Tokenized Community 2022 Annual Review and 2023 New Year Outlook

Original: Forefront

Compiled by: Frank, Foresight News

This is not the first time Forefront has reviewed the annual development of the tokenized community track in the crypto industry, but there is no doubt that the situation has changed significantly in 2022.

Among them, Forefront's first report, "2020 Social Token Annual Review," explored the emerging prospects of crypto social, covering the origins of personal tokens through tokenization (Matthew Vernon's "Boi"), the initial ALEX issuance by the current founder of Showtime, the early development of RAC, how NFTs serve as a means of payment (token WHALE), permissioned access (CollabLand), and much more…

It's worth noting that on December 28, 2020, there were no more than a few dozen social tokens on Ethereum, with approximately 7,000 cumulative holders and a total market cap of $81 million. This year's report is a celebration of our achievements and the opportunities that lie ahead in bringing tokenized communities to the public.

From Social Tokens to Community Tokens

At the end of 2020, just before the release of Forefront's first report, Forefront began its transformation into a "home for social tokens," gradually aggregating all content related to social tokens, from creator tokens to NFT collector tokens.

As NFTs began to rise, new communities emerged, and soon all social tokens began to clearly evolve towards community tokens—this is a shift from individual creation to collective creation.

Because the changes were so significant, in July 2021, more than six months after the initial social token annual review report was released, the Forefront community felt it was necessary to revisit the lightning-fast development trends in this field.

At that time in 2021, communities were recognized as the center of the crypto social ecosystem, but despite this, many poor decisions were still made when people tried to fulfill the promises of Web3 and tokens as new economic models.

The 2021 report emphasized the rise of seasons belonging to communities like FWB and Forefront, where Roll Hack, Rally, and Bitclout stirred waves, and Bankless DAO also made a brilliant appearance, while communities like Cabin, Krause House, and Songcamp began to gain popularity.

Entering 2022, people were understandably excited, believing that the "Year of the DAO" was about to arrive, which was somewhat true—2022 was the year when sustainable models for communities began to slowly emerge, as new community experiments learned from past mistakes, and OG communities began to adapt to changing trends.

2022 was the year when tokenized communities truly came into being.

OG Communities Maturing

In recent years, the crypto ecosystem's view of tokenized communities has changed, particularly during the period from late 2020 to 2021, when any community with a social token fell within the definition of "tokenized communities."

However, as these communities developed, contributors gradually uncovered the true factors that make tokens valuable and necessary. The Forefront team subsequently refined the definition of tokenized communities to include on-chain communities that allocate funds for community projects using governance tokens.

This new definition is both explanatory and reflective of the actual situation. When we initially published our article on tokenized communities last March, only a few communities fell under this seemingly strict definition.

Today, even "OG" tokenized communities like FWB, Forefront, and Bankless are slowly shifting towards focusing on sustainable economic models that fund community projects. In many ways, it is a definition that all projects aspire to—because it represents a sustainable, collaborative online community world.

Although launching and participating in DAOs on-chain is easier than ever, community participation remains a major issue—every tokenized community continues to strive to reach quorum on certain proposals, attract talented builders and creators, and establish sustainable development momentum for their projects.

Meanwhile, some communities, like Lil Nouns, find themselves with a very large and diverse base of token holders, but due to a lack of centralized vision and mission, community engagement is low.

The purpose of Forefront's Pulse is to give communities the opportunity to collectively communicate on-chain around their missions, goals, values, and interests.

With the rise of Web3 social and products like Farcaster, Lens, and Yup shining brightly in 2022, it is clear that 2023 will be a year for tokenized communities to refocus on their community engagement to ensure long-term sustainable development and growth.

According to statistics from Forefront Terminal, as of February 2, 2023, the number of key communities covered by Pulse has reached over 47, with a cumulative membership of over 33,876 and a cumulative treasury balance of approximately $103 million, with a total project market cap exceeding $270 million.

"Nounish" Unlocking

We cannot conduct an annual review without meaningful discussion of Nouns DAO.

