This is the second in a series of four posts on design principles for economic architecture in the context of Kin. If you haven’t read the first post (Defining a Healthy Kin Economy), I would recommend starting there as it provides the foundational context that we’ll build on here.
In the first post, we aligned on the fundamental why of the Kin Ecosystem: a digital sharing economy of equal opportunity where everyone is fairly compensated. This post will take a deeper look at the stages of ecosystem development to effectively scale, while maintaining alignment of the ecosystem core values.
There are three key design principles that we need to optimize for:
- Consumers are empowered to create value for each other.
- Creators are incentivized to collaborate with a unified mission of consumer value creation.
- All stakeholders are fairly compensated for their contributions to the ecosystem.
The power of cryptocurrency is the alignment of incentives. Everyone participating in the Kin Ecosystem is a stakeholder and is economically aligned to maximize total value creation.
- Consumers have an opportunity to capture value through participation. By having a stake in the ecosystem, any value creation provides direct impact
- Creators move away from a model where the goal is to capture as much market share as possible and extract as much value from it as possible. The goal is to facilitate value creation; moving from competition to collaboration.
In order to effectively launch the digital sharing economy, there are three distinct phases to go from initial launch to a sustainable decentralized ecosystem: 1) launch, 2) growth, and 3) maturity.
The initial launch of the Kin Ecosystem is a critical first step to set the trajectory of sustainable ecosystem development. The key focus here is to engage a group of influencers across the stakeholder groups that will be the foundation for organic growth. This stage requires significant investment from the Kin Ecosystem Foundation to bootstrap the value generation and effectively move from a nascent state to a steady state. Three variables to consider:
- Qualify the opportunity
- These initial ecosystem participants are the influencers/early adopters. By delivering strong value at the outset, these stakeholders will be able to effectively evaluate the opportunity and be willing to invest their time and resources.
2. Convert to active participation
- It is critical that we move early adopters to retained, active participants. These initial influencers (both consumers and creators) will be the beachhead from which Kin will continue to grow.
- Initial rollout of the Kin Rewards Engine (KRE) and user rewards (UR) are two key tools to stimulate productivity in the ecosystem and recursive behavior.
- Subsidies/grants are another important tool that the foundation can implement to provide disproportional value to early adopters, entrenching them in the ecosystem.
3. Empower influencers
- As a foray to the growth phase, it is important that the initial group of influencers are not only retained and active, but empowered to be value creators in this consumer-to-consumer (C2C) economy. All three stakeholders play a unique role in growing the ecosystem, and all three are economically aligned to see the ecosystem grow. By empowering each stakeholder group to generate and capture value, they will be the catalyst for organic ecosystem growth in the growth phase.
The focus of the growth stage is to catalyze the momentum of the launch phase to move to organic growth, effectively moving from the bootstrapped push strategy in the initial launch to a push/pull strategy in the growth phase. This is accomplished by:
- Implementing incentive mechanisms
- The design principles of the ecosystem are architected to reward participation and align incentives across stakeholder groups to effectively grow the ecosystem.
- The KRE and UR are powerful acquisition and retention tools; additional developer tooling and C2C frameworks will provide the requisite resources for stakeholders to benefit from the incentive mechanisms.
- Steady growth in the value of the ecosystem will be a key variable to attract further participation and support the increased circulating supply via the incentive mechanisms.
2. Empowering influencers
- The beachhead of influencers that was established in the launch phase will be the most important acquisition tool in the ecosystem. By effectively empowering these influencers to generate value, while putting the appropriate reward mechanisms in place for them to capture value, they are equipped and incentivized to grow the ecosystem.
The end state of the Kin Ecosystem is a digital sharing economy where consumers are providing value to each other, and digital services act as facilitators of value creation and sharing. In the mature state, the foundation’s role is to govern the design principles. However, the ecosystem should be at a level of sustainability where the value proposition is clear, and does not require bootstrapped methods — effectively reaching a pull strategy through effective design principles. The key dependencies of a mature state are:
The value of Kin should reach a state of low volatility, free from capital control measures. By having an underlying currency with low volatility, the stakeholder groups are able to operate within the ecosystem with low cognitive burden and high predictability of their relative impact on earn and spend.
