Rise of the creator economy
The flourishing of the social web is accelerated by tools that help creators easily make more content. The rapid growth of both the number of creators and the content they generate on big tech social media platforms continues to drive the increase in the number of content consumers on those platforms. Thus, these big social media platforms control both the supply (creator) and demand (consumer) sides. To monetize the content through advertisements, these companies derive computer-based algorithms to match content with prospective audiences. This strategy has been very effective for the platform itself but has not helped the creators much. Many of the creators not only received little for their content, but they are also at the mercy of those algorithms in their ability to reach their audience.
As creators continue to expand their influences, with some superstars enjoying millions or more followers, they increasingly demand better monetization models. To achieve better monetization, they want more direct control over both their content and the channel to reach their audience.
Many startups or newer social media companies seized this opportunity and developed a whole range of products and services to help creators earn more from their content. The subscription fee is a favored monetization method because it produces both stable and recurrent revenue. For example, Twitch and OnlyFans help video streaming creators bring in subscription revenue, sharing 50% and 80% with them respectively. Some platforms facilitate writers and artists to monetize their work. Patreon is a platform for digital artists and shares 88-95% of the subscription revenue with them. Substack is a popular service for newsletter writers and gives them 90% of the subscription fees. Other platforms help creators directly sell their digital products or simply receive tips from their consumers. Teachable focuses on selling online courses. Gumroad streamlines the process of selling all types of digital products. "Buy me a coffee" allows fans to tip the creators easily.
Incumbent social media powerhouses feel the pressure. If they do not take action to keep the creators, they will risk losing both the creators and their followers. The creators would ask their followers on these platforms to move to the new ones where they can better monetize. Youtube, the world's largest video hosting platform, has already shared 55% of total ad revenue with its creators in the last three years. Both YouTube and Facebook have added popular subscription and tipping revenue models for creators on their platforms. Twitter has announced the Super Follows feature that allows Twitter authors to charge their followers for exclusive content.
The expanding communities of creators and their followers, along with all the platforms and companies that provide tools and service them, become the pillars of a burgeoning economic ecosystem known as the creator economy. The size of the creator economy has been accelerating for years. The top Youtube channel's annual earnings are nearly 30M as of June 2020, while top writers on Substack can make over 1M per year. The total sales on Gumroad have been increasing year by year, reaching 143.8M in 2020, almost doubled the amount in 2019, partially due to the Covid pandemic tailwind for digital products.
Challenges of the creator economy
There are still many challenges in the development of the creator economy. Two prominent ones are as follows:
- Platform-specific challenge: a few centralized platforms like Youtube, Facebook, and Twitter control what content is or is not allowed on their platforms, and they also control the demand side. A creator has to cater to the matching "algorithms" of those platforms to reach more audiences. It is always a controversial topic over whether these platforms should have the power to approve or remove user content in the first place.
- Creator-specific challenge: in terms of revenues, it is always winners taking (almost) all. The few megastars capture the vast majority of the creator economy revenue. According to Economics with data from Graphtreon and Spotify: among the 200K creators who earn a total of $1B a year on Patreon, only 2% make above the federal minimum wage of $1,257/month. Among 7M musicians on the popular music streaming service Spotify, only 3% make more than $1K per year. For the creator economy to really prosper, venture capitalist Li Jin emphasizes the need to have a thriving middle class with sustainable incomes. She offers a series of recommendations for platforms towards that path, such as through a small base of "True Fans".
How can blockchain transform the creator economy?
Blockchain has the potential to transform the creator economy in many different ways. We will illustrate them through three angles: creative content, creator community, and the platform.
Transforming creative content for monetization through Non-Fungible Tokens (NFTs)
The first way blockchain can transform the creator economy focuses on the content produced by the creators. It offers new ways to monetize those content via a special type of crypto token called Non-Fungible Tokens (NFTs).
Crypto tokens play an important role in the blockchain ecosystem. Generally, when we talk about tokens, we refer to fungible tokens. Those tokens can easily be replaceable with another token of the same type. Bitcoin is fungible because two bitcoins have the same value and can be interchangeable. NFT is a different type of crypto token. These tokens each represent a unique value so they are not replaceable by one another. This property makes them suitable for representing creative content such as artwork. Artwork is often perceived as having distinct values and could serve as collectibles. The combination of NFT with creative content, therefore, brings a new way of monetization for artists and other creators. Let us use a digital painting as an example to see how it works.
