In the context of crypto, social networks are better described as socioeconomic networks. The major difference being that economic utility is built natively into your group chat. Communities are structured around a shared treasury, with each holder staked in its success through token ownership. Large treasuries are made up of primarily ERC-20 tokens, which offer more liquidity, diversification, and accessibility.
Despite this, not all communities need a token. In fact, most don’t. NFTs are an improved model for fungible social tokens.
Psychology of a non fungible holder
ERC-20s are unfriendly to crypto newcomers. They can’t be reproduced as memes, they can’t be turned into profile pictures, and they can’t be flexed on a bracelet. While the average consumer associates tokens with scams and cautionary headlines, NFTs enable holders to push back and create their own narrative through storytelling and content.
NFTs are a shareable display of our social capital. First, kids buy Fortnite skins online, then moms buy Bored Apes on-chain. Both actions are one in the same. As owners, they allow us to signal wealth, intelligence, and belonging.
Coupled with signaling, most purchase NFTs with the expectation of an immediate flip. As a result, the user class isn’t inherently different from DeFi protocols. Best case scenario: they are community driven, long term holders, provide network effects through marketing, and are comfortable with their NFTs being fairly illiquid. Worst case scenario: they buy Kevin. The latter is increasingly common as NFTs grow in popularity and noise.
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Thankfully, new experiments with membership NFTs are pushing the space forward. Communities like Info Token DAO and Crypto Packaged Goods have pioneered the framework of membership NFTs as utility. They enable holders to get access to deal flow, incubate products, and put a price tag on a seemingly invaluable asset: relationships and the alpha that comes along with it. The floor price of each community has exceeded 13ETH and 70ETH respectively for some time now. The best part of it all? No one is selling.
Holders are part of a community and also hold a unique identity – all while the founder’s reputation underpins the value of the original asset. The best NFT collections are DAOs, with NFT holders as voting members over treasury and project initiatives. Each collective is a brand with its community being incentivized to distribute, collaborate, and co-create.
NFTs also enable long term incentive alignment. The illiquidity of the token has acted as a selecting function for members who are long-term bullish on the project. Instead of chasing after high APYs, users are left with no other option but to find projects whose team, products, and mission they believe in – similar to a first-time pre-seed angel check.
NFTs are a step toward new social interactions. The use of treasuries, funded by the project's revenue, is growing in popularity as communities seek to act on their ideas. Each group is establishing its roles, values and codes of conduct — often in a way that echoes the animal traits or ideas in a single piece of NFT artwork.
The most progressive communities are thinking about how to add value for members through perks and exclusive access. Combining NFTs with governance structures seems like a natural alignment of values that rewards ownership and community participation.
Here are a few examples of what membership NFTs enable:
To offer an example:
A nascent creator has to bear the responsibility of tokenomics, setting up a liquidity pool, and facing the pressure of price volatility.
Social tokens are to communities what IPOs are to startups. Approaching the public markets takes time, and for good reason. Ahead of a public launch, NFTs can be used to achieve similar incentives.
Here are a few ideas that uncover the early design potential:
Why ERC-721s should be considered a standard framework for community incentivization: