On-chain Communities

Observations from the frontier of the web

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TL:DR: Creating content with on-chain primitives empowers creators with a direct relationship to their audience without platform dependencies. Disrupting platform dependence for distribution and providing value to their audience can help creators scale faster and monetise more effectively. This will change how we think of communities and creators.

Three eras of incentives in Web3

In 2017, during the ICO boom, we witnessed the explosion of on-chain communities. People would send capital to receive tokens. Financial primitives (like tokens) were powerful tools for building a community, as they gave people a shared purpose, goal and interest. But a year later, when those tokens' prices went down, the communities faltered. We see a resurgence of this trend now with meme assets.

Most airdrop campaigns in Web3 are simply mechanisms to align future incentives (tokens) with current community engagement. Tease a token for long enough, and a crowd will turn up for it. Readers have asked us if we plan to tokenise this blog for similar reasons – as we could acquire attention and engagement for cheap. (To be clear, we have no plans for a token.)

In 2020, as NFTs from games (like Axie Infinity) and NBA Topshot began rallying, markets recognised a new primitive to build a community around. Instead of launching tokens, you could launch NFTs that had supply caps. As long as there was some form of scarcity, the value of the NFT could (hypothetically) go higher.

Financial motives would once again rally communities – and, by extension, value. Yuga Labs and Animoca Brands are two firms that have generated billions in value by focusing on these primitives. Artists like Beeple have made life changing sums of money through demand for on-chain representations of art and content.

As the tools available in our industry evolve, I believe communities will benefit distinctly from integrating NFTs and tokens into their workflows. I have been exploring how this could play out over the past few weeks. This article, is what came of it.

Of Communities and Scale

In a piece from 2014, Ben Thomson breaks down one of the great paradoxes newspaper publishers face. They make just as much in ad revenue as in the 1950s. This is because what they have lost from local distribution (in the form of print media), they have made up for from a global audience base. The problem is that every publisher on the internet has the same advantage now.

In the same piece, Thomson points out a key issue with the state of the internet today:

The Internet, though, is a world of abundance, and there is a new power that matters: the ability to make sense of that abundance, to index it, to find needles in the proverbial haystack. And that power is held by Google. Thus, while the audiences advertisers crave are now hopelessly fractured amongst an effectively infinite number of publishers, the readers they seek to reach by necessity start at the same place – Google – and thus, that is where the advertising money has gone.

You can see a variation of this with communities, too. In the 1900s, your granddad may have attended his local church and had a preferred athletic team and spot for dinner dates. In 2024, his Gen-Z grandkid is likely active on 50 Discord servers, watches only highlight reels on TikTok and barely heads out for dinner.

We once formed our identity based on the tribes we belonged to. Today, we make them off the countless chats or subreddits we hang out in. Pixels on a screen now form the basis of our identities.

Newspapers have simultaneously seen more revenue whilst holding less influence on how those dollars flow to them due to their dependency on Google. Communities see more members while having less influence on how long they can be retained or engaged due to platform dependency.

On Twitter, you can hope to reach 100k users with a single Tweet. But you will be positioned alongside a hundred others vying for the same attention. On Telegram, you can run a massive community alongside 50 other chats with just as many pings. So while you are a part of more communities today, it is unlikely that you feel engaged by any of them. The internet gives you scale, at the cost of attention.

Blockchains enable the flow of value between community and members in a way present-day platforms do not. They can create open reputation-linked graphs that anyone can engage with. This will be a crucial factor to keep in mind as Web3 native social networks emerge.

Let me explain what I mean. Present-day communities struggle to identify or incentivise the most active members. The primary incentive mechanism today is that of status or rank. It works when individuals work in close proximity like they do in the military. But pixels on the internet – such as 'mods' on Reddit – cannot pay the bills. If these contributors were mapped out on-chain, brands could directly activate communities without going through platforms (like Reddit or Google).

It may seem far-fetched, but I have observed a primitive version of this in some parts of the web. In the previous cycle (2021), NFTs were used by audience subsets to identify themselves as core believers. For instance, you could mint NFTs from your favourite authors on Mirror. But this presumes an artist already has distribution, since only a small portion of your audience would want to mint an NFT.

Data source: @Tianqi on Dune

What if you could invert the dynamic? What if an NFT could be rewarded for just reading a piece of content? What if that NFT could be minted directly from a feed?Frames (on Farcaster) has been asking their ±400k users this question.

Feeding The Chain

Frames allow users to conduct on-chain activities (like collecting an NFT) directly from the feed. Creators can subsidise the mint. For instance, I was using LensPost to see some of our content last week, and I noticed it allows creators (like us) to pay for the transaction cost on the chain.

In case you missed it, I wrote a brief on what Frames does a few weeks back.

Previously, users had to go to a third-party platform for a mint. Even if creators subsidised it on Ethereum, the model would cost tens of thousands of dollars to scale. On Base last week, it cost us around $5000 to subsidise 10k mints.

