Understanding personal tokens, fan circle promotions, and IPO pyramid schemes: In the future, this will no longer be a celebrity patent
The future of work will evolve into a pyramid scheme, where everyone recommends their favorite person to another person.This article was published on ChainNews, author: Dror Poleg, co-founder of Real Innovation Academy; translated by: Perry Wang.
Risk-Sharing Economy
In 1997, rock star David Bowie issued "bonds," allowing bondholders to receive a percentage of the royalties from his music over the next decade. Someone spent $1,000 to purchase Bowie Bonds, earning 7.9% interest annually. Prudential Insurance invested $55 million in the first wave of sales of these bonds.
Reference link:
"Bowie bonds - the singer's financial innovation"
At first, these bonds seemed like a safe investment. David Bowie's songs were frequently played on the radio and continued to sell well even decades after their release. His royalties generated a stable income stream that could potentially last. The "Bowie Bonds" received a AAA rating from the well-known rating agency Moody's, indicating they were as safe as U.S. Treasury bonds.
However, with the rise of online music sharing, David Bowie's album sales declined, and the bonds began to trade at a discount. Bondholders anticipated further deterioration in the quality of the potential income stream and sought to sell these bonds. In 2004, Moody's downgraded the rating of the Bowie Bonds to Baa3, which was 8 levels lower than its opening rating, just one level away from being classified as junk. Subsequently, with the emergence of new legitimate online listening and paid music methods, the bonds eventually regained some vitality. By 2007, the original Bowie Bonds matured and were fully repaid. However, they certainly experienced ups and downs along the way.
Reference link:
https://www.investopedia.com/terms/b/bowie-bond.asp
David Bowie was not naive. He issued the bonds because he recognized that his income was difficult to maintain steadily. First of all, being a rock star is an unstable existence. But David Bowie was well aware that the internet would make this identity even more unstable. In a 2002 interview with The New York Times, he said:
"I firmly believe that copyright will not exist in ten years, and authorship and intellectual property are being severely damaged… Music itself will become like tap water or electricity."
Reference link:
"[David Bowie, 21st-Century Entrepreneur]"
David Bowie, 21st-Century Entrepreneur - The New York Times (nytimes.com)
Issuing bonds was a way to share risk with those who were more optimistic about the future of online media, or who were enthusiastic enough to want to own "a small part" of David Bowie, no matter how high the risk.
Assuming that old ways of making money would soon become ineffective, it was an experiment in a new way to earn money through music.
After twenty years, the music industry finally figured out how to make money using the internet. Music became a streaming service like water, customers paid for it, and record companies and artists made money (but not enough). The rock star identity remains fraught with danger, but the internet has increased the total number of people who can earn money through music and the ways they can monetize their talents.
Reference link:
"Even famous musicians struggle to make a living from streaming -- here's how to change that"
Making money as a rock star is not the problem. The question is, what should the rest of us do?
Revenue Sharing Agreements Become Mainstream
Music is not the only thing that flows like water. Other types of content and many goods and services do as well. On the internet, everyone has the potential to become a star—able to reach everyone on the planet. More and more people are facing the anxiety that was once unique to rock stars: the fear that today’s effective methods are just fleeting, that someone or something will soon emerge, making them feel outdated or exposed as a fraud.
But technology is not just about spreading risk among the masses. It has also brought new ways to share and mitigate this risk. In 1997, David Bowie needed the collaboration of investment bankers, rating agencies, and insurance giants to issue and sell his bonds. This process was costly and time-consuming, and only wealthy, accomplished artists could complete it. Today, anyone can sell a portion of their future income to fund their current lifestyle. One method is through Income Share Agreements (ISA).
The American online coding school Lambda School allows students to sell a portion of their future income to pay for tuition. The school teaches in-demand skills such as web development and data science. The courses can be completed remotely and are highly practical, primarily aimed at helping students find jobs after graduation. Lambda's students do not pay any upfront fees but commit to giving a portion of their future income to the school:
"The Lambda School ISA is a form of deferred tuition, under which you agree to pay 17% of your salary to Lambda School for 24 months, provided you earn over $50,000 per year. The ISA cap is $30,000, so for any reason, you will never pay more than this amount. If you do not find a job, you will never have to pay."
