The Digital Renaissance

How NFTs and Social Tokens Will Unlock the Creator Economy

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The Digital Renaissance: How NFTs and Social Tokens Will Unlock the Creator Economy

Before Emily Ratajkowski was one of the top models in the world, she appeared in Sports Illustrated’s swimsuit edition. She was paid $150 for the initial shoot and a couple grand later for the “usage” of her image.

Shortly after, a famous artist took one of her Instagram posts from the Sports Illustrated shoot and turned it into a work of art. Ratajkowski was frustrated—she remembers, “It felt strange that a big-time, fancy artist worth a lot more money than I am should be able to snatch one of my Instagram posts and sell it as his own.” But she felt compelled to own her image and scraped together money to buy the piece for $80,000.

A few years later, a photographer released polaroids of Ratajkowski without her consent, selling a book and opening a gallery on the Lower East Side. Ratajkowski was again stung and blindsided, confused why someone else was profiting off of her work. (Her profile had grown substantially and the photographer was cashing in on her rising star.) Ratajkowski’s story, which she shared in an op-ed last year, embodies the plight of generations of creators who have been exploited and devalued by the system.

For much of history, creators have been vehicles for others; they haven’t had ownership over their own works or individuality. This was partly because creators relied on centralized authorities for discovery, distribution, and economic value. Models like Emily Ratajkowski relied on Vogue and Ford Models. Artists relied on Christie’s, singers relied on Sony Music, writers relied on HarperCollins, filmmakers relied on 20th Century Fox, and so on. Those Goliaths determined your fate. They didn’t nurture culture; they manifested it.

This began to change with the internet. In his 2011 letter to shareholders, Jeff Bezos elegantly captured the power of the internet:

I am emphasizing the self-service nature of these platforms because it’s important for a reason I think is somewhat non-obvious: even well-meaning gatekeepers slow innovation. When a platform is self-service, even the improbable ideas can get tried, because there’s no expert gatekeeper ready to say “that will never work!” And guess what—many of those improbable ideas do work, and society is the beneficiary of that diversity.

Bezos was writing about three seemingly-unrelated Amazon initiatives: Amazon Web Services, Fulfillment by Amazon, and Kindle Direct Publishing. But each initiative was built on the same premise: that technology renders gatekeepers obsolete.

Instead of newspaper editors curating the news, anyone could share to Facebook or Twitter. Instead of network executives greenlighting a show, anyone could create a YouTube video. And instead of waiting for a magazine feature, anyone could post on Instagram.

But by cutting out the middlemen, internet platforms became the middlemen. While the internet has given the illusion of allowing creators to go direct to their communities, the platforms have just become the new gatekeepers. Misaligned incentives are baked into their DNA: the platforms are built for advertisers, not for creators and communities.

The internet connects billions of people around the world, but the infrastructure of the creator economy largely looks the same as it did a century ago. The next decade will be about reclaiming creativity, agency, and self-expression. It will be about reshaping the architecture of art to (finally) fulfill the internet’s promise of removing gatekeepers.

The future of the creator economy is the patronage economy: direct value creation and value exchange between creators and communities. Blockchain technology is central to this future. With it, creators will:

  1. Monetize creations, and

  2. Monetize individuality.

The first is about capturing value from a creator’s work through non-fungible tokens (NFTs). The second is about capturing value from who a creator is—from their very state of being—through social tokens. Let’s take both in turn.

Monetizing Creations with NFTs

Since I wrote about NFTs last month, the mania has only swelled. One of Beeple’s art pieces resold for $6.6 million after being bought for $67,000 in October. (That’s a 99x return in four months for the owner.) On March 1st, the musician Grimes sold $6 million of digital art in 20 minutes. And Jack Dorsey is selling the first-ever tweet as an NFT. Current bid? $2.5 million.

The data proves out the market’s exuberance. CryptoArt tracked $92 million of digital art sales in February, up 670% from $12 million in January. NFT sales overall were $300 million in February—more than in all of 2020 ($250 million).

Nifty Gateway—the turquoise bar above—continues to dominate the digital art market. (Nifty is owned by the Winklevoss twins, who you may remember from The Social Network fame.) Marketplaces like Nifty, SuperRare, and Foundation are managed marketplaces that only list approved works. This is in contrast to self-serve marketplaces like OpenSea, Zora, and Rarible, which let anyone mint and list an NFT. Self-serve platforms are even larger: OpenSea alone did $86 million in February sales volume, up 1,000% month-over-month and up 56,000% year-over-year.

NFTs are revolutionary because ownership is immutable and irrefutable (for more background, read my first piece on NFTs here). NFTs also expand the pie by letting creators capture future upside. After a piece is sold, its value will continue to rise from the effort an artist puts into future pieces and into building his name. In the past, the artist could never capture that value. But with NFTs, artists take a cut of secondary transactions. Beeple, for instance, may have earned 10% * $6.6 million = $660,000 from that one piece reselling. He’d make another 10% if it resells again for a higher price.

Some of the most interesting innovation in NFTs has been happening in the music world. Music is arguably the industry in which legacy “gatekeepers” retain the most power. While Spotify has revived music’s growth, record labels still capture the lion’s share of the economics:

Spotify captures only ~33%, while artists receive less than 10%. The tentacles of old media have proven hard to rip out.

But the music world is leaning into innovation. Last week, Kings of Leon announced that they’re releasing their new album as an NFT. Owners of each token will get special perks ranging from limited-edition vinyl to front-row concert tickets.

Perhaps most pioneering has been the musician RAC. RAC worked with Zora last year to release limited-edition cassette tapes, which fans snapped up for thousands of dollars.

