Success as Social: Redefining Investor Metrics in Crypto’s Community-Centered Ecosystem

Foreword: Try our new vesting tracking tool here. We think it’s pretty great.

What defines value formation when investing in crypto? Sure, on the facade, the standard formula seems to apply — money-in, a protocol that does something,¹ money-out, profit.

However, unlike in the paradigm of more traditional finance, many crypto companies aren’t even operating under the illusion of ever being “profitable” in the traditional sense — a trend that we have already been observing within the current slate of public companies outside of crypto.² We can especially see this with the aptly called meme-stock phenomena, where equity value is correlated with a mindset rather than earnings. Meanwhile, even revenue-generating DeFi tokens have enterprise value-to-revenue multiples that far exceed anything we’ve seen before, but investors still see growth. And if that growth isn’t being derived from revenue or profits, what is it being based off of?

Lately, we see enterprise value being derived from community and token economics that are more abstract, such as via token staking through liquidity provision (such as 1inch), backstopping the protocol (including lending tokens such as Aave), token buybacks (MakerDAO), tokens being used as indices for the DeFi token’s protocol value (see OlympusDAO and Tribe), and social tokens. If you look more closely, a new paradigm of social-centered value begins to emerge: one that puts the value of participation and ownership over the value of doing something.

Take, for instance, the staking of decentralized autonomous organizations, or DAOs, by individuals seeking to join their communities. Tokens held in order to join these DAOs (often known as a subset of social tokens³) such as Bankless DAO, Karma DAO, and Friends with Benefits, among others, fluctuate in line with Discord-based announcements, Snapshot proposals, and other community events.⁴ And as of 2020, just over 22 of these social tokens are valued at an $81.2M market cap and counting.⁵ Issuers and service-provider startups, such as Roll, Rally, and CollabLand, have also reaped success from the rise of social crypto.

And the effect of this socially-centered corner of Web3 has financial impacts that go beyond the mere growth of social tokens. High-growth companies such as Forefront and Tally have spun up to provide market insight on DAO tokens and governance proposal summaries, respectively, and have themselves rapidly amassed modest investments for their focuses on the ownership economy.⁶

In the ownership-driven Web3 world, it isn’t annual recurring revenue, amounts spent on sales and marketing, or gross margins that are driving these successes — it’s community sentiment.

Coinocracy aims to provide the ultimate DAO-VC toolkit to begin to bridge the venture capital and DAO worlds. We help investors build legally compliant funds as DAOs for investment on and off-chain in equity, token, and NFT. But more importantly, we aim to seamlessly integrate much-needed signals for community sentiment that drives investment success in Web3 — combining snapshot proposal feeds and DAO stats with other detailed financial tools that tell you how your investments actually work, like via our new vesting contract tracking tool.

Let’s keep this quick. Like the communities we seek to unite investors with, we’re not here to sell you on a product, or even, really, a service. Rather, we share with you an idea:

Communities are the new crypto primitive, and it’s time for investors to turn back to the basics.

¹ See, e.g., Unisocks, https://unisocks.exchange (“$SOCKS is a token that entitles you to 1 real pair of limited edition socks, shipped anywhere in the world.”). Thank you to a wonderful crypto friend for sharing with me.

² See, e.g., Alex Wilhelm, Will Ride-Sharing Profits Ever Come?, Techcrunch (Feb. 12, 2021), https://tcrn.ch/3tQ6rsx; Neal Boudette, Tesla Has First Profitable Year, But Competition is Growing, N.Y.T. (Jan. 27, 2021), https://www.nytimes.com/2021/01/27/business/tesla-earnings.html; Michael Grothaus, Report: Not Even Airbnb Can Turn A Profit, Fast Company (Oct. 17, 2019), https://www.fastcompany.com/90418766/report-not-even-airbnb-can-turn-a-profit.

³ See Jay Baeriswyl, Understanding Social Tokens, Outlier Ventures, https://outlierventures.io/research/understanding-social-tokens.

⁴ See Devin Mancuso, The Social Tokens Map, Social Tokens Playbook, https://soctok.substack.com/p/the-social-token-map.

⁵ Social Tokens Year in Review: 2020, Forefront News, https://2020inreview.forefront.news

⁷ See ​​Joey DeBruin & Carlos, Forefront raises $2.1M to Build the “Port of Entry” to Web3, https://ff.mirror.xyz/Yqo1j1RlCowOCRBnxupprIZ8w4RLRxit67x6pIK1hrA; Cheyenne Ligon, DAOs, VCs Put $6M Behind Governance Startup Tally, Coindesk, https://www.coindesk.com/business/2021/08/12/daos-vcs-put-6m-behind-governance-startup-tally.