Did Reddit Just Rug Pull?
On October 17th, Redditors around the world embarked on their daily routine: a groggy stroll to the kitchen, poured themselves some coffee, and cast a glance at their wallet apps that would leave them spitting out their coffee in disbelief.
The reason?
The value of their beloved Reddit cryptocurrency, Moons, had vanished into oblivion.
Down by more than 90%, after Reddit announced that they would pull the plug on their three-year-old project of tokenizing community engagement on November 8th.
For some, for many, Moon, the ERC-20 token for r/CryptoCurrency and Brick the ERC-20 token for r/FortNiteBR had become sound investments, especially after Moons skyrocketed to a 0,50$ ATH back in August 2023 after being listed by Kraken.
Some had invested their savings in it, most of them had invested hundreds, if not thousands, of hours on community engagement over the last three years, accumulating Reddit cryptocurrencies. Others, downright used their Reddit activity as a source of monthly income.
Those Redditors felt robbed and are now screaming that Reddit did nothing less than rug-pull them
So what happened exactly?
The Tokenisation of Reddit
In 2020, Reddit decided to tokenise their community engagement rewards — karma — in a bid to fully step into the web3 space.
It’s crucial to highlight that when they were first introduced, those two tokens (Moons and Bricks) held no intrinsic value beyond the confines of the Reddit ecosystem.
Their primary purpose was to facilitate the acquisition of exclusive membership badges, unlock special privileges such as hosting AMAs or giveaways, and participate in voting for governance matters within the subreddit as well as the overall governance of Reddit’s cryptocurrency, yada yada yada.
Side Note:
The “Donuts” cryptocurrency for the subreddit r/EthTrader predates the Reddit project. According to the community, it was launched in 2019. Although it is considered to be integrated into the Reddit blockchain ecosystem due to Reddit’s provision of crypto-related perks, Donuts are maintained “outside of Reddit’s control by keeping them on the mainnet and Gnosis chain, maintaining their decentralized nature.”
Which explain why the prices jumped back after a momentary panic post Reddit announcement.
Starting 2021, Moons started gaining real monetary value as it was listed on exchanges like MEXC Global and HTX.
As of now, Moon has been listed on 15 crypto exchanges among which Kraken and Crypto.com, while Brick is available on 9 of them.
During the summer of 2023, when Moon’s popularity soared, the Cryptocurrency subreddit was filled with Redditors creating enthusiastic and ecstatic posts about it, day after day, hour after hour.
That was it.
During the next bull run, they would all become wealthy beyond imagination. They were literally sitting on the goose that would lay the golden eggs. All they had to do was continue accumulating them through community engagement and purchases.
One can then understand why Reddit’s announcement came, rightfully so, as a devastating shock to them.
Since then, the impacted communities have tried to find a way out.
The tokens are still here. They can still be traded. And in good crypto fashion, the prices have been jumping up and down since the announcement.
But, the reward program is gone. So people who used community engagement as a revenue stream are doomed.
What gave the tokens value and made them more popular than r/EthTrader’s native token, Donuts, was Reddit’s backing, and it is no more.
It was a centralized project run by Reddit, so, unless Reddit chooses to organize a kind of full transfer of power to the impacted communities, it’s hard to see how these projects could rise from the ashes.
Some reddit contributors are trying to think outside of the box and find ways to rebuild Moons and Bricks as independent projects.
While others are threatening to sue Reddit for rug pulling on them, and insider trading, although Reddit declared that any Community Points held by the company would be burned.
So why did Reddit choose to put an end to this project?
The end of an era
Some would say this decision could have been foreseen.
Reddit has decided to cut cost in 2023.
Leading them to a worlwide and weeks long crisis, during the end of this spring, when subreddit mods shut down their subreddits in protest of Reddit charging third-party app developers more money to use its programming interface.
Which would mean for most of those apps, popular within the Reddit community, that they would have to shut down, since it would become finacially unsustainable to go on for them.
Reddit’s argument was that it was actually unsustainable for them to go on with the status quo.