In other words, we could create a social graph of 10k individuals engaged with our content for under 50 cents per user. Why does this matter? Once a user engages with content with credible on-chain proof (through holding an NFT or tokens), you have many ways to drive value to the audience base. Historically, community connection was platform dependent.

We could be deplatformed from Telegram and lose the entirety of our community there. An email filter used by GMail could determine that Decentralised. co's emails are spammy and put us on a blacklist. On-chain primitives insulate creators from that. You no longer depend on a single platform to engage with or give value to your audience.

And why does that matter? If your audience is mapped to wallet addresses, you can gauge their skill sets and economic interactions. Granted, this approach has privacy implications, but it is one way to measure an audience's value. Suddenly, you are no longer talking about the number of likes, views or retweets – all of which can be botted and gamified. You can meaningfully measure the balance, transaction frequency and size of transactions of an audience base.

For micro-niches, this approach can prove to be a gold mine because:

• You can objectively prove how engaged a community is.

• You can verify with transactional history that a community has been engaged.

• You can also look at where else these members are transacting to structure better brand partnerships.

But measuring an audience's value this way is a double-edged sword. On one hand, you could figure ways to incentivise community members – through airdrops (of tokens), or NFTs that give early access to products. On the other hand, it opens up products to vampire attacks. Similar communities looking to onboard community members from a particular demographic could track down and offer perks to onboard members.

Communities will not only have to architect ways to incentivise and engage users, but they will also have to build cultures that keep them there longer. Community managers of the future, will have to engineer incentives (in the form of tokens, NFTs or SBTs) as well as they understand the dynamics of a crowd.

Note: I am specifically talking about digital-native communities here. I doubt financial incentives on their own can convert members of one football club into die-hard fans of another club. 

What would that look like? To answer this question, I looked at what analytical data is available on large NFT collections like Bored Ape Yacht Club (BAYC) today. In the past, your best bet at finding balances of assets held in NFT-linked wallets was to run a query on platforms like Dune. Things have changed, and there are solutions to observe wallet behaviour.

The screenshot below from Bello is a good breakdown of the kind of information that surfaces when communities are built around on-chain primitives.

Image from Bello

For instance, the median net worth of a balance holding Pudgy Penguin's NFT is around $171k. They have been active, on average, for about 2 years. Holders of the NFT tend to be most active on a Friday – and based on past on-chain behaviour, your best bet for an NFT being released today is to have it priced at 0.231 ETH. As a matter of fact, you can also query which of these handles are active on Lens or Farcaster.

According to Bello, about 1.63% of BAYC holders are active on Lens, whilst 1.76% are active on Farcaster. Cumulatively, BAYC holders have made about 34k casts (the equivalent of a tweet) on Farcaster. These are crucial data points that could be used to architect on-chain campaigns.

Don't get me wrong – Web2 has perfected the mechanisms to collect such data on users over the past decade. What intrigues me is how a community's actual net worth can be calculated based on their on-chain behaviour. Why does this matter for micro-niches? All of a sudden, you have a tool to disrupt what has historically been the relationship between platform, creator and audience.

Previously, you had to pay toll fees to platforms like Meta or Google, as they aggregated the outlets through which you could interact with an audience base. With protocols like Farcaster coming of age, in my view, that relationship is about to be disrupted as the data that was historically in centralised databases would now be in the open.

We will soon be able to map out the most engaged users on-chain and be able to see users that intersect between interest types. For instance, today, you can track down users of Bored Apes who have done over a hundred transactions on Uniswap last month. As communities come on-chain, it could be possible to search for power gamers on the Ronin Network who have read about game theory from a creator on Farcaster.

Being able to mix and match interest sub-segments among community members will lead to composable communities: sub-niches that rally around very peculiar taste types.

What does that mean for creators? Driphaus offers some clues. They curates active users on Solana and allows them to collect NFTs from their favourite artists. Instead of collecting rare NFTs with capped supplies, users on Drip usually receive mints that go out to hundreds of thousands of wallets. Users can 'subscribe' to their favourite creators on DripHaus today for $1.

Of that sum, 30% goes to Driphaus, which leaves the artist with meaningful income.

The following table is originally from Driphaus’ seed-stage deck shared by Vibhu on Twitter. It is a good breakdown of how content differs in the context of platforms and on-chain presence.

Last month, 60% of creators on Driphaus earned more than $1000. According to a tweet by Vibhu (Drip’s founder) - the average sum donated on Driphaus is $0.05. While micro-transactions and NFT mints are interesting, what intrigues me is how value can flow back to users. For instance, once an artist has a sufficient audience base, they can whitelist those wallets for early access to a new product launch.

Or they could experiment with giving those users airdrops for the brands they work with. Part of the reason why Pudgy Penguins has rallied in the recent past is the number of airdrops their holders have received. Communities or creator-led groups that are able to verify themselves with on-chain presence will find themselves in advantageous positions when it comes to brand deals.

Multiplayer Games With Creators

found Driphaus interesting because they empower creators to map out their communities with relatively less effort. Creators, would increasingly matter in the context of communities going forward as good art (or content) is where attention aggregates on the internet today. We recognise one another, from similarities in preferred bands, authors or cinema.

