VeradiVerdict - Issue #85
|Paul Veradittakit||May 20|
Last week, Reddit announced “Community Points,” a way to reward engaged and thoughtful contributors to different Reddit communities (subreddits) using crypto. The project rolls out with two tokens (MOONS and BRICKS) deployed on the r/Cryptocurrency and r/FortniteBR subreddits, which in aggregate host 2.4 million users.
MOONS and BRICKS will be distributed to engaged users by the platform, and can be used by Redditors to show off their credibility/history, which boosts their own visibility, purchase special privileges like GIFs and emojis, weight their votes higher in community polls, and trade tokens with one another.
Not much information exists about the protocols yet, but both tokens are ERC-20 tokens hosted on the Ethereum blockchain, via the Rinkeby testnet for the beta over the summer. After the summer, Reddit will migrate things over the Ethereum mainnet. Initially, tokens will be distributed to users of both subreddits with more than 100 in karma (a pre-existing Reddit engagement metric). 5 million units of MOONS will roll out next month, with each successive month deploy 2.5% less of the token, capping the total amount at 250 million. Redditors can access tokens via the Vault section of the Reddit iOS and Android app which maps an Ethereum address to their Reddit accounts.
Community Points are uniquely promising for deploying crypto in social media because:
They don’t have a concrete financial value (like Libra), but rather a value that’s inherently tied to their underlying subreddits. This means that users don’t have to be financially convinced of the merit of crypto, just enough to better engage with the subreddits they love and enjoy. Moreover, Reddit’s crypto deployment fits perfectly with its mission of creating a free, accessible internet for all –– the values of Reddit as a platform align with crypto in terms of putting users first.
Community recognition and reward is a key part of the Reddit culture, and already exists through means like karma and Reddit Gold, Silver, and Platinum. Community Points makes the recognition more concrete and more customizable, putting users first.
Reddit’s tokens are hosted on the public, permissionless Ethereum blockchain and may be treated as commodities.
Ultimately, Community Points has the power to bring an audience of 400 million Reddit users to the crypto space, in a way that demonstrates the value of digital assets and crypto in a native, digestible manner that’s inherently tied to user interests and engagement. It serves as a powerful proof of concept for tokenizing other spaces and diversifying the use cases for crypto.
Capturing Young Audiences
Given the divisive opinions surrounding crypto, one of the community’s key goals as they roll out more and more products is to capture the attention and faith of young audiences, who may be more optimistic about new models of finance and trust. One key medium for engaging with these young audiences is via social media and using those platforms to engage users with cryptocurrency. Put simply, it’s a lot easier to convince people to try out Facebook’s cryptocurrency than it is to onboard them onto a more obscure DeFi exchange. Nativity and familiarity matter, and as the potential use cases of crypto grow day-by-day, companies are finding new ways to integrate crypto into their core products.
So, what’s the deal with Reddit and crypto?
Reddit, the self-proclaimed “Front Page of the Internet,” is one of the world’s most popular social media platforms. Via subreddits, Reddit has managed to create a self-maintained discussion forum for practically every topic that exists –– from global news to Call of Duty. Across the entire site, there’s over 300 million users (more than the population of the US), and the site is the 5th most visited worldwide. It’s an excellent vehicle to reach a diversity of audiences, particularly young people drawn to social media platforms and online engagement.
Last week, Reddit announced the launch of ERC-20 Ethereum tokens on two of its subreddits –– r/Cryptocurrency (no surprise there!) and r/FortNiteBR (short for “Fortnite Battle Royale,” the video game). In sum, these two communities have 2.4 million users –– a pretty significant starting base. The tokens, called MOONS and BRICKS respectively, can be used by Redditors to show off their reputation (more tokens signal a more experienced/qualified commenter), gain Special Membership status for special privileges like badges/GIFs, and also to boost their weight & opinion in community polls. The tokens will be distributed based on a Redditor’s contributions to their community (based on pre-existing metrics like karma), and essentially a way to reward Redditors for staying active and maintaining these forums of engagement. Users can also trade different tokens and donate them to their favorite Redditors or content creators, which makes it a little more of a marketplace rather than a strict reward system.
How does it work?
Each reddit user gets assigned an Ethereum address, which is maintained through “the Vault,” a section on the new iOS and Android Reddit apps. The Vault is essentially just an Ethereum wallet for Reddit tokens; users are free to access their tokens using any platform they wish (as long as they use the same Ethereum address as the one in Vault), but having a native wallet within the app itself will certainly help drive early-stage engagement and onboard unfamiliar users.
The tokens themselves are ERC-20 tokens on the Ethereum blockchain, running on a layer of smart contracts that supports Reddit’s marketplace for earning tokens by contributing to the community, trading/sending tokens to other users, and purchasing special privileges with tokens. Reddit audited the protocols with a private security firm called Trail of Bits.
Throughout the summer, the tokens will be hosted on the Rinkeby testnet as Reddit slowly rolls out its product and resolves bugs and other early-stage issues. The hope is to migrate everything to the Ethereum mainnet by the end of this summer.