Launched in 2021, Nouns DAO advocates for a simple on-chain commitment: one Noun auction every day, forever.

The Nouns perpetual auction mechanism has proven to be a way for tokenized communities to release sustainable income, (theoretically) reflecting the value of governance in funding community projects.

Nouns' treasury currently holds over 27,800 ETH, hundreds of voting members, and a rich ecosystem of builders and creators, all of which have significantly boosted Nouns' meme attributes.

Of course, many communities see Nouns as a replicable model and have achieved varying degrees of success. For example, Lil Nouns and Gnars, as Nouns "subDAOs," have built good reputations while increasing Nouns' meme attributes by adopting more specific community mandates. However, both have encountered bottlenecks in accumulating funds, struggling to reach even a fraction of the funds held by Nouns DAO.

On the other hand, projects like SongADAO leverage existing creative efforts (such as Jonathan Mann's Song a Day) to turn them into a tokenized community by adopting the Nounish perpetual auction mechanism.

Jokedao has also launched a DAO driven by perpetual sales (weekly instead of daily): jokerace DAO, which initiates a joke competition every week, where participants use jokedao to vote for the best joke, and the winning joke will be minted as an NFT, making it the first fully member-generated and managed NFT series DAO.

Thanks to the Nouns Builder protocol, Purple, Public Assembly, BlvkHvnd, and other DAOs saw growth in the fourth quarter, while Builder DAO (the DAO managing the Builder ecosystem and protocol) has also become the second-largest treasury in the Nounish ecosystem.

Highlights of the Nouns DAO ecosystem include:

• Prop House. Prop House is a public infrastructure designed by Nouns DAO to help incentivize the development of internet community ecosystems (treasury funds: 1,820 ETH);
• Nouns Builder. Nouns Builder is a tool that allows any DAO to create and govern on-chain in the form of Nouns DAO (treasury funds: 1,000 ETH);
• Nouns On The Ground. An experimental proliferation exploring ways to bring Nouns into the real world (treasury funds: 662 ETH).

PFP Becomes DAO

In 2021, thousands of new PFP series emerged, each with its own community, mission, and values. However, most of these communities were asking, "What happens next?" They relied on core teams to continue building ecosystems, while the community essentially acted as the main force for free marketing.

Meanwhile, tokenized communities like Nouns DAO were gaining momentum, allowing token holders to fund proposals based on the community's mission, with funds allocated to community projects rather than hoarded by core teams.

With the launch of ApeCoin DAO, PFP projects gained a rough blueprint and new possibilities—although ApeCoin DAO uses a brand new token for governance, BAYC holders and other Yuga ecosystem members can participate in the DAO meaningfully without waiting for the core team to push the ecosystem forward.

More PFP communities have begun transitioning to DAOs or at least discussing the issue. With the rise of new on-chain and off-chain tools, we expect that many PFP projects capable of building great brands will truly begin to empower their communities in 2023.

One of the biggest examples is Moonbirds, whose DAO will launch early this year. This DAO will manage assets worth $2.6 million, including $2 million in ETH, for NFT holders.

The startup behind Moonbirds, Proof, will also grant the DAO 35% of creator royalties from Moonbirds and its derivative Oddities series, and the organization will initiate a "cold start" warning, allowing Proof to veto any "rogue proposals" in a manner similar to Nouns DAO.

Evolution of Business Models

"DAOs are products." --- @thattallguy

From 2020 to 2021, tokenized communities effectively had only one seemingly viable business model (if it can be called a business model): treasury diversification financing.

In March 2021, the FWB governance module approved its treasury diversification financing for 7% of the token supply at a valuation of $10 million; later that year, they approved a new round of treasury diversification financing at a valuation of $100 million.

Forefront also conducted treasury diversification financing at a valuation of $20 million at the end of 2021, followed by Cabin and other companies.

This model clearly has flaws: tokens are sold off in large quantities like equity, not only depriving them from potential active members but also failing to create sustainable income for project treasuries.