Consequently, a slew of those third-party app shut down: Apollo, RIF, Sync, and Boost,… The ones left had to convert to subscription-based model.
But the probability is high that the ones left won’t thrive much and in worst case scenarios would not survive much longer, in regard to the drop in users due to the new pricing policy, as well as Reddit’s API extremely high cost.
During the crisis many articles claimed that Reddit’s strategy was as simple as wanting to “kill third-party apps.”
For Apollo’s developer, Christian Selig, the new pricing raises questions about whether ‘this pricing is based in reality or remotely reasonable.’ He drew a comparison between the API costs of Imgur, a site similar to Reddit, which charges $166 for 50 million API calls, and Reddit’s new pricing, which was $12,000 for 50 million requests.
The desire to cut down costs is also at the core of their decision to shut down the ‘blockchain project,’ even though they didn’t address the subject in their announcement.
But the beans were nevertheless spilled in an interview with TechCrunch: ‘Though we saw some future opportunities for Community Points, the resourcing needed was unfortunately too high to justify,’ said Reddit’s director of consumer and product communications, Tim Rathschmidt.
In short, running the project is costly for Reddit, and they cannot properly extract monetary value from it unless they dump their bags, which could lead to image and possibly legal consequences.
As they underline in their announcement, it is the main argument — even the sole argument — for the shutdown. They could have the SEC breathing down their neck tomorrow, as the regulatory environment concerning crypto has significantly tightened over the past two years.
Not only do they lose money, but they could also have to face costly lawsuits.
That’s why for them this project has “scalability limitations” that justify putting an end to it, in favor of this new program they just launched three weeks before the shutdown: the Contributor Program.
Conclusion
This whole story could probably act as a cautionary tale on the perils of centralization.
While Moons holders find themselves drowning, Donuts holders, though not thriving, are still breathing and promise to rise again like a Phoenix.
As one of the r/ethtrader contributor put it the “Biggest Disadvantage of Donut turned out to be the biggest Advantage.”
While many are devastated on the r/cryptocurrency, others rejoice.
Because the reward tokenisation had many perverse effects on this subreddit.
Redditors who used the platform to generate income were farming money at the cost of the quality of their posted content.
Which translated on mass posting.
As one of this subreddit user pointed out just days after the announcement:
“Before we got links after links or posts every 5 or 10mins. Now it’s roughly 2–3 a hour. The amount online averaged around 4k now only around 2.7k online..truly shows how much of an impact it’s had on this community.”
Mass posting of such bad quality that it was in fact “mass spamming” as it was so rightly put by another user:
Thank the effing Lord. This moons caused so much shit tier spamming for over a year. I hope all of you farmers enjoyed your endless copy-pasta of links and articles for your moons.
I think it funny how we preach the benefits of centralization only to have a centralized actor rug this coin.
The tokenization also impacted the quality of discussions, leaving little room for insightful debates.
If you didn’t conform to the echo chambers by expressing a completely different opinion, you risked receiving massive downvotes, resulting in financial losses.
The way people interacted with each other was also impacted.
Way too many r/cryptocurrency users behaved like upvoting someone’s post or comment equated to them losing money.
All in all, the tokenisation of community engagement produced the worst version of Reddit yet.
And, apparently, Reddit learned nothing from it.
The Contributor Program, which they intend to replace the blockchain-rewarding program with, will offer real-money incentives and will be open to a very large number of communities, if not all. This promises a repetition of what happened to r/cryptocurrency on a much larger scale and could affect the overall Reddit user experience.
Which led Redditors to express their discontent, if not horror, at this new ‘improvement’ loudly and clearly.
Although as of now, no one knows if Reddit will be succesfully dragged to court by thwarted Redditors or if they will face lawsuits from US legal authorities, one thing is certain though, the next r/place event will probably be full of “Fx Spez,” yet again.
Sometimes when I feel bad about decisions the company I work for makes, I head over here to read admin updates on Reddit’s decision making.
Nothing can top this place when it comes to awful decisions and even worse announcements of such decisions. — a Redditor in response to the announcement of the contributor program
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