This picture comes from the now-defunct web page for Reddit’s Group Factors documentation. It ought to function a sobering warning and reminder to all initiatives contemplating launching a token in Web3. As normal, excuses abound. Regulatory uncertainty. Scalability points. The reality is that many rewards applications endure a worthless destiny as a result of their tokenomics haven’t been rigorously thought of. Let’s now take a more in-depth take a look at what classes will be realized from this collapse, and name upon everybody constructing in Web3 to take heed and keep in mind that with no rigorously applied and sustainable tokenomics construction, you, too, will get despatched dwelling as a result of “one thing went incorrect.”
In early August, the costs of the native currencies for 2 Reddit communities, MOON and BRICK, swelled about 40% and 76% respectively after cryptocurrency alternate Kraken listed them for buying and selling. The Moonboys have been overjoyed. However simply over two months later, on October 17, Reddit introduced within the r/CryptoCurrency subreddit that whereas they noticed some future for Group Factors, there was at present no path to scale it throughout the platform.
Similar to that, this system was shutting down. So, what occurred? Let’s begin with the fundamentals.
The Reddit Group Factors system was an experimental Web3 person rewards system. It leveraged blockchain know-how to offer customers factors for his or her interactions and contributions to the platform. Group Factors are, sorry, have been, digital tokens earned by partaking in sure subreddits and will unlock particular entry or perks inside a neighborhood. It began out on the Ethereum blockchain, after which migrated to Arbitrum Nova, a layer-2 scaling resolution that launched in 2021.
Reddit Group Factors have been saved in “The Vault,” which was an Ethereum pockets within the Reddit cell app. Customers may entry their Vault to verify their Group Factors steadiness from totally different subreddits, or switch and spend tokens.
r/CryptoCurrency Moons ($MOON) launched in Could 2020. Moons have been the Group Factors ERC-20 tokens given as person rewards for upvotes on posts and feedback on the r/CryptoCurrency subreddit. Extra upvotes, extra Moons. Easy. Moons have been additionally earned by partaking in polls and different actions on the subreddit. Moons have been distributed month-to-month primarily based on person exercise.
r/FortNiteBR Bricks ($BRICK) have been a well-liked Group Factors token as nicely. These have been earned in an identical method and in addition distributed to customers of their Valut as soon as a month. It’s price noting that the subreddits r/CryptoCurrency and r/FortNiteBR are very fashionable, with 6.6 million and a couple of.6 million members, respectively.
So why shut down their tokens? Within the subreddit submit saying the tip of the Group Factors program, which will probably be phased out by early November, Reddit made an effort to point out that they have been attempting to exchange the great elements of this system. Declaring the launch of their new Contributor Program, and the continued use of subreddit karma and gifs. That is all nicely and good, however these applications successfully reward customers with money. They’re not utilizing a token or blockchain know-how.
Reddit is lacking the true downside they bumped into. Once they launched the Group Factors program, they hadn’t found out a sustainable tokenomics mannequin. There was no cycle of financial exercise driving steady demand, and extra importantly, use of those subreddit tokens. No matter how well-liked a given subreddit was, or how fiercely devoted its neighborhood, there may be merely no substitute for actual financial demand in relation to worth creation. Customers would have their tokens distributed as soon as a month, and verify the Vault within the cell app and really feel a rush of gratification, however then what? Dump them in the marketplace?
Finally the one factor customers needed to determine was when to show their token distributions into promote strain. That they had no incentive to carry them. No method to generate yield on them. And finally no cause to go on attempting to earn them since they only continued to extend in provide and reduce in worth.
We’ve additionally seen tokenomics issues destroy token worth for even high-quality and broadly adopted initiatives like STEPN and Gala. If there had been real financial fashions round these tokens, customers wouldn’t be dumping them, and Reddit wouldn’t have shut down Group Factors and reverted to a fiat reward system.
So, what’s the lesson right here?
It doesn’t matter how massive your person base or how loyal your neighborhood, in case you are constructing a token-based rewards system in Web3, it’s vital that you simply design a system of financial exercise across the token that gives sustainable tokenomics and incentives for continued engagement whereas driving worth to the token that’s shared throughout all stakeholders.
It’s not simple, however if you happen to don’t take the time to suppose this by means of and determine a viable resolution, you then, too, will find yourself on the ash heap of Web3. Gazing a defunct webpage questioning what went incorrect, holding a bag of nugatory tokens, with no place to go however dwelling.