2. Breadth of experiences
In the mature state where consumers are generating sustainable value in a C2C environment, the stakeholder groups need broad optionality in participation. This effectively empowers all participants to uniquely maximize their talents in creating value while also finding meaningful ways to spend.
High consumer choice is a key variable in an efficient market. This ensures that the highest quality of experiences are available through healthy competition. This also ensures efficient pricing, as the consumer optionality will move the market to an efficient state, free of capital controls from the foundation.
3. Mobility across the ecosystem
For the ecosystem to reach its maximum potential of impact, the consumer must be able to move efficiently across the ecosystem. This ensures consumers can maximize their value creation and have the opportunity to immediately spend the Kin they acquired through their generated value.
This is an important component in value stability as it reduces the friction of transaction velocity.
Focus on Launch Phase
The foundation’s immediate focus is on the launch phase. Kin’s ability to reach a level of sustainable impact is contingent on establishing a group of early participants with sufficient stake in the ecosystem, and empowering those stakeholders to influence the trajectory of the economy. The objective of the foundation is to establish this beachhead and put the right tools and incentives in place for that beachhead to influence the growth of the economy.
Consumers: User Rewards (UR)
In order to effectively empower consumers to generate and capture value, the incentives need to align with productive participation. Herein lies a unique opportunity to use Kin as a catalyst for strong user stewardship within their respective communities. The UR model rewards users for actions they are taking today. This is powerful because 1) it is a low-friction way to generate earn opportunities for a user, and 2) it can be a powerful tool to incite productive participation. The UR model should be a core value of the ecosystem in perpetuity as it creates a low-barrier entry point for users, is a strong retention tool, and can be used to reinforce positive behavior. This is an effective way for any consumer to uniquely generate and capture value.
The UR model is a tool to incentivize purposive user action and move users through a productive user journey from activation through recurring engagement. The average user life-cycle, according to the Gartner Hype Cycle at left, has an initial wave of excitement, followed by a drop in engagement (often churned), and a plateau of a steady engagement (those who are retained). By introducing incentive mechanisms that focus on activation and retention there is an opportunity to re-shape Gartner’s curve to incite consistent growth in user engagement.
- Provide user incentives at the outset to generate user adoption, i.e., the Paypal model of seeding users with initial balances.
- Example: IPLv2 has an initial grant to users with a starting balance, but requires at least one user action to earn enough Kin to make a purchase.
- The Venmo model of balance waiting for a new user upon activation (social activation).
- Increase the user payout in the initial phases of a user lifecycle by rewarding productive engagement; UR payout looks parabolic to the “trough of disillusionment.”
- The key focus at the outset is investing in early influencers; generate a high stake in the economy for those who perpetuate desired user behaviors: invites, high velocity spending, people who earn and spend, promoting recursive participation (e.g., top-ups, streaks, etc.).
- Moving users from experimenters/passive users to engaged influencers who are empowered to generate organic growth in the C2C economy.
A key design question is: how much control goes to the digital service to determine their own UR model within their digital service, and how much is set at the discretion of the foundation? The working hypothesis is that there is a mix of standardization and bespoke opportunities. This mix is important to finding the balance of unique value proposition across digital services while maintaining relative parity among initial partners to mitigate the potential of marginalization in a nascent market.
In the C2C Kin Ecosystem, the digital services play an integral role in empowering consumers to create value for each other. It isn’t just the best developers, or the best artists that can create spend opportunities for other consumers. There is unique value that each consumer can bring to their communities, and the KRE should effectively reward this. A vulnerability of the KRE is that the payout is aggregated at the digital service level. A rational digital service operator will redistribute a portion of the payout to their users because, if done effectively, this can stimulate more transactions within their digital service and increase the expected payout of the KRE in the future. The risks are:
- Digital services act irrationally and choose not to redistribute any of the KRE to users (i.e., prisoner’s dilemma).
- Digital services redistribute but do so ineffectively (extreme example = pay bad actors).
Note: We’re evaluating the potential of the UR model algorithmically embedded in the KRE payout at the outset, and possibly in perpetuity.
