Tokenizing Human Capital
As cryptocurrencies continue to unlock new ways to exchange value on a global scale, it’s no surprise that innovative asset classes are coming to fruition as well. Thanks to the advent of smart contracts, DEXs, and web 3 tooling at large, it’s now possible for individuals to monetize their time and careers in ways unlike anything to date.
While the concept of creating new currencies may have once been thought of as obscene (think about the time, know-how, trust and liquidity necessary to create a reliable form of value), smart-contracting protocols like Ethereum have established standards — in this case ERC tokens — that make it exponentially easier for individuals to exchange personalized value on a global scale.
As such, we’re now seeing the advent of tokenized time and Income Sharing Agreements (ISAs) that we believe fall under the bucket of web3 human capital contracts (HCCs).
“[Investors] could “buy” a share in an individual’s earning prospects: to advance him the funds needed to finance his training [or work] on condition that he agrees to pay the lender a specified fraction of his future earnings. In this way, a lender would get back more than his initial investment from relatively successful individuals, which would compensate for the failure to recoup his original investment from the unsuccessful.” — Milton Friedman in 1955’s “The Role of Government in Education”
Combined with new platforms that allow individuals to tokenize their time and careers without significant capital expenditures or know-how, we believe protocols like Ethereum are further enabling self-sovereignty to arise. In this article, we’ll touch on:
- Spencer Dinwiddie’s tokenized bond
- Matthew Veron’s $BOI tokens
- RollHQ Social Currencies
- Pet3r Pan’s $MAGIC tokens
- Future use-cases
We’ve got a lot to cover, so let’s get right into it!
Tokenizing Your Potential
After months of negotiations with the NBA, we’re finally seeing Brooklyn Nets player Spencer Dinwiddie tokenize his NBA contract on Ethereum.
Dinwiddie, a fellow CU Buff, has agreed to sell digital tokens representing income rights to a portion of his $35.4M NBA contract under a Reg D 506(c). While the goal is to ultimately create a permissionless investment vehicle, due to the nature of the token, only US accredited investors are able to participate in the offering.
As such, Dinwiddie’s tokenized bond will sell for around $150,000 per token with a maximum of 90 participants. Investors will receive a 4.95% monthly return (with the full principal paid off at maturity) while Dinwiddie receives $13.5M of his 3-year contract up-front. Dinwiddie is also planning to tie in benefits for token holders, like bringing them to the All-Star Weekend in February.
Like most innovators, Dinwiddie’s tokenized offering has been severely limited by legacy entities (the NBA) due to the nascency of the asset class at large. Initially, the tokens were to include potential bonuses (like if the Nets made the playoffs) as well as the player option for his third year. If Dinwiddie was able to negotiate a more lucrative contract via the player option, investors would’ve seen a significant upside on their investment.
In essence, this would allow investors to speculate on his future contract earnings and fundamentally speaking, tie the price of the token to his performance on the court.
While the offering is not totally ideal as the NBA forced Dinwiddie to remove the player option due to gambling-like characteristics, there’s no doubt that Dinwiddie is an innovator forging the path towards a decentralized and tokenized future.
There’s plenty of room for improvements on the offering for his next fundraising round or for any other players looking to follow in his footsteps. By filing under a Reg A or Reg A+, barriers to entry would be significantly lower as unaccredited investors would be able to participate in the offering. Taking this a step further, embedding more speculative aspects into the offering, like the player options, would allow fans to directly invest in the success of their favorite athletes.
But for now, let’s take a step back and explore some of the examples from other community members and projects taking advantage of this new web3 initiative.
When it comes to finding talented designers with a genuine interest in emerging Ethereum sectors, talent can be far and few. This is where Matthew Vernon, aka dApp Boi, comes into play.
This past year, Matt created 100 $BOI tokens representing 100 hours of his time. These tokens could be redeemed on anything from UI/UX design to prototyping to brand design. As per the official dApp Boi website:
“I have recently fallen in love with the idea of personal tokens — cryptocurrency-based tokens that derive their value from the performance of a human being”
Not surprisingly, Matt’s talent and innovation quickly led to all $BOI tokens being purchased by prominent projects like Dharma — who more or less “hired” Matt by purchasing a significant amount of $BOI — and Saint Fame, a fashion DAO who used BOI to summon Matt for the creation of their Genesis shirts.
What’s important to note here is that for those whose time is valuable, entire markets can be created from the scarcity of the time being tokenized. So, how does this trickle down to the average individual?
Roll is an emerging project that provides a framework and dashboard for anyone to quickly and easily create their own social currency.
