Building Token-Powered Consumer Products
Today, centralized tech companies like Microsoft, Apple, Alphabet, and Amazon own and control consumer applications, capturing trillions in value. Tokens offer an alternative paradigm — an Internet built, operated, and owned by its users.
The emergence of decentralized digital currency Bitcoin (2009) first introduced tokens as a concept. Through “proof of work,” miners are rewarded for expending CPU time and electricity to secure the network and validate transactions.
The introduction of Ethereum’s smart contract and decentralized app platform (2015) accelerated the adoption of token networks. Later, the ERC-20 token standard (2015) provided a straightforward way for projects to create and distribute network tokens on the Ethereum blockchain.
The ERC-721 standard (2018) introduced the standard for NFTs, tokens that are unique and can enjoy a different value compared with other tokens from the same contract. This standard allows artists, creators, and developers to tokenize and sell unique digital objects with provable ownership and scarcity. Further, the ERC-1155 standard (2019) made it possible to efficiently transfer fungible (ERC-20) and non-fungible (ERC-721) tokens in a single transaction.
Building on these standards, we’re starting to see tokens — fungible and non-fungible — change the way that consumers interact with the products that they use. In this post, I break down what tokens unlock for consumers and highlight some of the most exciting emerging use cases.
What Tokens Unlock for Consumers
At their core, tokens are programmable, permissionless, internet-native objects. Many of the earliest use cases of tokens were as digital stores of value. But, the value that these tokens hold can often extend beyond pure wealth preservation. So, how are we starting to see tokens transform the consumer experience on the Internet?
Economic Incentives
To start, tokens can align incentives between consumers and the products that they use. For example, NFT marketplace Blur encouraged traders to use its platform ahead of its token launch through a series of airdrops rewarding trading, listing, and bidding. By implementing a points system and gifting “care packages” for each airdrop, Blur hooked users with the promise of an unknown set of rewards. In addition, the platform encouraged deeper activity and loyalty through additional seasons of rewards that could run perpetually. This strategy has been successful in Blur capturing significant market share from incumbent OpenSea, which has yet to launch a comparable fungible token (currently ~70–75% of the NFT volume on Ethereum compared to OpenSea’s ~15–20%). Beyond Blur, we’ve seen various protocols and blockchains reward active participants with various incentives (e.g., DeFi liquidity mining, Layer 1 and Layer 2 airdrops, NFT staking for token rewards).
User Control
Blockchains enable a user-owned and operated Internet. With digital “property rights” comes the opportunity for consumers to steward, participate, and govern the products that they use and the communities they join. Some examples:
- ApeCoin DAO: Through holding $APE, members have a say in community-led initiatives that drive culture forward into the metaverse. Specifically, they create and vote on ApeCoin Improvement Proposals (AIPs) that encompass Ecosystem Fund distribution, governance rules, partnerships, and more.
- SuperRare DAO: Any member of the DAO can propose a SuperRare Improvement Proposals (SIP) for consideration in the governance forum. In addition to governance, $RARE serves to incentivize participation and curation inside of the network.
- Bright Moments DAO: CryptoCitizen NFT holders govern future city activations and local community nominations, and influence the future initiatives of Bright Moments as a whole.
Community/Social Belonging
We’ve seen projects use tokens to build and cultivate Internet-native communities. For example, NFT-focused social network Gallery has used NFTs to foster community-led growth. Through launching Gallery Merch (physical merchandise connected to non-transferrable NFTs), users can express their association with the Gallery brand IRL and online. Further, the startup released Gallery Mementos to encourage users to participate, collect, and collaboratively build the future of Gallery. To be eligible to mint the commemorative launch NFT Infinita Prospectus, users had to set up at least two galleries on the site. Wallets such as Rainbow and Backpack have also used NFTs to build community around their core product. As an example, Rainbow recently collaborated with NFT project Finiliar on an open edition NFT. Over six thousand people minted the NFT, which rewarded them with a special edition Rainbow app icon and access to the Finilar iOS app.
