Web3 Breakdowns Ep 79 - Gary Coover - Designing a Sustainable Token Economy
Primer: How do you design a sustainable token economy that does not just crash and burn? How should projects cope with token inflation? In this episode of Web3 Breakdowns, Gary Coover of SuperLayer relates their new token model with the crypto projects that they have helped co-found.
Background
Spent 8 years building Samsung’s innovation arm, Samsung Next
Currently the COO of SuperLayer, a venture studio focused on building crypto startups
The Things He Got Wrong When Launching His Business
Learned that crypto is an additional stack on the product you already had to build
People were fixated on building the token product that they forgot that they needed to have users and a business model
Another reflection is that tokenized consumer products were really only built for gurus
In 2021, the market of people in Web3 was so small that purists were driving the narrative
An example is NBA Top Shot, which was one of the gateways into crypto because they created a really compelling consumer product
However, they were shamed by everyone because it was not truly on-chain
People believed that mentioning the token was its own value proposition. This happened to be just very much a moment during the bull market
Their inflation-based token system that gets the most critique
Many of the consumer projects like Axie Infinity and STEPN are high-inflation, high-growth projects
If growth can outstrip inflation, that’s when we see the massive run-ups
Differentiating Their Business
As a venture studio, their customers are founders
Their team goes out and co-found companies by finding domain experts and launching a business with them
Do They Come Up With The Business Ideas Themselves?
The vast majority of the time, they approach founders
The team needs to have conviction that it needs to be decentralized
As a venture studio, they are able to create more success for their companies by taking the lessons they have learned from one company to another company
“Tokenizing is most attractive, most aligned when you're trying to align incentives between the user of a product and the business.”
- Gary Coover
In a traditional equity business, the shareholders are typically not the core users of the project
The opportunity with a tokenized business is to have the users of the product that are generating value on the platform to take home more of that benefit
They have a business called Hotline, which is a Web3 OnlyFans
To have high demand for the token, the fees they charge will go down over time, resulting in an increase in the token price
Decision-Making And Governance
Most of the consumer projects they are launching will have a DAO at some point
The question goes back to when a project decentralizes
Decentralizing too early is a flaw
Figuring out the best usage of the token is something that can be done by the most active users who own some portion of the token
Anything that involves a lot of creativity is not best done in a group
Hotline
In mid-2021, creators were deplatformed on OnlyFans
Mastercard indicated that they are no longer accepting credit card payments for adult creator stuff
From a creator standpoint, Hotline has a higher tick rate and they are less limited in which kind of geographies they can work with
Creators become owners in the platform instead of renters
It’s not tokenized yet. They are moving towards tokenization
Are Users Paying In Fiat?
For the typical user who is not familiar with crypto, they are swiping with their credit card
Behind it, it is actually USDC
Why Tokenize?
The fundamental difference between an equity model and a token model is incentive alignment
They are pioneering a model that, for every dollar that gets brought into the platform, it goes to buy the platform token and is distributed to the creator who earned it
This is the only way to access the token other than buying it on the open market
Handling Fluctuation In Token Price
When someone wants to give the creator a tip, they will see the price in dollars when they swipe their card at checkout
They are buying the price of Hotline token at that point in time
Handling Illegal Content
Their platform can enable filters to ensure that illegal content does not exist
The Adult Creator’s Perspective
During COVID, OnlyFans became a cure for loneliness
The key feature of OnlyFans and Hotline is a real one-to-one connection
Adult creators have been jaded since 2021
Hotline has been around for 14 months now
Adult creators are looking for trust and credibility
How Is The Business Working Today?
They are currently using USDC as the platform token
USDC is used as a placeholder until they develop significant enough traction to make their revenue-based model appealing
Trophy
A Rakuten for a mobile gaming experience
When you go into the app and play certain games, the user then captures a portion of the referral fee
The referral fee will be in the native token for Trophy
The project has been under development for roughly one year
The project is live in India right now and will be expanding globally
Building A Sustainable Token-Economic Structure
Hard to provide a reasonable sense of valuation because most of it was based on the number of users and economic value was not being generated
The key to building a tokenized business:
Drive significant revenue streams
Use revenue to acquire the token
The project does not have any default inflation
For Hotline, the sources of revenue are tips and subscriptions
For Trophy, it is referral/their affiliate model
What’s The Use Of The Token?
There is utility on the platform
Pros/Cons: Not Having Over The Volatility Of Their Token
Volatility is not a new component
E.g. if Amazon stock tripled, it would not affect what he does on Amazon as a whole
The more utility that is derived out of the token, the more core it is to the user’s experience
Companies Founded And Their Non-Inflation Token Model
They started ideating around this model at the end of 2022
When the crypto markets blew up, it was clear that a better model was needed
What Are The Things That Still Hold True Today?
They came from a team that had 20 years of gaming experience and five years of building $6 billion + FDV crypto projects
This differentiates them from other VCs in the market
The right founder for them is typically a domain expert
The enthusiasm around Web3 is still fundamentally built around incentive alignment
What Projects Is He Excited About?
LinksDAO — acquisition of the Spey Bay Golf Course
Krause House — they want to buy a basketball team
These examples made it tangible for users
Most Excited About Building
Over The Next 6 Months
On the proof of sustainability of the revenue-based token model
Over The Next 6 Years
No discussion of tokenization or crypto
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