Reference link:
"The Lambda School Income Share Agreement"
If the skills students learn prove to be useless, the school ultimately receives no tuition. Even if students end up working and earning money in another field, the same applies. As Lambda's website points out, "You only need to make payments when you are working in a [qualified position], which means any job in the field where you learned skills at Lambda School can qualify."
ISA is increasingly being adopted, not just limited to the tech industry. Avenify offers similar arrangements for aspiring nurses. Purdue University and other traditional schools provide similar arrangements for various academic programs. So far, over 1,600 Purdue University students have signed such agreements, paying a total of $17.9 million in tuition.
Reference link:
"[WORRIED ABOUT HOW TO PAY FOR YOUR PURDUE EDUCATION?]"
https://www.purdue.edu/backaboiler/
Even if their universities do not offer ISAs, students can rely on them. Platforms like Edly enable individual investors to fund others' education in exchange for a portion of their future earnings. Investors around the world have been looking for alternative investments that are uncorrelated with traditional assets and are expected to yield stable returns. ISAs are a new investment product to add to portfolios.
Reference link:
Is this the same as traditional student loans? Or worse, a form of indentured servitude for students? Not at all. As explained by Meratas, a software provider that helps organizations issue and manage ISAs, ISAs have no principal balance and do not trigger penalties, do not accrue interest, and if the total amount repaid by the student is less than their initial educational costs, it does not trigger penalties.
Reference link:
"[A Better Income Share Agreement Solution]"
ISAs are not suitable for everyone and have their downsides. Overall, this method is quite remarkable. It provides a way to share the risks of learning and career demands. It is much more reliable than betting on a rock star's ten-year career.
However, some people are already trying more radical ways to fund their careers.
Buy a "Small Part" of Me?
In April 2020, French entrepreneur Alex Masmej announced on Twitter:
"I am announcing the sale of 1 million $ALEX tokens (10% of total supply) for $20,000 to fund my startup life in San Francisco, where I will be moving next month. Specific terms to be determined, but the subject should be a mix of my net worth / annual income over the next five years."
Reference link:
https://twitter.com/AlexMasmej/status/1235255648453046273
To put it simply, this means Alex Masmej is selling a token named after himself ($ALEX). The sale of this token will fund his entrepreneurial journey. Token holders will have certain rights over Masmej's future income and career decisions. Alex Masmej explained in another blog post how he plans to use the funds raised and what rights token holders would have.
Reference link:
"Taking risks during chaos: Initial $ALEX Offering"
His plan is to "return to San Francisco with a small safety net to maximize my potential. In exchange for allowing Alex Masmej to work peacefully, investors will receive 15% of all income he generates over the next three years. The cap is $100,000, distributed quarterly." Alex Masmej also promised to regularly share updates with token holders, outlining his plans and lessons learned.
Reference link:
"Introducing 'Control My Life': use my cryptocurrency $ALEX to vote on my life choices"
In addition to regular income, token holders can also benefit from appreciation in value. As Alex Masmej (the person) becomes more successful and well-known, other investors may want to buy more $ALEX tokens to own a share of Alex Masmej's future earnings.
Alex Masmej described this process as a "fusion of a small ISA and a personal IPO." A few years later, Alex Masmej decided to take further steps and grant token holders the right to vote on various life decisions—such as whether he should eat meat, what time he should wake up every morning, and which workout classes he should practice.
The story of the $ALEX token sounds frivolous, but it funds a young man from France's journey to Silicon Valley and spreads the risk of his independent entrepreneurial venture.
Unlike David Bowie, Alex Masmej is not a celebrity and does not hire bankers. He uses open-source technology (Ethereum blockchain) to create financial derivatives that anyone on earth can purchase. Alex Masmej recruits others to share the risks of his early career and offers them a portion of the returns. The same approach may soon connect with all of us.
Circulation Period
Celebrities and online influencers are already monetizing their popularity using digital tokens, spreading the risks of being a star. For example, Bitclout allows celebrities to sell Creator Coins, which fans can buy and resell.
Why would anyone buy such things? Bitclout explains:
"Creator Coins are a new asset class tied to an individual's reputation rather than to a company or a product. They are, in fact, the first tool for society to trade social influence as an asset. If people understand this, then the value of a certain influencer's token should be closely related to that person's status in society.
