Two of the biggest challenges for Web3 projects are marketing and community engagement. There are a lot of crossovers here, with the common goals of expanding audience reach, strengthening relationships with members, and increasing revenue. No boilerplate solutions exist to address these challenges, however, savvy projects are exploring how financial incentives through a community wallet strategy can begin to address these common challenges.
As a builder and Web3 business owner, I’ve seen the power of community wallets firsthand. Some of you reading this might have already seen or engaged with similar strategies. Deploying a community wallet incentivizes engagement while serving as a great marketing device to gain visibility and increase traction. NFT Marketplaces are at the heart of this strategy, with projects that own their marketplace taking control of their business model and preparing for long-term success in the space.
Instead of battling for users by offering the lowest platform fees, use these fees to your advantage. The battle to 0% fees benefits no one, as projects struggle to generate revenue and users miss out on platform development and better experiences made possible by the platform revenue generated. Instead of fighting this losing battle, a community wallet can become your secret weapon by appealing to users in a different way.
What’s a Community Wallet?
A community wallet is a mechanism built into NFT marketplaces to financially reward active members for their participation and engagement. Funds accumulate through platform fees, but instead of rewarding founders, the revenue generated is paid out to community members. There are many ways to execute this strategy, and it’s a great opportunity to get creative around marketing and engagement.
Perhaps the most well-known example of a community wallet comes from LooksRare. This decentralized NFT marketplace prioritizes their community by rewarding traders, stakers, creators, and collectors for participation. LooksRare redistributes the 2% platform fee collected with each transaction to platform users that stake the LOOKS token. In addition to the 100% of wETH collected and redistributed to active participants, users earn LOOKS rewards by simply trading qualifying NFTs. This incentives trading volume above and beyond the rewards earned by staking.
I love this example of a community wallet in action, as LooksRare got creative with their approach and benefited massively from the exposure it generated. Seemingly overnight, the platform became a household name by deploying this strategy alongside potent messaging within the NFT space. At the time this was a novel concept, but now as the promise of creator royalties fades away, I believe this approach will become more common.
Gamifying Engagement & Acquisition
NFT communities are still largely driven by financial incentives and captivating communal experiences. Projects that deliver on these expectations can more easily acquire new members. Gamification through a community wallet kills two birds, financially rewarding participants in a fun way.
Every community has a different vision or mission. It is very powerful to look at your project’s goals and determine how a community wallet can advance them. The simplest execution of a community wallet is to collect platform fees and evenly redistribute to all participants. But more gamified approaches are possible with some creative thought.
Perhaps you want to incentivize trading volume and decide to reward the most active buyers and sellers on the platform with higher rewards. Or maybe you want your community to create and mint more NFTs in your marketplace, so you reward creators who generate the most sales. Gamifying your platform in a way that rewards the top players for their engagement is very powerful.
Again, this strategy is great for community engagement and marketing. When new prospects see an opportunity to earn in a fun way, you’ll capture their attention. The perception of getting cash back has always been a smart sales strategy, out delivering competitors in a cost-effective way. The NFT space is no different, and adjusting fees to gamify your community wallet can become a key differentiator when done effectively.
Learning from the DAO Treasury Model
A slight variation of this strategy is already being used by DAOs, collecting funds in one wallet and enabling redistribution. Typically in the DAO model, the use of funds is subject to vote, as DAO members all have influence over these decisions. As revenue and financial contributions are collected, members are all empowered by the chance to impact the trajectory of the DAO via votes on the use of funds.
This model being implemented by DAOs can serve as inspiration for other web3 projects seeking ways to empower the community. Community wallets put members in the driver’s seat, which is a powerful position to be in. The power inherent in financial decision-making incentivizes members to join certain communities for this access and remain engaged to ensure their voices are heard.
NFT creators and businesses exploring this technology are already losing control of their business models. This is due to the rapid evolution currently underway with blockchain still a new technology. A potent solution exists in ownership of marketplaces, and this can be made even stronger through creative use of the platform fees inherent in all marketplace applications.
Community wallets are just one example of the ways to play with platform fees and empower members in the process. When carried out successfully, projects can better control their royalties, incentivize engagement and improve acquisition.
If you’re interested in exploring how NFT marketplace infrastructure and tooling can unlock new ways to take control of your business model, schedule a live demo with Liteflow today.