This is also why the Nouns perpetual auction model excites people so much: income can scale as the community and its memes expand.

However, it is clear that most tokenized communities still struggle to generate sustainable income. No other "nounish" DAO has been able to generate even a fraction of the income through Nouns' perpetual auction mechanism.

Some communities, such as Water & Music and Forefront, have managed to generate revenue through "membership passes" similar to Web3 native media subscriptions; other companies like FWB focus on brand partnerships, leveraging their community's influence and expertise to create unique collaborative experiences with major brands like Hennessy.

Meanwhile, by the end of 2022, open version experiments became a mechanism for DAOs to profit from significant media or cultural artworks—Nouns DAO used Zora to create a DAO explainer video that generated over 300 ETH in revenue.

One of the most exciting things about working within these communities is that everyone comes to the negotiation table with ambition, as Jess Sloss recently said, "to do things that people want to participate in."

Across the field, it is hard not to feel excited about the great dreams of tokenized communities.

For example, Krause House is building at the intersection of Web3 and sports, with the ultimate goal of becoming the first to purchase and collectively manage an NBA team!

Meanwhile, Cabin is creating a network city for online creators, which currently looks more like a globally shared network for thoughtful individuals to create, coexist, and protect. As the Zero community thrives in Austin, Texas, there will be more such communities in the future. Although their visions are not explicitly connected, Cabin is often seen as an early manifestation of Balaji's "network state" (Foresight News note: Balaji's "network state" refers to communities organized around managing specific societal visions, initially as online clubs, but over time becoming powerful enough to seek political autonomy or even diplomatic recognition).

FWB also leans towards this vision of "decentralized cities" and focuses more on becoming a cultural center that "shapes Web3." This community is undoubtedly one of the OG communities and continues to pave the way for new and interesting experiments for other tokenized communities, including brand partnerships, IRL events, grant programs, and more.

Finally, it is increasingly clear that tokenized communities are also the future of media. From decentralized media experiments like Rehash, collaborative media tools like Forefront's Pulse, to the new funding opportunities brought by the rich network of tokenized communities emerging every day, there is no doubt that the economics of media will fundamentally change, not only because of their digital nature but also due to their networked nature.

Even the world of long video production is being disrupted by DAOs: Shibuya, a project initiated by Pplpleasr, is crowdfunding long video production—such as short films, movies, or TV series—by selling NFTs called "Producer Passes," subverting the traditional studio-driven approach that currently dominates the industry.

ERC-20, NFTs, and Dual Token Models

Many people refer to 2022 as the year of the death of ERC-20: with ERC1155s being used for "versions" and 721s for non-fungible tokens, ERC-20 seems to be an unsuccessful experiment. DAOs should hold large treasury funds, but when over 90% of these treasuries consist of their own native governance tokens, the market's widespread concerns about them are understandable.

Many have also pointed out issues such as their securities properties, the complexity of managing liquidity pools, and insufficient revenue generated from token airdrops, making ERC-20 an unsustainable economic tool.

However, some new or old communities have chosen to use dual token models to retain their ERC-20 tokens.

For instance, Paradigm made significant progress in effective dual token models by launching GOO (Gradual Ownership Optimization) for its Art Gobblers project: the more Goo a Gobbler holds, the faster it generates more Goo. This means that the total supply of Goo increases at an accelerating rate, from thousands to millions or more.

Communities like rugDAO have also used similar token distribution models, where the longer users hold NFTs, the more ERC-20 tokens they receive.

Overall, most of the failures of ERC-20 tokens so far stem from two issues: insufficient revenue and lack of distribution.

First, without a meaningful treasury to manage, ERC-20 tokens are useless. The advantage of NFTs is not because they are inherently better governance tokens, but because purchasing NFTs typically means money flows into the project treasury, creating something that needs community governance.

Second, NFT distribution models are often fairer, while ERC-20 token distributions resemble traditional startup equity distributions in many communities.

