and keep in mind that with out a rigorously carried out and sustainable tokenomics construction, you, too, will get despatched dwelling as a result of “one thing went mistaken.”
In early August, the costs of the native currencies for 2 Reddit communities, MOON and BRICK, swelled about 40% and 76% respectively after cryptocurrency change Kraken listed them for buying and selling. The Moonboys have been overjoyed. However simply over two months later, on October 17, Reddit introduced within the r/CryptoCurrency subreddit that whereas they noticed some future for Neighborhood Factors, there was presently no path to scale it throughout the platform.
Identical to that, this system was shutting down. So, what occurred? Let’s begin with the fundamentals.
The Reddit Neighborhood Factors system was an experimental Web3 person rewards system. It leveraged blockchain know-how to provide customers factors for his or her interactions and contributions to the platform. Neighborhood Factors are, sorry, have been, digital tokens earned by participating in sure subreddits and will unlock particular entry or perks inside a neighborhood. It began out on the Ethereum blockchain, after which migrated to Arbitrum Nova, a layer-2 scaling resolution that launched in 2021.
Reddit Neighborhood Factors have been saved in “The Vault,” which was an Ethereum pockets within the Reddit cellular app. Customers may entry their Vault to test their Neighborhood Factors stability from completely different subreddits, or switch and spend tokens.
r/CryptoCurrency Moons ($MOON) launched in Could 2020. Moons have been the Neighborhood Factors ERC-20 tokens given as person rewards for upvotes on posts and feedback on the r/CryptoCurrency subreddit. Extra upvotes, extra Moons. Easy. Moons have been additionally earned by participating in polls and different actions on the subreddit. Moons have been distributed month-to-month primarily based on person exercise.
r/FortNiteBR Bricks ($BRICK) have been a well-liked Neighborhood Factors token as nicely. These have been earned in an identical method and in addition distributed to customers of their Valut as soon as a month. It’s value noting that the subreddits r/CryptoCurrency and r/FortNiteBR are very fashionable, with 6.6 million and a couple of.6 million members, respectively.
So why shut down their tokens? Within the subreddit publish asserting the top of the Neighborhood Factors program, which will likely be phased out by early November, Reddit made an effort to point out that they have been making an attempt to switch the great elements of this system. Stating the launch of their new Contributor Program, and the continued use of subreddit karma and gifs. That is all nicely and good, however these packages successfully reward customers with money. They’re not utilizing a token or blockchain know-how.
Reddit is lacking the true downside they bumped into. After they launched the Neighborhood Factors program, they hadn’t discovered a sustainable tokenomics mannequin. There was no cycle of financial exercise driving steady demand, and extra importantly, use of those subreddit tokens. No matter how in style a given subreddit was, or how fiercely devoted its neighborhood, there may be merely no substitute for actual financial demand relating to worth creation. Customers would have their tokens distributed as soon as a month, and test the Vault within the cellular app and really feel a rush of gratification, however then what? Dump them available on the market?
Finally the one factor customers needed to determine was when to show their token distributions into promote strain. That they had no incentive to carry them. No method to generate yield on them. And finally no motive to go on making an attempt to earn them since they simply continued to extend in provide and reduce in worth.
We’ve additionally seen tokenomics issues destroy token worth for even high-quality and broadly adopted initiatives like STEPN and Gala. If there had been real financial fashions round these tokens, customers wouldn’t be dumping them, and Reddit wouldn’t have shut down Neighborhood Factors and reverted to a fiat reward system.
So, what’s the lesson right here?
It doesn’t matter how huge your person base or how loyal your neighborhood, if you’re constructing a token-based rewards system in Web3, it is important that you simply design a system of financial exercise across the token that gives sustainable tokenomics and incentives for continued engagement whereas driving worth to the token that’s shared throughout all stakeholders.
It’s not simple, however if you happen to don’t take the time to assume this via and work out a viable resolution, you then, too, will find yourself on the ash heap of Web3. Looking at a defunct webpage questioning what went mistaken, holding a bag of nugatory tokens, with no place to go however dwelling.
