WTF Is... A Social Token

TLDR: Social tokens are crypto tokens that allow individual creators and brands to monetize themselves without an intermediary, creating a direct connection between fan and creator or customer and brand. Social tokens are fungible, or interchangeable, and they typically reward holders with perks, access or potential economic upside if the individual or brand grows. 

The technology underpinning social tokens is the same as with any token. (Read more about what a crypto token actually is to go deeper into the tech.) However, the use case for social tokens is more specific than with any old token: Social tokens are released to raise and reflect a brand or individual’s market worth and to give perks to token holders, typically brand loyalists or fans. Many are ERC-20 tokens

Social tokens enable content creators, artists, celebrities to take ownership of their brands and set their own value directly. They are paid through a token raise, where loyal fans can show their support by buying their social tokens. This engages and often grows a brand’s following and arguably empowers creators in a way that Web2 historically has not. In Web2, creators can interact directly with their fans but compensation is tied to third-party platforms, whether YouTube, Instagram or otherwise. These platforms revenue-share and take fees from the creators. 

Purchasing a social token is a direct way for fans to compensate a creator or brand they follow. And like with all tokens, the transaction is facilitated by and recorded on blockchain rather than a third-party institution. Most often, fans buy social tokens, but some brands or artists might choose to give them away to loyal friends for free. 

Why buy a social token?

Social tokens can guarantee holders with certain perks, privileges or access to an individual or a brand community: for example, crypto media company CoinDesk issued the social token DESK to attendees of various panels at Consensus 2022. The more panels they registered for, the more DESK attendees collected. DESK was exchanged for food or swag during the conference and was strictly used within CoinDesk’s brand ecosystem, akin to airline miles. 

Social tokens can also be a means of exchange, with the creator receiving tips or compensation from fans via the token, as opposed to Venmo or CashApp. Creators and communities can decide whether a social token can be exchanged on a secondary market. In DESK’s case, CoinDesk decided that exchanging it on a secondary market, or directly monetizing the token, is against their Terms of Service. 

Lastly, holders may view their social tokens as an investment: If Lady Gaga had released a social token before releasing “Just Dance,” theory suggests that early holders would have made quite the return by 2023. A Gaga social token would arguably be worth multiples more by the time “Shallow” was released. 

And beyond the benefits of social tokens, tokens can sometimes be used for other things. Token categories are not entirely discrete, and many tokens can blur the line between categories. For example, a social token might also have governance token properties, like voting rights. This is common with decentralized autonomous organization (DAO) tokens, like the $FWB token of the Friends with Benefits DAO. 

Are social tokens the same as NFTs?

Short answer? No. But it’s easy to see why you might think that, considering that many NFTs are being used for similar purposes. 

Community NFTs and membership NFTs mean that NFT holders can gain access to a Discord or a community. Social tokens can do the same thing. But they are fundamentally different types of assets. 

The main difference between a social token and an NFT is that social tokens are fungible — one can always be exchanged for another — and NFTs are unique (non-fungible). Social tokens are typically released in higher numbers while NFTs are released as collections. NFTs often monetize a creation — for example, an artist releases a painting as an NFT — whereas the social token can monetize the artists themselves. 

If you are a digital art investor, buying an artist’s social token is an investment in the artist, whereas if you buy a specific piece of art as an NFT, your return would depend on which piece of artwork you bought. Social tokens and NFTs are changing monetization strategies for creators who need to consider their unique use cases.

“When deciding between NFTs and social tokens, creators should consider their goals and what they hope to achieve,” says Emily Carrig, founder of True Stars, a web3 media brand. “Both can essentially function in the same ways: giving token gated access to unique benefits and experiences and building community around a creator or a brand. Both can do a lot of the same things. The main difference is that an NFT functions as a unique piece of content like a work of art.”

Are social tokens a security? 

As is typical in crypto and Web3, the answer to this question is uncertain. The SEC has not made a universal determination on social tokens, and it ultimately depends upon what the social token entitles people to. A social token that guarantees holders a percent share in an artist’s profits would unequivocally be a security; but a social token guaranteeing access to VIP meet-and-greet events with the issuer would not be. Likewise, social tokens that fluctuate in value with a creator’s or public figure’s reputation or popularity — for instance, think BitClout, which notably are not issued by the figures themselves — but are not directly tied to any revenues or profits are less similar to securities. Yet until there is regulatory clarity on social tokens, creators and fans alike cannot know for sure what the long-term compliance implications of social tokens may be.

To sum it up

Further Resources:

Social Tokens: A Web 3.0 Playbook For Monetizing Yourself

Social Tokens: From Tokenized Things to Tokenized People 

The Financialization of Fandom

For More: WTF Is... A Security Vs. A Commodity

This is not financial advice. If you don't want to spend money investing in crypto or Web3 — you don’t have to. The intent of this article is to help others educate themselves and learn.

Nicole Kyle is a storyteller, podcaster and gender equity advocate exploring the intersection of money, equality, technology, and creativity with a focus on crypto & web3 education.  Nicole is a 2022 LinkedIn Top Voice in Gender Equity.

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