While a digital painting can be easily copied and transferred, there is only one original version of this painting. An NFT can be used to represent the ownership of the original digital painting. The process of minting this NFT essentially generates a public record on the blockchain about the painting. The record includes things such as its name and description, who created it, when it is created, where it is located (e.g., the web address linking to the painting), and who owns it. Because all records on the blockchain are immutable, owning this NFT proves to the world the ownership of the painting. Since an NFT is itself just a crypto token, the painter can easily sell and transfer this NFT to collectors in the crypto world. But it is even better than that. Selling the digital painting as NFT on the blockchain opens up new monetization opportunities not possible in the traditional world. Because the blockchain is capable of providing provenance and tracking all transactions involving the NFT, it is possible to automatically assign a percentage (e.g., 10%) of proceeds from all future transactions involving ownership transfer of this NFT to the original painter. This leads to a potential long-term revenue stream for the creator.
NFT transactions entered a frenzied state in late 2020 and early 2021, roughly in line with the latest bitcoin price bull run. Many NFTs received extremely high and wildly speculative valuations. According to DappRadar, the NFT sales volume in the first half of 2021 skyrocketed to $2.5B.
Empowering Creators' micro-community through a crypto token economy
The second way blockchain can change the creator's economy focuses on the micro-community surrounding the creator. This is achieved through the use of crypto tokens usually called "Creator Tokens". These tokens are fungible tokens.
The concept of tokenomics
Crypto tokens represent assets and values, so they are often called cryptocurrencies (even though their status as a currency is always debatable). These cryptocurrencies may be used as the medium for exchanges of goods and services in the ecosystem where this cryptocurrency is accepted, thus creating an analogy of an economy. In blockchain terminology, this is called token economy or tokenomics in short. Typically, the initial tokenomics is designed by the token issuer and covers all aspects of the tokens like how they should be created, used, managed, etc. These different aspects affect the supply and demand of the token, which in turn determines the perceived value or price of the token. It is important to note the word "perceived" value because a lot of the time tokens may not be backed by any real assets.
Take the most famous cryptocurrency bitcoin as an example. We can look at some important aspects of its tokenomics. It has a finite total supply cap, so it is non-inflationary. New bitcoins are minted over time by people who help secure the bitcoin blockchain network (miners). The rate of minting new bitcoins halves roughly every four years until all the bitcoins are generated. In addition to the newly minted bitcoins, miners also receive fees in bitcoin for transactions conducted in the network. Therefore they are incentivized to continue helping secure the bitcoin network even if no more bitcoins are left to be minted. From this tokenomics design, we can see that bitcoin is not backed by any real assets, which is why critics often consider it useless. However, it does provide a utility value - for peer-to-peer digital payment transactions - as long as people are willing to accept it. The more people accept it, the more useful it could be. The more useful it is, the more people will want it. This drives the demand and raises its perceived value. On the other hand, many people consider bitcoin as digital gold because of its supply scarcity. Also, bitcoin is much easier to store and transfer than physical gold. This perception further propels the price of bitcoin.
The bitcoin example shows that good crypto tokenomics aligns the interest of all stakeholders together and could be key to the sustainable growth of a blockchain ecosystem. However, a set of tokenomics does not guarantee that a cryptocurrency will succeed, especially when it is not backed by real assets or utility. While bitcoin's price has appreciated an amazing 5K-10K times over the past 10 years, there are numerous crypto tokens with similar or modified tokenomics whose values have gone to zero. In the end, most cryptocurrencies are extremely speculative.
The creator tokens
There are already a large number of micro-communities surrounding creators in today's social media landscape. The main idea of the creator token is to issue a special type of fungible token for each creator. Those tokens serve as the cryptocurrency for the micro-community of the specific creator. The proposition is about using this creator token with appropriate tokenomics to transform the micro-community into a thriving micro-economy.
