From Users to Agents — Embracing Innovative Ownership Models In Web3

written by Idan Levin and Eylon Aviv

Or maybe he does?

Shifting from Web2 to Web3

What if you can own a piece of Facebook/ Twittersuccess on day 1?

If Facebook would offer you a share of the company for being a highly engaged user, how will your behavior as a user change? what would it do to the network growth?

You are probably imagining hyper-engaged users, sharing content and inviting their friends like crazies, for anticipation of the economic upside. This dynamic of turning users into agents, is a core primitive seen in web3 & crypto these days. It explains a lot of the explosion we are seeing in usage, as users are incentivized to participate, share, and grow the platforms they are using, whether this is DeFi ,Gaming, or NFTs. Incentive alignment is a core primitive in web3, seen across the board wherever you look.

The hybrid token model

An increasing number of web3 startups are choosing a hybrid token & equity model. This model is a new and exciting primitive in web3, which allows for protocols, dapps, centralized companies, and startups to share the value creation that was historically shareholder exclusive, with users and different stakeholders and participants.

Hybrid tokens carve out equity value to additional stakeholders, allowing them to enjoy the success of the platform.

The main idea is to create a token that has a utility within the platform and enables different kinds of interactions such as voting on feature changes, discounts on platform fees (e.g. lower fees in exchanges), or platform participation. Although the token is not eligible for any dividends profit rights as equity, it also enjoys a growing demand as the platform/network succeeds. Because of its fully transferable nature, and combined with the liquid 24/7 digital assets markets, users can cash out dollars, or any other currency.

From users to agents

Hybrid models incentivize users to become agents of the platform. They know that if the platform succeeds, they might enjoy an economic upside on the token they are holding.

Hybrid models can solve a lot of the problems that are familiar with web2 apps, like an incentive for central platforms to use the attract and extract model or monetize users’ data. Web products such as social networks usually need early adopters to build the network — users put in a lot of work, enthusiasm, and activity in building and contributing to the network in the early days. Their data will be later extracted and sold as part of users’ monetization.

Hybrid ownership models are about sharing the value creation with them, and not just using early users to build out the network. This model is in essence much fairer towards users because it rewards the loyal users that helped to build success and believed in the project from the early days. Tokens allow for network growth, much faster than the regular network effect we know. We think of it as a ‘hyper network effect’.

Some examples

Using a hybrid approach can come in different forms. We would like to point out a few examples, that although are essentially different, all share the same idea around users that can participate in the success of the project without owning equity, but rather other digital assets that make them a different kind of stakeholders.

Axie Infinity is a play-to-earn digital game in which users can earn by playing and participating in the Axie universe, inspired by Pokémon. Users can use their Axis to battle other users and earn ERC-20 tokens (‘Smooth Love Potions’), breed their Axis, or sell them on the market. The mix of users being able to play, trade and earn, combined with addictive game dynamics, has brought Axie revenues to explode through the roof, with over $340M in revenues until today. Instead of the founders building a centralized marketplace and controlling the Axie universe (and 100% of the value chain), they have opened it up so users can enjoy tremendous growth throughout playing, earning, or just speculating. This approach has shared the amazing Axie Infinity growth with day-to-day users, creating a recursive cycle of highly engaged users.

Rally is a social tokens platform on which different creators can issue their own social tokens. Social tokens are used by creators for direct engagement with their audience, creating unique gated content, and helping them build their own monetization channel. The Rally token, RLY, serves as the beating heart of this creator economy — users can purchase creator tokens using RLY, hold them, or stake them in DeFi protocols and earn yield.

Rally platform constantly encourages users to participate and support creators by airdropping them with RLY tokens when buying and holding creator tokens. The airdropped RLY tokens can be used to purchase and support more creator tokens and earn more RLY in turn — a participate-to-earn model, turning users into highly engaged agents.

ZED RUN is a digital horse racing game in which users can buy horses on OpenSea. The horses are ‘ERC-20 token’ (a standard for digital assets on Ethereum) that are fully transferable and tradable as digital assets. In addition, they can be bred with other horses so the owner can earn fees on breeding.

While these NFTs are part of participation in the game (you need a horse to participate in the ZED race), users of the platform get exposure to its success by buying and breeding digital horses. This can create an addictive participation cycle that makes users ultra engaged.

Key questions when issuing a hybrid token model

When designing a hybrid token approach within your platform, some key important questions to ask are usually around -

1. Are we issuing tokens in a way that encourages users to participate?
2. Are we transforming users into agents? will they be incentivized to grow the platform?
3. Can early users be exposed to the major upside? How can we help them become long-term stakeholders?
4. Are we generous to our users? How can we share our success with them?

We are seeing different tools developed in the market to answer these questions — if you encounter terms like airdrops, yield farming, play-to-earn, or participate-to-earn, so know that someone is thinking about how to reward users and transform them into agents.

This is just the beginning

Hybrid models are still in the exploration phase but can be a powerful tool both for startups as a growth hacking tool and for the users that can enjoy the success of the platform through token price appreciation.

We believe slicing the traditional equity value to different stakeholders tiers (which are not just shareholders and early investors) is one of the strongest primitives in web3 and crypto, and can create user alignment in a way that was not possible before.

Some cynics will try to claim this as a sophisticated way to disguise security. This is a misunderstanding of a new financial primitive that is not classified under stocks/bonds/commodities.

Hybrid models are really about creating a rich space of digital assets, which are programmable and play different roles within the digital economy. This is a brand new design space, and we can’t wait to see what’s coming up next.

To summarize:

1. Web3 and the ownership economy create a model that allows users to become empowered users, or agents, which contribute and add value to the platform
2. Hybrid token models are sharing the value created within the platform with the users that contributed to it through the issuance of tokens. The users then become stakeholders in the platform
3. If under-appreciated users created network effects, agents will create exponential hyper-network effects
4. Figuring out the right token model and allowing users to enjoy the value created can unleash wild growth opportunities in web3

Important note: if you are planning on issuing a token/ digital asset, we encourage you to consult with your legal advisors to make sure this is done according to regulatory frameworks and the respective law.