Discover more from Flying Penguins
Tokens of appreciating appreciation
Why delayed gratification is key to building healthy forms of community ownership
Sometimes we talk about tokens as if they only exist on blockchains, but of course tokens of various forms and functions have existed in human society for thousands of years. As is most often the case with technology, innovation is about shaping rather than creating human behaviors. “Tokens of appreciation” are one such behavior that people intuitively understand, and that I believe will become much more common in web3 during this next phase.
What goes around comes around
Tokens of appreciation are inherently asymmetric — they happen when an explicit transaction is not desirable or possible in the present moment, for social or economic reasons. Implicit is the idea that the token will “grow” into something down the line, towards karma or stronger friendship if nothing else. It's fitting that “appreciation” means both “recognition” and “increase.” That’s why Hollywood loves to use tokens of appreciation to bookend a storyline. The hero thanklessly saves a victim in the opening scenes, receives some token of appreciation, and then later on just as death’s door is coming closer, that token gets cashed in for salvation.
Thanks for reading Flying Penguins! Subscribe for free to receive new posts and support my work.
I’m guessing you’ve given or received a great token of appreciation, so you know how powerfully human they are. When you spend all day moving someone into their new home, and then they bake you your very favorite type of cookies, they aren’t saying “now we’re even,” they’re saying “I appreciate what you did for me.” These kinds of tokens are powerful exactly because they can’t return the exact value of the original gift. Tokens of appreciation acknowledge the fact that unquantifiable contributions are a huge part of human society.
Despite having “token” in the name, the value in this type of interaction has (rightly) been used as skepticism for crypto’s version of tokens, especially in social contexts. To use economist-speak, people complain that financialization will tend to “crowd out” intrinsic human desires to interact and collaborate. In other words, when you spend all day moving your friend’s stuff and they bake you your favorite kind of cookies in return, you feel all warm and fuzzy. If they instead said “thanks for the help, here’s 8 dollars (the price of the cookie ingredients)” you would probably be disgusted and maybe never help them again. Not only does financialization ruin the warm and fuzzies, it “crowds out” your desire to do the work because it would take a lot more than 8 dollars to get you to do that work for money.
It’s appreciation time
Tokens of appreciation are not new to crypto. If you’ve participated in the space you probably have a bunch of different tokens in your wallet that are meant to capture a moment in time rather than some clear financial reward. You might have some POAPs (Proof Of Attendance Protocol) for attending events, or even an NFT like this one from Startupy that is directly tied to a non-digital token of appreciation (in this case, a hat appreciating you for creating some great content).
And before the token utility police come after me, let me point out that these tokens of appreciation are valuable in and of themselves. When I look at my wallet and see a “thank you” NFTs from a project I advised, it makes me more likely to support that project in the future.
Nonetheless, we need better ways to complete the loop and return the favor. There are a few different reasons that now is the right time to for on-chain appreciation:
Projects want to delay the launch of liquid/non-financial tokens: the recent attention from the SEC is well documented, and projects are looking for ways to delay launching any sort of liquid, financial token until they are sufficiently decentralized. Tokens of appreciation can act as placeholders, allowing projects to “be web3” including experimenting with governance and other token-based tools, until they turn the lights onto the financial aspect of tokens down the line via an airdrop or some other mechanism.
Non-transferrable tokens are a missing building block for reputation on-chain: Vitalik’s recent post “Soulbound” on non-transferrable tokens (NTTs) has kicked up a lot of dust, but the writing has been on the wall for a while about the fact that much of what we want to build on the social side of web3 just doesn’t make sense if it can be bought and sold. As Jad Esber and Scott Komminers put in their post on two-token systems, “if a token can be transferred easily, then those without reputation can simply purchase it, which reduces the token’s ability to serve as a reputation signal.“
The bear market means projects need to activate their community earlier: in 2020 it was a meme that any team could just release a collection of NFTs or do a token crowdfund, make millions of dollars, and then ride off into the sunset. This was already not really true (most of the teams that mooned had existing reputation) but it’s especially not true now — the cold start problem for web3 is real AF at the moment. So projects need ways to rally people around earlier moments, so that when they get to those critical milestones of raising money or releasing a mint they already have enough momentum to be successful. Tokens of appreciation are the perfect way to create this loop; for example, you might involve your community in building buzz for an upcoming NFT mint, distribute tokens to those that help in that process, and then airdrop NFTs from the mint back to the people that helped make it successful.
No new behaviors
Although tokens of appreciation are a powerful existing behavior in society, that doesn’t mean it’s simple to map that behavior into a new environment. There a few significant challenges, each of which is a pretty big opportunity for someone to solve:
It’s still too hard to use tokens: giving someone an NFT as a token of appreciation is actually quite a bit harder and more expensive than baking them their favorite cookies at the moment, and that has to change in order for projects or apps to use these tokens as flexibly as they need to if they want to capture ‘squishy’ human interactions. Some founders have minted POAPs to solve this problem, which are fairly easy and cheap, but not exactly designed for this use case (‘proof of attendance’ does not always equal ‘proof of contribution’).
Token reputation systems have their own cold start problem: if I give you a token of appreciation that I mint using Coinvise or Showtime or some other simple NFT generation tool, it might mean something to you and me but it’s not going to mean anything to the random person that looks at your wallet. Token reputation systems first need scale and value within a local network or application before they can have much value interoperably. An example of this is Mirror’s recently launched collection feature — it’s an awesome way to find and reward cool writers on Mirror, but not a great way to find cool writers, period. Herein lies a chicken and egg problem, because since that reputation doesn't yet have much value outside of Mirror, it’s not going to be the reason writers join Mirror (though it very much may improve their experience once they join). It needs scale to be valuable, but it isn’t a great way to help a product get to scale. In other words, come for the other-valuable-thing-in-the-product, stay for the token-based reputation system.
There’s no blueprint for closing the loop: the simplest loop to create using tokens of appreciation is the one I described above: rally a community around an upcoming token launch/mint, distribute tokens of appreciation to the supporters that make it great, and then airdrop the financial tokens to the holders of appreciation tokens. But a lot of projects aren’t about to launch a financial token or do a mint, and the path to sharing upside with a community in other ways is murky at best. Again, even if the loop doesn’t close these tokens will change behavior, but you could imagine in the future people will be putting token holders on allowlists to invest in their next equity round at a discount if they aren’t sufficiently decentralized enough yet to “go full DAO,” or they’ll use Spotify’s new NFT tools to give their supporters cool merch. The options are fairly endless, which is the problem — without clear mental models for how these loops happen, it’s harder to unlock this behavior online especially when there aren’t the same existing social connections as you have with your friend you helped move.
I’m sure this is obvious, but I believe there’s a huge opportunity to help projects create long-term community loops that start with tokens of appreciation, and end with other forms of ownership. We are definitely experimenting with this concept both at Backdrop as a company and with our new product Horizon which we recently announced with Seed Club. We’re excited to work with some of the coolest up and coming projects that are taking steps towards community ownership, and to help them map the support they get from their community on-chain so that it can flow downstream in a number of ways. If you’re excited about this concept and want to participate in some of the experiments we are running, please reach out anytime! I’m on Twitter or at email@example.com.
Subscribe to get fairly infrequent thoughts on web3, science, product design, and where they connect.