On the surface, these crypto tokens are analogous to the traditional airline loyalty point program that most of us are familiar with, except that here every creator is like having their own airline brand and can issue their own loyalty points. But there is actually a key difference: the value of airline loyalty points is set by the airlines which is a centralized entity. We have seen numerous times when some airlines unilaterally change or devaluate those loyalty points. On the contrary, the value of the creator token is initiated by its tokenomics design and ultimately determined by the supply and demand of the community for these tokens.
Let's assume Alice is an artist and she has a community of fans. Alice issues her creator token called the "Alice" token that allows Alice and her fans to interact with each other. To support Alice, her fans can purchase "Alice" tokens and use them to buy the artwork Alice creates, or buy tickets to attend Alice's exclusive events. Fans can also support Alice by donating "Alice" tokens to her. On the other hand, Alice can reward her fans who hold the "Alice" tokens. She can prioritize communications received from fans who hold a certain amount of "Alice" tokens, or she can even send them exclusive NFTs as gifts. All these activities strengthen community engagement and improve the bond between Alice and her fanbase.
In addition, given Alice's vested interest in the value of the "Alice" token, she will work hard to create better content for her fans to further increase her influence. The more her fans like her, the more "Alice" token they will buy. The demand increase for the "Alice" token will drive its value up. Similarly, Alice's fans who own the "Alice" token are also incentivized to share Alice's content with more people and elevate Alice's fanbase. The more popular Alice becomes, the more people will buy the "Alice" token. This also means the "Alice" tokens the fans own will be more valuable.
Therefore, the micro-economy enabled by the "Alice" token aligns with the interest of Alice and her fans. On one hand, it makes the interaction and monetization between Alice and her fans more convenient. On the other hand, it creates a positive feedback loop that allows both of them to benefit as the economy of the community grows larger.
Case study: Rally.io
There are projects working on providing platforms for creator tokens even though all are still very early. One example is Rally.io. At the moment, Rally.io helps selected creators issue their tokens (called creator coins) on their Rally Network. The Rally network is currently in the pilot stage running on a private Ethereum-compatible blockchain. Such a blockchain is less decentralized and does not have the same security as the main Ethereum network. But it could achieve a higher transaction processing speed and avoid high transaction fees of the Ethereum main net. Thus it is suitable for experimenting with the features of the creator token platform.
To support the functionalities of the creator tokens, Rally.io also has a platform-wide token called RLY. It has several important usages. First, it serves as a governance token. Holders of the RLY tokens participate in deciding the future development of the network. Second, it is used to bridge the private Rally network with the public Ethereum network. On the private Rally network, RLY can be exchanged with different creator tokens. On the public Ethereum network, RLY can be exchanged with many other publicly tradable tokens. Through the RLY token, the values of the creator tokens in the private network can be linked with the values of other tokens in the public network. The third important usage of the RLY token is that it serves as a platform-wide incentive mechanism. Specifically, portions of the RLY tokens are allocated to the teams, seed investors, partners, etc. Furthermore, 50% of all RLY tokens are reserved for Network Usage Rewards. One type of such reward is called Community Activity Rewards: if a community grows, more people will be buying the specific creator coins, and these community members will receive Community Activity Rewards in the form of RLY tokens.
Rebuilding the platform with decentralized social networks
The third way of using blockchain to transform the creator economy is the most radical one - rebuilding a social media platform on a blockchain.
Existing blockchain vs. customized blockchain
Since blockchain offers the ability to remove transaction intermediaries, social media applications built on the blockchain allow users to interact directly without going through a third party such as today's big tech social media companies. There are two options this can actually be implemented. One is to build such social media applications on existing blockchains. The advantage of this approach is the proven decentralization and security features of existing mature blockchains. The disadvantage is in functionality and potentially cost. Ethereum is the most well-known blockchain that supports full programmability. However, the current version of Ethereum normally processes only 10-15 transactions per second and often incurs high transaction fees, which is not suitable for building large-scale social media applications on top of it. But it is not impossible to explore Ethrerum with various scalability improvements or even other existing blockchains.
The other option to implement a decentralized social network is to build customized blockchains from scratch. This approach allows the blockchain to be designed with the specific social media application in mind, therefore it could offer a more effective solution over the long run. The drawback is that during the bootstrapping phase of the blockchain, its decentralization and security are much harder to achieve than blockchains in a much mature stage.
