We’ve outlined some core principles of social token design, but it’s equally important to complement such designs with product-market fit that intrinsically motivates users. For example, a play-to-earn game that focuses its efforts on enabling users to profit but that doesn’t get the “play” element right misses the point: that games are, first and foremost, supposed to be played for fun.
A product that’s bootstrapped around a reputation system but lacks true product-market fit risks creating a community of speculators, rather than of actual users.
But once product-market fit is achieved, incentive dynamics take over. It would be very difficult for a platform to scale and reach mass adoption if it doesn’t reward users properly. To make the incentives work, a reputation system should separate social capital from financial capital, particularly if the former offers a clear path to the latter.
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There’s much more to consider here, such as the relationship between governance and reputation; making the reputation system responsive to the evolution of the contributor community; and making reputation building accessible for all types of contributors. But we believe that if builders embrace the two-token system design at a high level, they’ll be able to reward contributors with an authentic reputation signal that holds its value even while generating liquidity. That’s precisely what these projects need to drive growth.
Acknowledgments: This essay is a response to a community request via GhostKnowledge. Thanks to Sari Azout, Christian Catalini, Far, Jihad from Forefront DAO, and David Phelps for their input.
Disclosures: Jad Esber is an investor in a number of NFT and DAO projects. Scott Kominers provides market design advice to a number of marketplace businesses and crypto projects, including Novi Financial, Inc., the Diem Association, and Quora.
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