Regarding the distribution protocols, there’s not a ton of information online. For r/Cryptocurrency, 5 million units of MOONS will be distributed next month based on users’ karma, and each month, the number of MOONS distributed will decrease by 2.5%. This exponential decay, similar to the one used by Bitcoin itself, means that over time the total number of MOONS distributed will approach a maximum of 250 million units, constricting their supply. For both r/Cryptocurrency and r/FortniteBR, MOONS and BRICKS will be distributed to all active members with at least 100 karma. Users who don’t have enough karma may be able to purchase the tokens with fiat money, and Reddit will burn the tokens on their behalf to maintain the constant supply.
r/Cryptocurrency and r/FortniteBR are only the beginning though. They’re both the first-stage launches of a broader initiative, called Community Points, to empower users across the entire platform using crypto. Community Points will reward users for their engagement with Reddit and give them access to special privileges like higher visibility, special-access GIFs, animojis, and other content, and more voting power in terms of Reddit regulation. The hope is that early success with MOONS and BRICKS will serve as a proof-of-concept to bring these tokens to other subreddits.
r/Cryptocurrency is a natural pick for a starter given the pre-existing interest in crypto; it’s likely that Reddit will see strong engagement with MOONS. r/FortniteBR is a bit more experimental, but still deploys Community Points in a strong community of gamers who are passionate about their forums and governance. It also serves as an interesting proof-of-concept for further crypto use cases in gaming. In fact, r/Cryptocurrency has already had users register over 2000 wallets for MOONS while r/FortniteBR has already had users register over 9000 wallets for BRICKS; the discrepancy here is likely because r/FortniteBR has a significantly larger following. Moreover, users are already piloting the idea of Reddit decentralized autonomous organizations (DAOs), which will essentially leverage the tokens as tools for governance and regulation.
Sounds interesting! But why is this any different than any other social media platform rolling out crypto tokens?
Great question. Reddit’s a particularly good target for crypto, for a few key reasons:
The idea of community and contributor recognition is not new to Reddit, and is a key part of how users have always engaged with the app. You’ve heard me use the term “karma” throughout this discussion. Karma is basically one of Reddit’s internal metrics to track user engagement and is publicly displayed on every user’s profile. More karma reflects that a user is more engaged and helps improve the visibility of their posts and the credibility of their ideas. Reddit also had Reddit Coins, more colloquially known as Reddit Gold, Silver, and Platinum. These are essential “higher tiers” of recognition that are purchased by users to reward other users for great content. Communities (subreddits) often use these Coins to do Community Awards to represent specific contributors to specific communities. Coins can also be used for Reddit Premium membership. The key idea here is that rewarding engagement (even through financial means) is baked into how Reddit has already been operating. This means that Community Points are likely to be adopted by Redditors with relative ease, because the reward incentives already exist. People already love to have badges and karma to show off their credibility; it’s unlikely that the Community Points will be any different.
Reddit’s ethos all-along has been democratizing the internet. The creators of the site, Steve Huffman and Alexis Ohanian, were motivated by how the internet is becoming increasingly privatized, restricted, and censured and thus created a free community that puts individual users first. This shares a common theme with crypto of enabling users and doing away with massive third-party systems that control the world. This likely means that a good number of Redditors share the same values as many crypto enthusiasts, hopefully streamlining adoption.
Other platforms that have attempted to launch tokens, like Facebook’s Libra and Telegram’s TON, have generally been slowed down or even stopped by US regulatory pressure about how to treat different tokens (currencies vs. commodities) and the power it might give corporations over the American public. Reddit, unlike Facebook Libra, hosts its Community Points on the public Ethereum network, which has been in use for a while and is permissionless, making ether a commodity. This gives Reddit less power over its user base and makes the lines less blurry as to whether its tokens will act as currency or virtual assets, which makes Community Points much more likely to survive any regulatory battles moving forward.
Reddit Community Points are an extremely promising vehicle to bring more users to the crypto space and simultaneously drive engagement within the Reddit platform. Community Points stands on the back of a tried-and-true reward system that has been a core part of Reddit’s success to date; tokenizing the process of rewarding and recognizing contributors to different communities. The tokens also give much more agency, visibility, and flexibility to users via its use cases on different subreddits and its trading ability, helping create a self-sustaining model for online forum governance and a truly “free” internet. The initial launch bases of r/Cryptocurrency and r/FortniteBR are nothing to scoff at, which over 2.4 million users, but as the site rolls out Community Points to all of its subreddits, over 400 million people will become exposed to Reddit tokens, which is 4 times as many addresses as exist on Ethereum to date. Community Points will advance Reddit’s mission and hopefully inspire other marketplaces and online forums to adapt similar styles of community recognition and governance.
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Hi, I’m Paul Veradittakit, a Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. The firm invests in equity, pre-sales/IEO rounds, and cryptocurrencies on the secondary markets. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.
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