For example, if Tesla founder Elon Musk successfully becomes the first person to land on Mars, the price of his token would theoretically skyrocket. Conversely, if he were to make a racially insensitive remark at a press conference, the price of his token would plummet. Therefore, if people believe in someone's potential, they can buy his or her token, and when that person fully demonstrates their potential, the token holders can benefit. Traders can profit by buying and selling based on the price fluctuations of these celebrity tokens."
Reference link:
In addition to pure speculative trading, fans can also use tokens to deepen their relationship with creators. Celebrities can set up an inbox that only token holders can send messages to. Or they can allow fans to bid, with the winner getting a mention of their name in the celebrity's Instagram or Twitter posts.
By allowing fans to own a "small part" of themselves, it can also incentivize them to support your ongoing success. If you own Musk tokens, it becomes natural to promote Musk and try to attract others to buy his tokens. By increasing the demand for the tokens you already own, you can become wealthier. Those who buy tokens after you will continue to promote others. As long as the story is compelling and enough newcomers can be persuaded, the value of the tokens will rise.
Celebrities are fortunate to earn a fortune through this method. But they also have no choice; being a star is an unstable life filled with anxiety. This sense of anxiety and precariousness will no longer be unique to celebrities and entrepreneurs in the future.
Everyone is a (Stream) Star
Human work is becoming increasingly creative. More of us will spend time writing code or content. The ability to work remotely means we are competing in a larger talent pool. To stand out in this vast human resource pool, we increasingly rely on algorithms to determine who can understand us and how our work is shared.
Reference link:
This means more people have the opportunity to become superstars in their respective fields. It also means that outstanding talents in an increasing number of industries are facing unprecedented levels of uncertainty and anxiety. As I mentioned in "The Rise of the 10x Class" and "Surviving Wealth," technology is transforming many professions from non-scalable to scalable:
"Non-scalable professions are those that must be performed in person and are geographically constrained. For example, a doctor can only practice in one place at a time.
Scalable professions are those not constrained by the physical world. Movie stars or writers can simultaneously reach millions of viewers or readers. Scalable professions can yield higher returns but also entail more risk.
The distribution of rewards in scalable professions tends to follow a power law. Meanwhile, the rewards in non-scalable professions follow a more normal distribution.
In the 20th century, most middle-class jobs were non-scalable. They had to be performed in person at the office."
Reference link:
"Work, Cities, and Offices in a World of Infinite Choice"
As more professions become scalable, previously stable jobs are becoming increasingly precarious. Telemedicine allows star doctors to serve clients who were previously inaccessible to the market. Connected fitness devices (like Peloton) enable star trainers to serve thousands of clients at once, rendering ordinary trainers at local gyms redundant. The same dynamics apply to many other services and knowledge work.
How do we handle all these risks?
"Promote" Your Career
Alex Masmej's personal IPO experiment fits perfectly into what venture capital fund Variant Fund founder Jesse Walden calls the new realm of ownership economy. Public chains like Ethereum make it easy to issue and trade tokens, and ownership of any entity or digital product can be projected onto them. As I mentioned in earlier articles, these tokens are not just certificates of ownership; they can be pre-programmed to operate in certain ways (for example, distributing dividends every time a predefined event occurs).
Reference link:
"The Ownership Economy: Crypto & The Next Frontier of Consumer Software"
Alex Masmej's experiment is unique in its execution. But today, anyone can easily issue their own tokens and let others trade them. As more professions become scalable, even the most successful careers face economic uncertainty.
The best way to handle the risks and uncertainties of scalable professions is to share the risks. Concerned doctors or fitness trainers, writers, or investment advisors can issue their own tokens and allow their fans and customers to participate in the ups and downs of their personal careers.
Like celebrities, sharing risk is just part of the story. By allowing others to invest in you, you are incentivizing them to promote your life story and do their utmost to increase the value of the tokens.
In this scenario, every profession becomes a pyramid scheme. If you can attract enough people to buy tokens, and they can attract enough people to buy more tokens, the overall value of the enterprise will continue to increase. Regardless of how much income you can generate from actual work, this value enhancement will occur. It will continue until you can no longer tell new stories or develop new downlines.
There are countless people on the internet.
