Cancellation of Token Points, the Black Swan Event in the Reddit Crypto Community

Author: Jaleel, Joyce, BlockBeats

On October 18, TechCrunch reported that Reddit has decided to terminate its nearly three-year-old blockchain-based community points service. Tim Rathschmidt, Reddit's head of consumer and product communications, stated: "While we see some future opportunities for community points, the resource investment required is too high to sustain. Additionally, the regulatory environment has added difficulties in this area."

Reddit will discontinue community points on November 8. These points are essentially interchangeable Ethereum tokens stored in Reddit's Vault, which operates as a cryptocurrency wallet.

Following the announcement, the price of the native token Moons (MOON) in the Reddit r/CryptoCurrency community dropped by 85%, the B r icks (BRICK) token in the r/Fortnite subreddit fell by 67%, and the Donut (DONUT) token representing community points in the r/ethtrader subreddit decreased by 66%.

A Black Swan Event for Reddit's Crypto Community

In the r/CryptoCurrency community, the announcement of the discontinuation of the community points beta and special memberships was marked with [SERIOUS]. The post indicated that due to regulatory constraints and resource limitations, community points tokens would be discontinued by November 8 at the latest.

This sudden announcement caused the MOON token to plummet by 82% within three minutes, with many users quickly selling off their tokens, while users in other time zones were not so fortunate. "When users in Australia and Asia woke up, the prices were already in chaos, and those holding tokens faced a new day in this manner," the community remarked.

The post garnered over 3,000 comments, with most community members expressing dissatisfaction. The announcement did include an explanation of a new plan, the "New Contributor Program," which would allow eligible users to earn cash based on the Karma and gold they earned through qualified contributions. However, community members were not convinced.

Speculation about a rug pull followed, with comments like, "The price crashed hours before it hit my inbox, so something definitely shady happened," and "If Reddit sold off before the announcement, that would be quite distasteful. They do hold a large amount of tokens." The community observed suspicious transaction records on-chain, pointing out that certain addresses completed significant sell-offs before the "discontinuation of Token Points" notice.

The community further accused the tokens of being centralized and even considered reporting the matter to the IRS for investigation: "Reddit operates on POS, and they don't care about their community at all."

In this black swan event for Reddit's crypto community, the crypto trading platform Kraken suffered significant losses. In response to the [SERIOUS] points topic post, Kraken co-founder Jesse Powell replied: "I personally don't think it's a regulatory issue, but I know regulatory issues are complex and evolving, and maybe Reddit didn't want the hassle."

In Jesse Powell's view, Reddit should at least provide a compensation method and redemption path, allowing people to purchase collectible avatars with points at some ratio or another. It shouldn't just destroy the value of holdings without offering any returns.

Moving from Ethereum to Arbitrum Nova

Three years ago, Reddit's novel blockchain points system based on Ethereum received significant discussion. Initially revealed in a video posted by a community manager from the decentralized domain project Unstoppable Domains, it showed that Reddit was configuring an Ethereum wallet for each user and using ERC20 tokens.

Reddit soon officially announced this news, which sparked a huge reaction in the crypto space. According to some descriptions from Reddit, these so-called "community points" actually represented ownership of Reddit subreddits. The points token system was initially launched only in r/CryptoCurrency and r/FortniteBR (the abbreviation for the game "Fortnite"), with tokens named MOONS and BRICKS, respectively. At that time, the total number of users in these two communities reached 2.4 million, marking a significant starting point.

Reddit's mechanism was quite straightforward: it allocated tokens based on users' monthly contributions to subreddits. Four weeks later, Reddit would announce each user's contributions during that period and give the community a week to provide feedback or suggest modifications. Tokens would be directly issued to users' wallets once the final list was confirmed. These community points had multiple uses, from unlocking special features to displaying users' "reputation" online.

However, as things seemed perfect, problems began to surface. The transaction fees on Ethereum were clearly a huge issue; high fees and limited bandwidth made scaling community points a significant challenge for Reddit.

"For example, putting all Reddit users on the Ethereum mainnet is not feasible and prohibitively expensive," the community points page further explained. Thus, they researched, adapted, and migrated to Arbitrum Nova.

Arbitrum Nova is a solution specifically designed by Arbitrum to facilitate gaming and social applications, making it an ideal choice for Reddit.

Points Tokens Shut Down at Their Peak

After migrating to Arbitrum Nova, coupled with Reddit's influence, the subscription numbers for r/Bitcoin and r/Ethereum hit new records. During the week of June 4 to June 11, the r/Bitcoin subreddit gained over 364,000 new subscribers, while the r/Ethereum community saw 461,000 new subscribers. Currently, r/Bitcoin has over 5 million subscribers, and r/Ethereum has over 2 million.

Even more astonishingly, when Reddit's community tokens Moons and Bricks were listed on Kraken, their prices skyrocketed.

After the crypto trading platform Kraken announced the listing of Reddit community tokens Bricks (BRICK) and Moons (MOON), and opened deposits and withdrawals on the Arbitrum Nova network, the prices of Reddit's r/CryptoCurrency community token MOON and r/Fortnite subreddit community token BRICK surged by 42.1% and 83.4% respectively within 24 hours.