“There are currently over 50 different social currencies on the site, all of which have a fixed supply of 10M tokens. 68% (6.8MM) are vested over 3 years (2% are released to the creator each month) while 20% (or 2MM) is automatically released to the creator for the exclusive purpose of distributing them within their community. Roll holds 12% (1.2MM) to grow the economy and provide initial liquidity for creators.”
Creators can offer unique promotions essentially allowing X tokens to be redeemed for Y task. We’ve seen crypto-designer like Connie Digital sell art in exchange for $HUE tokens and others like Alex Masmejean use $ALEX for Twitter shoutouts and time ownership.
What’s unique about Roll is they recently integrated a Uniswap front-end, effectively creating a social currency market for popular individuals. This provides an easy mechanism for anyone to quickly acquire social currencies without having to worry about brokering OTC deals. Furthermore, the emergence of unique Uniswap pools allows tangible value to be tied to each social currency.
The key takeaway here is that DEXs provide a crucial foundation for creators to share liquidity on their social currencies.
Now while Roll is awesome for non-technical users looking to tokenize their time and brand, 12% of the total supply is certainly a steep price to pay for those with significant upside.
Pet3r Pan — cofounder of MetaCartel and MetaCartel Ventures — is one of Ethereum’s most connected and sought after community members. Similar to Roll, Pet3r recently launched $MAGIC, a token representing his time.
120 $MAGIC tokens were created representing 120 hours of Pet3r’s time. The offering was seeded through partners to help evangelize the offering with example use cases including:
- Writing a guest newsletter blog post
- Appearing on a podcast
- Creating memes for you
- Feedback on how to take your DAO to the next level
- Due diligence and assessments on DAOs
- Advice on how to build communities
Unlike Roll, Pet3r took the grassroots approach of creating $MAGIC and starting his own Uniswap pool independently, effectively allowing his supply to be more granular. Here’s a great overview on the process:
The key takeaway from this offering is that personal tokens can be created either through established platforms like Roll or completely independently, a signal that the possibilities of human capital contracts are only just getting started.
The Future of HCCs
Now that we’ve touched on a few established examples, let’s consider some generalized use cases where these ideas could materialize in the future.
Similar to Spencer, other professional athletes could tokenize their future earnings. This concept could funnel down to high school and collegiate levels in which “early adopters” stand to gain upside when their hometown hero (ala Lebron James in Akron or Steph Curry at Davidson) rises to stardom. In this case, investors would bet on the potential for athletes to land big contracts.
With the recent passing of California State law, college athletes are now able to get paid for value derived from their name for marketing purposes. Tokenized HCC’s could act as a gateway for these athletes to capture value while in their college years with minimal income opportunities.
Imagine a serial entrepreneur seeking capital for his next venture. The entrepreneur may have had a few previous small exits and has built a solid resume and network. He may not know exactly what his next venture is going to be but his peers and past investors know that whatever he does, it will be valuable.
Venture capital is largely focused on investing in founders. Entrepreneurs could seek investment capital in the form of an income-sharing agreement in which investors would receive x% of his income or exits over a fixed period of time. In a tokenized fashion, the “shares” in the ISA could be traded among private or public markets where the value is based on the expectation of future cash flows.
Rising artists are always in need of capital to cover marketing and operating costs. Investors could fund creatives to further expand their brand in return for a percentage of future income or royalties on product sales (think songs, artwork, novels).
In the music industry, it’s common for labels to take “all-in” cuts, meaning that they are paid off the top on all income that the artist earns. In this scenario, we can envision tokenized $SKRILLEX in which investors stand to earn payout each time Skrillex plays a show.
Similar to Dinwiddie and bringing his investors to the All-Star Weekend, performers could allow token holders VIP access to their shows or early-access to their unreleased work.
Taking a Step Back
What we’ve covered so far have been examples of individuals who we can *hopefully* all agree are valuable. However, the core value proposition of HCCs is largely driven by:
- Access to individuals currently flying “under the radar”.
- Legal frameworks for compliant non-accredited participation.
There’s no denying that many of these characteristics largely classify a majority of these tokens as securities, meaning there are strict guidelines that must be followed before these offerings can go live. What we’re seeing now with the NBA’s pushback on Spencer’s contract is a perfect example of where innovation can falter due to a fear of change and a lack of education.
In order for these projects to really take off, there need to be avenues for individuals across the globe to participate with as little as $1 in their favorite athlete or influencer.
Until then, we’ll continue exploring the fringe of web3 innovation.
If you or your project are curious to learn more about the advent of personal tokens and how they can play a role in your career, give us a shout!
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See you next week!