News & Resources

Aquanow Digital Dives: The Trend Is Your Friend - Vol. 22

June 24, 2022

In recent weeks, I’ve had the good fortune of attending Consensus and Collision – two important conferences in web3 and start-up technologies respectively. It’s a bear market for asset owners and traders, but there’s no shortage of enthusiasm among the builders and a handful of VCs. We’re going to need folks to join the second group for this all to be sustainable. Though, it seems that some of the teams in these huge crowds are going to “get it right” and their work will help fuel our continued progress. There’s some precedent here because typically periods of economic weakness are followed by significant innovations and many of the world’s most successful businesses were founded during recessions. Who knows? Maybe it’ll be different this time.

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Many on-stage conversations featuring digital asset veterans had questions around how to persevere through these downtrodden days and the universal answer was to block out the negative distractions and keep on building. On Tuesday, at Collision, Kathleen Breitman of Tezos said that she’d be following a similar strategy to last downturn, which involved taking an honest look at which projects were working and doubling-down. The efforts that didn’t show promise during the exuberance of the cycle would be dropped. On the same panel Kyle Samani from Multicoin Capital said he’s full steam ahead in areas like web3 gaming, consumer and social. 

Those ideas resonate with me, as I believe trying to create business models or go-to-market strategies that appeal to our social side is likely to result in a more sustainable ecosystem than “number go up.” Don’t get me wrong, economic models will play a part in the internet’s next iteration, but we’re witnessing the consequences of what happens when financial applications are the core of the system. It seems we’d be better served to use DeFi as an enabling feature of web3 rather than let it guide us like a Northern Star. A few weeks ago, we had a look at some of the developments in GameFi, so this week lets have a first of several digs into some of the cool social applications that are being unlocked through blockchain technologies. 

To me, DAOs are one of the more interesting innovations in this regard and they seem to be picking up speed. Anecdotally, the Discord servers of the organizations in which I participate spend hardly any time talking about the floor price of NFTs or the tanking token. They’re too busy continuing to push their projects forward. Groups of people who don’t even know each other and generally live spread across the world crank out impressive art, research, and businesses. Others have purchased land, endeavour to acquire professional basketball teams, or are reinventing scientific research. The ability to incentivize groups through common values and a token which has the potential for renumeration, or appreciation is just getting started. In a few years time, it seems this space will have transformed considerably. Sure, economics are a feature, but DAOs are social at the core.

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Yesterday, Gucci announced yet another web3 investment as they acquired $25K worth of RARE tokens to join the SuperRareDAO and launch their own exhibition called “The Next 100 Years of Gucci”, featuring the works of 29 artists. While several fashion houses have embraced NFTs, this is the first time one has become a DAO member. It will be interesting to see if the group plays an active role in governance and other DAO efforts. The leader of this initiative for the storied Italian brand, Nicholas Oudinot, commented that he’s excited for the partnership because it provides a platform to reward creators which “is built on a sense of community and that enhances interactions...” 

As Alex Danco likes to say, humans first want to belong and then we want to stand out. He foreshadowed this week’s announcement from Shopify with Packy McCormik here, so it wasn’t hugely surprising to see the e-commerce giant describe how they believe NFTs can be used to enrich the customer experience. 

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It’s worth noting that the most popular decentralized exchange (Uniswap) and the leading online auction house (eBay) both announced acquisitions of NFT marketplaces in the past few days as well. The timing is no coincidence, as NFT NYC was held this week. 

Thought leaders across a number of consumer facing entities from Netflix to The Weekend are using these new technologies to enrich their relationships with fans. To be sure, not everyone likes this direction, but noticing that these experiments keep popping up might suggest they’re here to stay. Not only that, but the top projects have outperformed Ethereum so far this year:

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It’s notable that groups in traditional industry, web2 and web3 are embracing digital culture. Whether this is purely based on profit-seeking will be something to watch.