These two issues are common but not inherent to the token standard. Given the need to explore community reputation, tips, ownership distribution, participation, and more, we expect ERC-20 tokens to make a comeback in 2023 and beyond.

Cultural Production Communities

If you look closely enough, you might argue that 2022 was the year of the "Metalabel" (Foresight News note: Metalabel refers to a collectively owned community network that creates knowledge, resources, and tools to inspire collective cultural output), and that is correct.

"Metalabel" is a relaxed club where a group of people with similar interests collaborate to support a work together. "Metalabel" is also a lightweight structure that creates economic, emotional, and creative consistency among collaborators, and it can thus also be a tokenized community (and many actually are).

The company Metalabel, which coined the term, is building tools and models to help facilitate the development and production of global "Metalabels." However, in many ways, the hardest work is defining the types of communities that already exist.

For example, Songcamp is an artist collective founded in March 2021 that gained fame in 2022 due to Camp CHAO. This "unorganized band" consists of over 80 musicians, producers, designers, and operators who collectively created over 40 songs, generating over $500,000 in NFT sales revenue, which is shared among the band's participants.

Songcamp is not the only music community adopting Web3 tools; in 2022, we witnessed the dawn of music collector communities, decentralized record labels, nounish music DAOs, and more. In many ways, music is an art that fully embraces Web3 and experiments without restrictions.

Maturity of DAO Tools

Bottom-up governance tools:

• Jokedao ------ On-chain, bottom-up governance tools for any community;
• Prop House ------ Competitive governance tools for Nounish DAOs;

No-platform membership tools:

• Guild ------ Automated management tools for tokenized communities;

Token-driven knowledge and operations tools:

• Clarity ------ Documentation and task management tools for distributed teams;
• Wonderverse ------ Token-driven project management and operations tools;

Publishing tools:

• Mirror ------ Decentralized publishing and creator monetization platform;
• Lens ------ Decentralized social media with user-owned data rights;
• Farcaster ------ Decentralized social media with a Twitter-like client;

Token creation tools:

• ZORA ------ All-in-one NFT creation protocol;
• Coinvise ------ Universal token minting platform;
• Manifold ------ No-code NFT minting tools for creators;

Recruitment and networking tools:

• Backdrop ------ Decentralized professional network;
• Layer3 ------ Decentralized bounty and reputation platform for tokenized communities;

On-chain permissions and readability tools:

• Metropolis ------ Secure encapsulation tools for managing on-chain memberships;
• Hats ------ On-chain role management tools for DAO members;

2023 Highlights

1) Regulatory clarity: Organizations like Syndicate and LexDAO have been exploring how to design DAOs that comply with existing laws, while a16z and other organizations have been writing numerous articles and collaborating with legislators to design effective DAO regulations, and this progress is expected to accelerate in 2023;
2) On-chain minimalism: The power of tokenized communities lies in the fusion of "trust software and social software." As more DAOs go on-chain, tools built for community collaboration and trustless funding are expected to explode in growth;
3) Online communities transitioning to on-chain communities: With the advancement of Reddit's community points project, online communities are rapidly going on-chain. Tokenized communities will not just start from scratch but will emerge from some of the most active communities on today's internet;
4) Brand reshaping on a stable technological foundation: When it comes to mainstream adoption, brands will be a major narrative in 2023. Terms like "NFT," "DAO," "token," and other crypto-native vocabulary have not been accepted by most consumers, and further adoption of this technology requires a reshaping of technological branding;
5) DAO & brand partnerships: FWB has laid the groundwork for partnerships between DAOs and major brands, while Nouns DAO is taking up the baton, and brands will seek to collaborate with these active on-chain communities in the new year.

Conclusion

2022 was indeed a hellish year, while 2023 has begun with signs of warming in the industry.

Tokenized communities are finally making significant strides, with the market gradually developing new revenue models and funding community projects that have never been funded by traditional institutions before.

As more internet communities begin to experiment with Web3 tools, we will inevitably witness a Cambrian explosion of creativity and business scale, often in ways we could not have imagined a decade ago.