In other cases, the community is the core product. For example, FWB is a community-owned social network aiming to catalyze the power of Web3 as a cultural phenomenon. The 3000+ members, who are accepted to the DAO and hold 75 $FWB, convene digitally via social channels and the DAO’s community-owned FWB social platform as well as in real life. Further, many NFT projects have jumpstarted global communities aligned by shared ownership. For example, owning a DeGod offers access to 15 clubs and meetups around the world in addition to other benefits (e.g., NFT staking for $DUST, IP and licensing rights to DAO owned basketball team).
Novel Applications For Tokens in Consumer Products
The first iteration of tokens in consumer products has largely driven crypto-native speculation and trading (e.g., NFT bidding, yield farming, staking). But, we’re starting to see novel use cases for tokens in enabling digital and real-world activity. Below are some of the emerging applications I’m watching:
- Data Aggregation & Curation
- Advertising & Marketing
- Networked Physical Products & Experiences
- Decentralized Physical Infrastructure Networks
Data Aggregation & Curation
Tokens facilitate novel data economies for aggregation and curation. First, Data DAOs use crypto incentives to pool fragmented data into a more valuable sum of parts. For example, retail investment platform and hedge fund Delphia aims to beat the market through aggregating first-party proprietary consumer data, including social media, bank, and credit card accounts. In return for providing their data to Delphia’s algorithm, consumers earn $PHI, which unlocks premium features, app exclusives, and a rewards program. Further, decentralized knowledge graphs Golden and Geo aspire to organize the world’s public knowledge and information through crypto incentives. Within health and wellness, zero-knowledge proofs offer a way for consumers to share private health data for scientific use (e.g., medical research, drug development, AI medical diagnosis model training) in exchange for rewards.
With token-based curation, consumers are incentivized for bringing “human judgment” in a world of AI content proliferation. For example, decentralized autonomous artist Botto produces 350 “fragments” weekly and invites its DAO members to vote for their favorite, which is minted and sold on SuperRare. The voting data is fed back to the algorithm, which learns from the community’s tastes, and voters are rewarded with a portion of the art sales revenue. We can imagine how this model can extend beyond art to e-commerce, media, entertainment, and more.
Advertising & Marketing
I’ve previously written about the fall of targeted advertising due to big tech companies’ stand against invasive tracking and more stringent privacy regulations. This creates an opportunity for crypto wallets to replace cookies, allowing advertisers to uniquely target users based on their on-chain identity and attribution data (e.g., NFT and token holdings, transactions executed). Within this paradigm, advertisers can reward consumers for activities such as:
- Linking their social and wallet data (e.g., via Web3 customer engagement tools like Blaze)
- Viewing ads (e.g., Brave Browser offering $BAT for seeing ads)
- Social marketing (e.g., Blackbird users receiving $FLY for customer referrals)
Questing platforms (e.g., Rabbithole, Layer3, Galxe) offer a precedent for the opportunity across the broader Internet by rewarding users for trying and actively using crypto protocols (e.g., Rabbithole recently launched Quest Terminal for projects to distribute high velocity, continuous airdrops).
Networked Physical Products & Experiences
As we spend more and more time interacting with digital media, the division between our virtual and physical worlds continues to blur. This enables the emergence of networked products and experiences, which link consumers’ real-world activity with their digital identity.
As Derek of Collab+Currency writes, blockchain technology unlocks new capabilities around physical objects including near-frictionless exchange, real-time provenance, global trade, and networked awareness. What this means is that physical objects linked to NFTs and tokens enable novel consumer experiences.
