Token Rewards: Fungible Tokens to Strengthen NFT Ecosystems

As we covered in our previous article, fungible tokens and non-fungible tokens (NFTs) serve different purposes.

Because of their uniqueness, NFTs excel at signifying ownership of exclusive items (e.g. art, collectibles, tickets, memberships). They are ill-suited however, to serve as a system that measures and rewards contributions (a “unit of account”), or a payment mechanism (a “medium of exchange”).

Additionally, within a multi-tiered and expanding community, NFTs are a blunt instrument for assessing community sentiment through voting as they are not able to easily account for both ownership as well as community contributions and engagement.

These are areas where fungible tokens excel, due to their quality of being interchangeable and divisible.

As you can see, NFTs and fungible tokens have complementary superpowers. When these tokens are thoughtfully combined, they can deliver a whole greater than the sum of its parts.

Use cases of fungible tokens within NFT communities

We are still early in the adoption curve of web3 technology and business models. Unsurprisingly, there are a limited number of examples of NFT projects with their own fungible (or native) token, and most of the promise of what “could be” has yet to be realized.

Nonetheless, there are a few projects we can look to for inspiration — Yuga Labs has $ApeCoin, DeGods has $DUST, and Cool Cats has $MILK, to name a few.

For the purpose of this article, we will break down native token use cases into 2 categories:

• Rewards — how to receive or earn the native token
• Utility — the value you get from having the native token

The focus of this post will be on rewards, with our next blog post focusing on utility.

Rewards

Native tokens present a massive opportunity for NFT projects and web3 communities to structure incentives that encourage community-building behaviors and ongoing project sustainability. This can be accomplished by rewarding individuals with the native token when they take actions that benefit the project or the community as a whole, for instance:

Let’s dive into a few real life (is the metaverse real life?) examples.

Growth

DeGods with their Welcome Bot program is an example of an NFT project utilizing their native token to encourage community growth and engagement.

New NFT collectors are able to tweet about joining the community, after which they will be sent $DUST, the native token of the broader DeGods ecosystem. Additionally, anyone can welcome a new collector to the community and tweet about it to be entered to win $DUST rewards.

Engagement

In the case of Cool Cats, collectors can earn $MILK through participating in quests (mini-games to play with your Cool Cats or Cool Pets NFTs), incentivizing community members to engage in their new world, Cooltopia, as they continue to build out the ecosystem.

Another example outside of the NFT landscape is Coinbase’s Learn-to-Earn program. Onboarding new users to web3 and educating them on topics like wallet safety helps to grow the NFT ecosystem as a whole. It also can serve to decrease the chances of individual’s falling prey to scams which can reflect poorly on the project and their brand. Projects could use their native token to reward community members for both creating this educational content, as well as completing educational courses.

Contributions

Web3 allows individuals to be both consumers and creators within a given brand ecosystem. Top projects from Azuki to Moonbirds have publicly shared their intent to foster these “decentralized brands” that are built in collaboration with the community.

But how can this be organized and delivered upon?

A project’s native token can provide the incentive mechanism to encourage and support these community entrepreneurs to build out a brand’s footprint. This is seen most vividly with Yuga Lab’s launch of ApeCoin. The ApeCoin DAO uses ApeCoin to fund various community contributions including a media site, a dedicated marketplace, a custom staking program, an accepted payment option on a no-code NFT launch platform, with new proposals being added weekly as one of the most active DAOs out there.

Surprise & Delight

What makes a community member into an evangelist? It’s not when their expectations are met, rather, it’s when their expectations are exceeded or they receive something they didn’t expect at all.

Native tokens provide projects with a powerful and scalable way to “surprise and delight” community members and gamify interactions, creating stronger connections and growing the number of brand evangelists.

VeeFriends would be an ideal project to pursue this type of strategy, as there is so much “surprise” baked into their brand identity already. Although VeeFriends doesn’t have a native token currently, you could imagine a few ways they could go about integrating this approach.

For instance, what if there were “willy-wonka-style” golden tickets hidden in select VF trading card packs that provided the individual with 1,000 VF tokens that could be redeemed for various goods and services? Think of how much organic content that could generate as winners shared their unboxing and discovery of these golden tickets?

VeeFriends is expanding into “off-chain” brand activities as well, exemplified in their recent announcement of selling VF toys through Macy’s and Toys-R-Us. A problem is that the VF team has no way to know who is buying these toys. Native tokens offer a way to change that. If every toy came with a QR code that you could scan to claim your VF reward tokens, the VF team would have a way to learn more about their off-chain community and incentivize them to engage further with the brand over time.

The other side of the coin, token utility

Token rewards provide NFT projects and communities with an incredible opportunity to design and encourage the type of community they want to be a part of to come to fruition, as well as scale their audience without diluting their core collectors.

But rewards are only half of the battle. For these rewards to be compelling, and therefore serve their purpose of creating powerful incentives, people have to see value in having the token. In our next post, we will deep dive into the other side of tokenomics — token utility.

In the meantime, make sure to stay connected with us on our Twitter as well as our website for the latest updates!