Case study: BitClout
BitClout is a recent example of a decentralized social network built from scratch. It implemented a bitcoin-like blockchain tailored for a Twitter-style messaging service. Because it is powered by blockchain, no centralized entity can control the content or de-platform users.
In the BitClout network, anyone can run a BitClout node. A BitClout node is a computer that runs open-source BitClout software. Every node has access to the full copy of past, present, and future data on the BitClout blockchain. Therefore, BitClout's technology creates an open messaging ecosystem and unlocks unlimited possibilities for building services on top of it. A software developer can create an interface of a filtered data feed for a specific targeted group, e.g., people speaking Spanish or Chinese languages, or people interested in Sports or Games.
Due to the attributes of the blockchain, data on the BitClout network cannot be erased. But what if there are legitimate reasons to moderate the information, e.g., for law enforcement, or to protect children from inappropriate content? On BitClout, this moderation capability exists at the node level, not the overall platform level. It could be done in a way similar to the prior examples where a developer hosts a BitClout node with a filtered data feed. Since most people will still access the data through a user-friendly interface, the entity setting up the interface can decide what data to show or hide, achieving a moderation effect.
Relationship of the three blockchain transformation angles
The above three angles through which blockchain may transform the creator economy are not mutually exclusive. They can all be adopted simultaneously.
In fact, the Rally.io platform is also integrating content-level transformation by supporting NFT minting and transaction functionalities. The BitClout system fully supports creator tokens as well. It goes even further by offering every user, not just vetted creators, a creator token. It also has its platform-wide token called CLOUT (similar to the RLY in the Rally network) to support the functionality of the creator tokens and the platform as a whole.
It is important to note that the creator token space is in a very early stage. Most of the current projects are still experimental. BitClout, for example, is particularly controversial. Even though it attracted some of the biggest names in the venture capital industry, there are still many people questioning its legitimacy.
How does blockchain addresses the challenges of today's creator economy
Does the use of blockchain help solve today's challenges in the creator economy? For the first challenge of centralized power by big tech platforms, the blockchain-based decentralized social networks do provide a perfect answer to that. However, remember that today's big social media companies also control the demand, i.e., users looking for content. Until the decentralized version of those networks gains a similar level of user base, the centralized platforms still hold a powerful advantage on the utility front. Also, the need for legitimate content moderation is an ongoing topic that does not solve automatically because of the removal of intermediaries. The decentralized social media platform will have to figure out the appropriate way to accomplish it.
The second challenge of lacking a creator middle class is much harder to crack because by definition it is creator specific, and not a problem directly addressable at the platform level. However, there is some silver lining that we could explore. For example, crypto tokenomics often have the concept of a treasury, which includes tokens set aside to promote the long-term development of the platform. If a thriving creator middle class is vital to the sustainable growth of the entire platform and community, it is possible to find creative ways to leverage the treasury and help more middle-class creators to succeed. Some of the proposals from Jin, e.g., universal creative income, might also be incorporated into carefully designed tokenomics. This space is still wild open for exploration.
As creators gain increasingly larger fanbases, they demand more control and flexibility for the monetization of their content. Many startups and alternative platforms filled the gap and flourished. The big incumbent tech platforms are also moving to retain the creators on their platforms and help them earn more. All these lead to a booming creator economy which is still growing fast.
There are three main ways blockchain may transform the creator economy: transforming creative content via NFT monetization, empowering the creator-led community via creator tokenomics, and building decentralized versions of the social media platforms. These three ways are not mutually exclusive and will likely co-exist. However, all of them are very early. All the involved crypto tokens whether NFTs or creator tokens are highly speculative at this stage.
We also discussed the platform challenge and creator challenge faced by today's creator economy. For the platform challenge, while new blockchain-based social networks solve the centralized content control problem, such networks' utility is limited until it can catch up in terms of the number of users. For the creator challenge, a blockchain-based system will not directly address the lack of creator middle-class problems, but it does offer innovative tools that could be leveraged in possible solutions.
Note: this article is part of my Introduction to Blockchain, Crypto, Metaverse and Web3: Beyond the Hype. You may find the rest of the articles in the series here.