For example, Web3 fashion house 9dcc has released three small batch drops of Web3 enabled luxury apparel that bridge the physical and digital worlds. Each luxury T-shirt came equipped with an NFC chip linked to a resolver/software layer powered by IYK. Shirts can be left unredeemed, authentically stored and tokenized by web3 storage and tokenization facility 4K. In addition, each garment can be rigged and worn in augmented reality, virtual reality, and immersive environments across the Ready Player Me avatar network, and enjoyed inside Monaverse’s browser-enabled immersive environment. 9dcc has also experimented with POAPs as a way to gamify social interactions with the apparel.
Beyond fashion, I expect we’ll see our digital and physical lives increasingly collide. From casual gamification of everyday habits (e.g., Sleepagotchi offering digital collectibles for consistent sleeping, STEPN and Sweatcoin rewarding walking, jogging, and running) to reward systems for everyday purchases (e.g., Blackbird rewarding consumers for frequenting restaurants), tokens will play a greater role in how we live our lives.
Decentralized Physical Infrastructure Networks
With decentralized physical infrastructure networks (DePIN), contributors perform verifiable work off-chain that is recorded on-chain in return for token rewards. With a bottoms-up approach, these protocols aim to incentivize individuals to build real-world infrastructure quicker, more cost efficiently, and in a localized manner. They transcend numerous categories including WiFi/5G (Helium, MetaBlox), video transcoding (Livepeer), storage (Arweave, Filecoin), mobility (DIMO, Hivemapper), compute (Render Network, Gensyn), logistics (Nosh Delivery, Teleport), and more.
To work, DePIN networks require balanced demand (token sinks) and supply. Historically, consumers have been most involved in driving supply. For example, by connecting your car to DIMO and/or Hivemapper, you can earn rewards for providing data to their respective networks. On the demand side, enterprises have typically been the key customers. For example, decentralized mapping network Hivemapper serves the government and logistics companies while decentralized wireless network Helium services hardware and software solutions (e.g., monitoring, IoT devices, hotspots and sensors).
We’re also starting to see emerging projects where consumers contribute to the demand side. For example, food delivery app Nosh Delivery and ridesharing app Teleport aim to create decentralized logistics networks that decrease overhead and marketing costs, sharing in the savings with stakeholders. If decentralization successfully reduces costs in bootstrapping the network, it’s likely beneficial for end consumers and suppliers by reducing the typical middlemen fees taken from their Web2 platform counterparts.
Other projects are focused on achieving greater consumer usage to address the demand gap that DePIN projects have historically experienced. For example, DIMO is leveraging its developer and enterprise partners to offer a marketplace of consumer-facing services and utilities (e.g., registering your vehicle, booking maintenance, refinancing) with $DIMO as a reward for transacting. Further, Helium recently launched its Mobile beta offering consumers 5G cellular service and the opportunity to earn $MOBILE tokens by opting in to map the network.
Beyond offering Internet-native stores of value, tokens also offer a new paradigm for how consumers interact with products. By aligning economic incentives, offering user control, and creating social connections, tokens will change consumers’ digital lives. I’m excited for token-powered consumer experiences to become more common over the coming years.
If you’re building at the intersection of consumer products and tokens, my DMs are open!
Thanks to Derek Edws, Stephen McKeon, Doug Petkanics, Abhay, Rob Solomon, Mason Nystrom, Shayon Sengupta, Catrina Wang, and many others for informing my thinking for this piece.
Disclosure: Collab+Currency is an investor in projects mentioned above, including Blur, SuperRare, Bright Moments, Gallery, Rainbow, FWB, Blaze, Rabbithole, 9dcc, IYK, Ready Player Me, Mona, POAP, MetaBlox, and Livepeer. At the time of this publication, Collab+Currency or its members may have exposure to the assets described in this article.
The above material and content is educational in nature and should not be considered to be a recommendation to invest in a digital asset. Investing in digital assets, NFTs or cryptocurrency (collectively “digital assets”) is highly speculative and volatile, and digital assets are only suitable for investors who are willing to bear the risk of loss and experience sharp drawdown. Past performance is not indicative of future results.