Digital Services: Kin Rewards Engine (KRE)
The KRE is a large carrot for the ecosystem in a stable steady state. However, it is important to look at the KRE for initial launch partners as a second derivative benefit while focusing on key benefits of ecosystem participation: audience growth, innovation, thought leadership and non-KRE based monetization (e.g., redemption opportunities, etc.). The initial launch phase will provide an opportunity to test, measure, and iterate the initial rollout of the KRE methodology. Initial launch partners will have an opportunity to optimize for the Rewards Engine and evolve their service as the KRE methodology evolves towards autonomous algorithmic payouts.
The KRE payout curve should follow the same curve as the diffusion of innovation curve as a design principle to optimize for the cohorts of digital services.
- Initial partners: innovators and early adopters.
- Focus on partners who see the KRE as a secondary benefit (nice to have); these will be the key influencers in ecosystem development.
- Roll out a scaled KRE payout to: 1) give early partners an opportunity to experience the KRE; 2) test the effectiveness/impact of the payout; and 3) make any necessary iterations/course corrections to maximize the impact of the KRE
By focusing on innovators who don’t rely on the KRE as the main driver of their participation, a stable circulating supply is maintained at the outset. This creates an environment where digital services are generating momentum within the ecosystem under a stable supply.
- The KRE is an activation tool for early adopters who recognize the potential to generate initial stake in an ecosystem with potential to grow.
- The KRE payout rewards consistent participation and continued innovation/development across partner cohorts.
- Innovators and early adopters are in the best position to capture the highest payout in perpetuity with an entrenched user base and experience building in the ecosystem.
The key to the KRE maximizing its potential is that the incentive to collaborate needs to be higher than the incentive to capture more market share. In the context of Kin, market share = supply of tokens, so the distribution algorithm needs to optimize for the following equation:
Appreciation in value from collaborating > opportunity cost of collaborating
A working hypothesis is to incorporate a portion of the KRE to referrals. For example, if a digital service redirects a consumer that is a consistent earner in their service to spend on another digital service where the consumer gets great utility, the referring service should get a portion of the payout. Vice versa, if a service has great ways to spend and redirects a user to gain the requisite purchasing power by earning in a different service, they should capture part of the associated payout. This collaboration creates the most efficient market, and at a macro level, everyone benefits most; however, the incentives need to be in place to effectively incite this behavior at the outset.
Initial Beachhead at Launch
It’s important for us to establish a beachhead from which to launch the ecosystem. By going deep and not wide, we are able to deliver an impactful experience and establish a cohort of influencers. These influencers are the foundation on which the ecosystem can deliver meaningful impact and scale. The beachhead is formed through a correlation in a variable among digital services. The two obvious variables are consumer and vertical, which are not mutually exclusive.
The key focus is going deep on a consumer segment and identify the blue ocean opportunities within that segment — delivering impactful experiences across verticals of digital services that cater to their unique needs. By focusing on a specific consumer segment, they become the influencers on which the ecosystem is seeded. This also reduces the barrier of entry for initial partners because they are entering an ecosystem where the segment is tailored to their strengths, and the other services are “in theory” complementary to their offering — fostering an environment of collaboration. This also gives us the opportunity to assess which verticals are going to be most impactful in this ecosystem, and double down on the verticals that are providing the most value to consumers.
There is no other ecosystem as uniquely positioned to satisfy the wants and needs of U.S. millennials and teens. Kik, as the first to introduce Kin, has experience building innovative products for this segment, knows what engages and drives them, what brands they admire, and how they behave and interact in a virtual environment. Millennials are mobile first: digital natives who are in the best position to have the most impact and influence in a consumer-to-consumer digital sharing economy. By starting with U.S. millennials, the ecosystem will be working with a cohort of users who have global influence. Many millennials are expressive communicators, experience seekers, and conscious of their identity. They are overly curious and usually the first segment to adopt a novel technology, which makes them an excellent demographic for the digital sharing economy.
Digital services serving this demographic are inherently socially scalable in nature, serving a launch-pad to successfully serve the Kin Ecosystem, and creating a force-multiplier for user adoption and engagement. The focus is on community driven social experiences, which includes marketplaces for virtual goods, shared service economies, other communication tools, knowledge marketplaces, and online games. These services are natural places for users to generate organic earn and spend opportunities, driving sustainable growth.