Communities that are built using on-chain primitives have the possibility of being composable. What that means is that users can interact with each other to generate value for the whole community. Present-day community interactions are largely top-down. That is, they require creators to constantly come up with new forms of giving value to their audience. But what if, the audience themselves could coordinate on behalf of a creator?

At scale, it allows the community to be a proactive part of how content (or ideas) is created and scaled.

All of this is not news in itself, but there's a reason why I bring it up now.

1. Feeds like the ones on Farcaster allow algorithmic discovery of on-chain content.

2. Primitives like soulbound tokens allow permanent records of user engagement.

Let me step back a little. You used to be able to create content on Mirror and have NFTs issued. But its discovery still relied on your social graph on a third-party platform like Twitter. Creators that already had distribution benefited from them. The shift now emerges from a crypto-native audience gathering on Web3-native social networks.

These feeds, in turn, allow users to mint (collect) or donate directly without ever leaving the interface – commercial interactions between creator and audience at the click of a button.

Being able to pay a creator is not powerful on its own. You could tip creators as little as $0.10 on Medium in 2019. The difference is that now you can gather wallet details and create new user experience sets while having algorithms boost your content. In the past, it used to be that you either had the help of algorithms (on Twitter), or the financial suite a platform like Mirror offers. Present-day tools (like Warpcast), combine on-chain primitives and a very large audience subset.

This means you can specifically open up access of content (or experiences) to wallets with specific peculiarities. For instance, I may want to release a piece of research only to the first 1000 wallets that engaged with Uniswap. Or have an NFT target the most profitable wallets in DeFi. Being able to specifically target on basis of past on-chain interactions is an alternative to the bot-driven Web2 alternatives we have today.

Side note: A soul-bound token is an NFT that cannot be transferred from a wallet. You can read more about it here. Think of it as loyalty points or on-chain attestations verifying a person’s skill.

And why does that matter? Because as a creator, you need to know what audience base you want engaged. Would a wallet with a niche skillset – such as building and running complex ML models on Numeraire – be more valuable than an early adopter of a niche token? It depends on the context. If the creator has been writing about AI, he may want to incentivise the former to be able to mint their tokens.

In the past, niche communities were dark pools of attention. As a creator, you knew little about the people engaging with your content. If you have wallets' histories, and those wallets have credentials in the form of SBTs, you can argue with verifiable proof that your audience base is worth more. Communities formed around such niches could negotiate better deals for themselves.

An early version of this is visible today with YGG. (We'll be writing about them soon.) Gamers playing titles integrated by YGG can receive Soul Bound Tokens for completing Guild Advancement Programs (GAP). Currently, some 220k holders own SBTs that mark their skill levels across games like Pixels Online and Axie Infinity. Why does this matter? YGG has taken some of the earliest steps towards creating open graphs of verifiably skilled userbases.

Whenever a new game launches, they could target gamers that have spent countless time coordinating resources and providing feedback or risk being sybiled by anonymous wallets.

Beyond Communities

What I have written so far is a hypothetical vision of the future, one where niche communities built around verifiable identities and proofs of engagement with a creator lead to better outcomes for everyone involved. This future could arrive far sooner than we think because newsfeeds like the ones on Warpcast now allow you to mint on-chain primitives like NFTs.

But this still involves a creator -audience relationship. This vision has played out in products.

For instance, you can see Layer3's userbase's historical behaviour and most used products. A third party using Layer3 for driving users does not need proof of how proficient their users are. You simply check the user's wallet address and see its history. In fact, you can use Airstack to have a complete list of their users and their on-chain handles. Ventures trying to target those users, don’t even need to talk to Layer3. This is hugely value additive for the users of Layer3. Once their reputation is established (through past on-chain interactions), any product can offer them value without being dependent on Layer3.

At the same time, users have every reason to stay loyal to Layer3, as they are the curation engines that discover and share great on-chain opportunities.

Similarly, Boost Protocol creates a permissionless protocol around users. Over the last month, a tool they released checks for gas expenditures by users on chains like Optimism, Arbitrum and base and allows users to mint passes. The pass ranks you based on your gas expenditures. Boost Inbox is a tool that allows emergent products to target users who have spent a specific amount of gas. In this case, gas expenditure is a single metric to rank users.

I don't think it is farfetched for the protocol to have additional layers of identity verification like Gitcoin has with their upcoming Passport feature. As I write this, Boost Protocol has around $180k in its treasury and 47,000 Boost mint holders.

I think, the arrival of commercial incentives will change how we think of the term “community" in Web3. If you can verify the quality of a userbase, and how engaged it is, value would accrue to communities that do it well. We may be a few quarters out from seeing fully on-chain media brands scale. Unlike traditional media networks, these would be able to verifiably quantify how much economic activity is conducted by their audience bases.

In the age of scarce attention, financial incentives will help engineer focus.
Joel John

This article was made possible with a lot of help and insights from Kash Dhandha and Zeel Patel. Both of them have been crucial in influencing how I think of on-chain communities.