There are many ways that people are trying to “fit in and stand out” using fungible social tokens too. For example, Seed Club is an accelerator that fosters ways for creators, brands and communities to produce value together through the establishment of a digital asset representing their common goals and values. Over longer time horizons, a token with a fixed supply and rising demand (driven by a desire to participate in advancing a valued cause) can provide economic and social incentives for people to get involved through the acquisition or earning of these coins. Like what Shopify sees with NFTs, social tokens can provide creators new ways to engage their audience and monetise their work, too. Messari has published a “Social Token Bible” that provides a good overview of the space, but it’s behind the Enterprise paywall, so give me a call if you’d like to discuss. They categorize these assets into three verticals:

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In addition to the reasons that Alex Danco has suggested people want to own/issue NFTs, the fundraising aspects of social tokens (fungible or not) allow for creators or communities to get over the “cold start” problem of creating a group. Networks can incentivize interactions in several ways and selling tokens which carry some claim on future benefits (revenue, perks, etc.) is one of them. However, I think NFTs have a demonstrated edge in that the art/visual component is more amenable to signaling than a wallet balance. 

Sometimes the causes we care about have a limited time horizon and social tokens can help along the same vectors above in these instances as well. In October 2021, a lawsuit was filed against the parent company of the PoolTogether dAPP, which is like a no-loss lottery that uses DeFi protocols to earn rewards that incentivise people to deposit their tokens by purchasing tickets in a weekly lottery pool for a chance to win a jackpot. At the end of the week, the winners are paid, and all tickets roll over into the next draw, unless they’re withdrawn by the user. The link above has more case details, but what’s interesting in the context of our discussion is that the group named in the suit launched an NFT campaign to help source funds to fight the legal battle. The Pooly mint closed this week after raising a third more than targeted (over $1M in today’s ETH value). Apart from altruism (and some virtue signaling) there are no explicit benefits, but there’s a precedent for supporters to be rewarded for helping web3 causes in the past.

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I’m a finance nerd and really got interested in digital assets when I heard that people had built on-chain money markets. After ETH (and LTC – don’t’ judge), Aave was one of the first tokens I ever owned. Friends close to me can attest to my brief obsession with (and ongoing affection for) the protocol. So, while I’ve generally kept up on social projects in web3, I’ve been most interested in what Stani Kulechov (Aave's founder) was going to build, since he hinted at such an endeavour about a year ago. In January, the project was unveiled as Lens and in May, it partially opened to users

The protocol is like the connection graph that sits underneath most social media platforms and it’s powered by NFTs, which are dynamic. Individuals can associate themselves with the project by obtaining a Profile NFT and groups can have one sit in a multisig wallet to operate cooperatively. “Following” another account generates a unique token that belongs to the wallet holder and can be traded. This enables unique use-cases like providing special benefits to loyal followers or raffles. Content creators can have their publications purchased and traded. Someone who shares the work of another and generates a buzz by engaging their audience/followers would be entitled to “mirror fees” from anyone who also collects that material through this catalyzing action. The use cases are forever evolving because the protocol is open source, so anyone can develop an app on top of it. Imagine: “[s]ocial apps, analytics platforms, verification systems, DAO tooling... whatever you can dream up, you can build.” 

Using the Polygon chain helps Lens stay close to its Ethereum roots while keeping gas fees low, but in its current form the experience is slow, a bit unintuitive, and lonely. Of course, this can all be expected with something so nascent, but we’ll need to see some significant improvements if this is expected to reach the masses. There’s competition too. Dework is positioning itself like a LinkedIn for DAOs. Other groups like Peer and DeSo are building blockchains with specific social use-cases. Execution risk is high. Some projects like Voice on EOS failed to garner sufficient attention despite large funding rounds

Lens appears to have some early traction. The figures below are small in the grand scheme of things, but consider that Lens has been gated, allowing devs the opportunity to scale incrementally, so a user’s first experience isn’t something broken (though it’s not far off, to be honest). Further, this growth has coincided with some of the worst market conditions in digital assets, ever:

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We have evidence that there’s at least a small community of people who aren’t bothered by cascading price charts and instead want to participate in the early days of a potentially revolutionary social experiment. I can say from experience that most of the discussion on the #General channel on the project’s Discord is from people who want the ability to start playing with this new tech. 

This note’s starting to get a bit long, so I’ll close it off here. However, the social motivation for digital asset adoption will be a focus theme over the next while. For an interesting discussion about how the coordination among protocols is likely to bind the threads of the broader web3 social tapestry then check out this conversation that features Evin McMullen of (digital identity), Isabel Gonzalez from POAP (the Proof of Attendance Protocol) and Lens’ Christina Beltramini. We’ll pick up on the discussion another time to see how wallet innovation, digital asset payment rails, and proof of physical work can help shape a better world. 

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