Rise of Social "Money"

By Market Militia | Market Militia | 21 May 2020


Opinions expressed in this article are not financial advice. Please always do your own research before making a significant investment.

 

If you visit one of the many websites providing data on cryptocurrency markets you will notice that there are thousands of different kinds of "coins" and "tokens" vying for your attention. There is Bitcoin and Ethereum, but way way way down the list you'll find a Bitcoin God and an Ethereum Gold among many other copycats. 

Most crypto-assets don't seem to have found demand for their use cases. Sure, they might have a bright future one day, but there is no evidence of clear demand for many crypto-assets out there. However, one type stands out to me as an asset with real potential and that is the social network utility token. 

Example of Social Utility Tokens: 

BAT Token (Brave Browser)

MINDS Token (Minds.com)

1UP Token (Uptrennd.com)

LBC Coin (LBRY.tv)

STEEM (Steemit.com)

HIVE (Hive.blog)

I'm sure there are more, but I really only like a handful, in fact, half of the tokens mentioned above are unattractive to me. I believe there will be a bright future for social utility tokens, still, how they are structured is incredibly important to their success. 

Most social utility tokens are backed by promotional value. For example, MINDS tokens can be used to promote your message to 1000 people on Minds.com and 1UP tokens can increase visibility of your content to 10 people on Uptrennd.com. This is a model that I can really get behind. 

"Social Money" Is Not Created Equal

If I were to bet on what social utility tokens are most likely to succeed it would be the ones that live on Ethereum such as BAT, 1UP and MINDS. Now, these tokens are going to have stiff competition as Reddit continues integrated their social platform with Ethereum. However, social utility tokens created on Ethereum have a major advantage over independent blockchains. 

Currently, STEEM and HIVE do not provide much in the way of utility for their assets. These two assets don't really offer promotion in exchange for the native asset like BAT, MINDS and 1UP do. They also don't have an atmosphere of social equality and communication but more of a "battle of the stakers" mentality. 

Most importantly, however, independent blockchains are not plugged into the rapidly growing DeFi economy that lives exclusively on Ethereum. Even bitcoiners are chomping at the bit to get into Ethereum's bustling economy with initiatives like tBTC and wBTC. 

All the social utility tokens built on Ethereum benefit from access to this new and thriving economy. BAT could be used as collateral for loans in the MakerDAO application, and if 1UP, MINDS and even popular Reddit community tokens grow to adequate demand they might one day be used for collateral as well. 

 The Minds & Uptrennd Advantage

Social utility tokens tend to have one serious disadvantage to other crypto-assets, which is that those earning the tokens usually plan on selling them right away. Steem and Hive try to slow this process down by turning half the tokens into a stablecoin or by requiring you to accept your rewards as pre-staked with a slow payout of 13 weeks. This is smart, but there is something better...

Minds and Uptrennd assets live on Ethereum, this means that they can benefit from all the open finance applications such as Uniswap, the 100% decentralized crypto-asset exchange. You can buy and sell tokens on Uniswap, but even better than that, you can provide liquidity to earn interest on every swap. 

Next up, we need to discuss why you, as a content producer on Minds.com or Uptrennd.com NEED to become a liquidity provider on Uniswap. 

Earner vs. Hodler

You work hard on your content, so of course you should reap the rewards and buy yourself something nice. However, the guy that bought two pizzas for 10,000 BTC years ago is probably really pissed. You could be that guy.

I'm not saying your tokens will 1,000,000X like Bitcoin did, but 100-1000X is entirely possible for many crypto-assets. Additionally, if these crypto-centric social networks are becoming a serious income source for you, then you do not want to contribute to depressing the price. 

In fact, the greatest danger to a social network with a utility token  is all the earners constantly rushing to sell as quickly as possible for BTC, ETH or USD. Once a network has reached a level of stability it is much safer for people to sell their tokens without hindering the ecosystem.

So here's a great way to make passive income with your tokens: Become a liquidity provider on Uniswap. Liquidity providers supply a "liquidity pool" with some ETH and some of the tokens so that the asset has adequate liquidity so people can swap ETH for the token or the token for some ETH. 

The pool receives 0.3% as a fee for every exchange that occurs, increasing the overall supply of ETH and tokens in the pool. This also means your share of the ETH and tokens in the pool increases as well. 

Let's drive this concept home with a quick example. If a pool had $1,000,000 in liquidity and its trade volume averaged 25%, without counting compound interest the flat rate profit would be $273,750 for the pool. That means you can obtain a good amount of passive income from your earnings for producing content. 

Becoming a content producer in the new industry that pays them in crypto-assets can be very lucrative. However, in order for this to happen content producers need to adjust their mindsets from that of someone seeking fast cash to someone investing time and money into themselves and the communities they believe in. 

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Market Militia
Market Militia

The Market Militia blog discusses decentralized and open finance being built on blockchains such as Ethereum as well as the benefits to human liberty that can be achieved through concepts such as "digital constitutions" through distributed systems.

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