More recently, RAC and Zora teamed up on $RAC, essentially the singer’s own currency. Fans can’t buy $RAC, but only earn it by, well, being a fan. Fans earn $RAC by buying merch, supporting RAC on Patreon, and so on. RAC wrote, “By rewarding my most loyal fans, we can create a community where tokens unlock access to various perks and exclusive content.”

$RAC provides a segue into the other key piece of unlocking value for creators: monetizing individuality with social tokens.

Monetizing Individuality with Social Tokens

Last month, Shawn Mendes partnered with a company called Genies to create a Shawn Mendes avatar and to sell tokenized digital goods through OpenSea. Fans could buy the digital version of the vest that Mendes wore in his real-life Mexico City concert, or they could buy his virtual guitar.

This was another example of creators selling exclusive digital goods through NFTs.

But what if you were able to invest directly in Shawn Mendes? Or even better, what if you’d been able to invest in him back in 2015, when he was a 17-year-old singer best known as the opening act for Taylor Swift’s 1989 concert?

Today, an artist’s earliest fan—someone who has been an evangelist from the start—is treated the same as the fan who discovered the artist yesterday. This will change. Early fans will be able to support their favorite creators and share in the economic upside. I wrote about this last year in Creator IPOs, explaining the need for a “Robinhood for creators”—a way to invest in the people you believe in most, and share in the value jointly created. Social tokens might be the solution.

I used Taylor Swift as my example in that piece. To spare everyone more Taylor Swift fangirling (for now!), I’ll use a new example here for social tokens. Last weekend, I watched the new Apple TV+ documentary on Billie Eilish, The World’s a Little Blurry. Imagine that right when she’s starting out—right before releasing “Ocean Eyes” on SoundCloud in 2015 and vaulting to fame—Billie mints the social token $BILLIE.

Social tokens are different from NFTs in that they’re fungible: every $BILLIE token is interchangeable with every other $BILLIE token. Say Billie makes 100 such tokens. She decides that the owner of each token will get: a 10-minute FaceTime with Billie, access to Billie’s private Discord server, and backstage passes to Billie’s show. Maybe she also carves out 20% of future streaming royalties to commit to the 100 $BILLIE tokens. The 100 tokens are snapped up by early superfans.

In the early days, a $BILLIE token might be worth $1,000. But its value appreciates as Billie Eilish the creator’s value appreciates. When Billie wins five Grammys in 2020, the value of each token rises to $100,000. By the time the Apple TV+ documentary comes out, each token is worth $500,000.

Again, the key concept here is that the token-holder (the fan) and Billie (the creator) each benefit as $BILLIE appreciates. Every secondary transaction is captured by both sides. Say that half of the token-holders sell at the new $500,000 value. That generates 50 * $500,000 = $25,000,000 of transaction volume. Early fans are rewarded for taking a bet on Billie, and Billie herself captures $2,500,000 (10%) of that secondary volume.

Social tokens build on various existing concepts. Fans financially support creators (Patreon), invest in their “stock” (Robinhood), and unlock special treatment for being a superfan (OnlyFans).

There are all sorts of nuances to work out here, and, crucially, the creator should retain creative freedom over her work. But this is also a way for the creator’s community to crowdsource her rise. If you were a fan of Beyoncé back when she was still in Destiny’s Child, you could’ve bet on her future. If you believed in Joe Rogan back when he was just the host of Fear Factor, you could’ve supported him and shared in his $100 million Spotify deal.

We all have that annoying friend who goes, “Well I was a fan wayyy before she was popular.” Mmhmm, sure you were. Now that friend can actually prove their early fandom by buying a social token.

The brands of the future are people: if Nike, Starbucks, and Apple were the defining brands of the last 30 years, David Dobrik, MrBeast, and Addison Rae are the defining brands of the next 30. Social tokens will let everyday people support their favorite creator, both enabling communities to help create value and to participate in that value creation.

Final Thoughts

Art is about value transfer and value capture. The artist—the creator—makes the art. She then transfers that art to the world, and value (both economic and cultural capital) changes hands. For hundreds of years, that value has mostly accrued to brokers and intermediaries. In the early innings of the creator economy, this didn’t change. Creators rented themselves as distribution for brands with influencer marketing. Platforms like YouTube took 45% of ad revenue.

But slowly, entrepreneurs and operators and creators are forging a new architecture for the creator economy. Part of what’s happening stems from a shift in business models and a rejection of advertising. Part of it stems from a new arsenal of tools that allow direct value capture: Substack, Patreon, Fanhouse, and so on. And part of it stems from a grassroots movement led by a new class of creators. In Taylor Lorenz’s piece on new audio collectives built on Clubhouse, one creator’s words stood out to me:

“Part of what we want to do is not just create a model of how audio can be transformed, but also make a push forward for creator-driven culture so that this culture isn’t being shaped by the platforms and technologists, but the artists and creatives and talent.”

This gets to the heart of this new economy. It’s no longer designed for centralized platforms that monopolize value; it’s built for creators and communities.

NFTs and social tokens are the building blocks of this new architecture: NFTs are about monetizing distinct works and social tokens are about monetizing distinct identity. The NFT market might be overheated today, and things will likely cool off. But directionally, the movement is right: the technology will facilitate a long-overdue reshaping of how art is made and shared.

Art is a fundamental part of being human. For the artist, it’s a practice in self-expression. For the consumer, it’s a way to see the world through another person’s vision. What’s exciting about emergent technologies is that they’ll unleash an incredible amount of creativity and talent, ushering in a modern digital Renaissance.

Sources & Additional Reading

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