Despite the impressive growth, the inability to achieve cross-platform applications, along with regulatory issues and limited resources, became fatal flaws in the development of community tokens. Additionally, the token points mechanism somewhat deteriorated the atmosphere of community discussions, with meaningless content flooding various boards in pursuit of tokens.

For the past three months, the prices of Reddit community points tokens have been on a downward trend. The peak moment from six months ago seems hard to replicate, and such an outcome may be inevitable.

How This Passionate Husband and Crypto OG Influenced Reddit?

Reddit co-founder Alexis Ohanian is a passionate husband, very much in love with the famous tennis star "Serena Williams." Behind this Reddit pioneer lies a lesser-known identity: a seasoned player in the cryptocurrency and NFT space.

Alexis Ohanian and his wife, image source: internet

In 2014, Ohanian purchased 50,000 ETH for just $15,000 when ETH was priced at only 30 cents. This Armenian descendant stated that his ancestors lost all their property during World War I, and cryptocurrency made him see the potential for indelible property, which is why he participated in Ethereum's ICO. However, looking back at this transaction now, he still feels he bought too little.

Subsequently, in 2020, Ohanian used the profits from his early investments in ETH and Coinbase to establish the venture capital firm 776, which has since invested in 29 cryptocurrency-related startups, managing over $750 million in assets.

In a 2020 interview with Yahoo Finance, Ohanian stated that more and more top engineers, product developers, and designers are building real solutions on the blockchain, indicating that the crypto market is entering a spring. He also revealed in the interview that he would continue to invest a portion of his assets in cryptocurrency.

Millions of Users Learned About NFTs and Web3 Through Reddit

Moreover, Ohanian's wallet reveals many exciting investments. His investment vision is not limited to Ethereum. Since its establishment in 2018, Ohanian's OpenSea account has collected 548 NFT works across 34 different projects, making him a true collector.

On September 14, Reddit co-founder Alexis Ohanian tweeted that he attended the Met Gala with his wife's CryptoPunk (which he bought for her). In the accompanying image, he wore a pin featuring the pattern of CryptoPunk #2950 on his suit.

From the selection of NFT attributes, it is clear that he has a deep affection for his wife. The headband, skin color, facial features, and accessories closely resemble Serena Williams in many aspects. There are only 406 Punk NFTs with headbands, and even fewer with brown skin and female attributes. He purchased seven of them, gifting one to his wife and turning it into a pin for them to wear at the gala.

His collection shows that he actively participates in NFT project launches, directly purchasing NFTs from project teams, with only a small portion acquired from secondary markets.

Reddit, the social media giant, also seems to have been influenced by Ohanian, beginning to venture into the NFT space. In July 2021, Reddit sold its first four 1/1 avatar NFTs, priced between 42-115 ETH, with the highest contract worth $261,000 at the time.

In August 2022, Reddit began airdropping four series of "collectible avatars" based on the Polygon blockchain, allowing NFT purchasers to use them as profile pictures on Reddit and other platforms or sell them on secondary markets like OpenSea. During the NFT launch, Reddit took into account the needs of Web2 users in the community, allowing users to easily create wallets using familiar password setups without needing to purchase through cryptocurrency exchanges—40,000 collectible NFTs could only be purchased with fiat currency at a fixed price.

The first generation of NFTs sold out within weeks, with nearly 2.8 million holders of Reddit Collectible Avatars. Reddit then released a second generation of 40,000 collectible avatars in October, which sold out within 24 hours. By December, the total sales of Reddit Avatar NFTs exceeded $10 million, with approximately 40,000 transactions. During the NFT launch, around 3 million wallets were created on Reddit, while OpenSea had only created 2.3 million wallets at that time.

This year, Reddit seems to have unleashed its creativity even further, exploring more "new plays" in the NFT space. They collaborated with Ubisoft to launch Rabbids-themed Avatar NFTs, which Reddit users could claim for free.

Additionally, Reddit implemented a series of measures to prevent malicious purchases. In July, when deploying the fourth generation of NFT contracts on the Polygon blockchain, they restricted purchases based on "account age and other metrics," while also implementing a CAPTCHA verification system to prevent newly created accounts from making bulk purchases for flipping.

The fourth generation of NFTs was as popular as ever, selling out on the day of release. On October 8, the number of holders of the Collectible Avatar NFT series surpassed 20 million, with total minting approaching 25 million, and the market value returning above $100 million, with total sales exceeding $41 million. It can be said that millions of users learned about NFTs and Web3 through Reddit.

Vitalik Was a Regular, Is Reddit No Longer Crypto?

Regarding Reddit community points, a partner at Pantera praised its clever connection between user interests and community engagement, which could bring 400 million users to the crypto space.

As a "stabilizing force" in the crypto circle, Ethereum founder Vitalik Buterin was often active on Reddit, interacting with the community. On January 8, 2022, Vitalik Buterin shared on Reddit: "I am optimistic about the future of multi-chain, but not so much about cross-chain."

By January 11, 2023, Vitalik appeared again, participating in the ninth AMA hosted by the Ethereum Foundation (EF) research team on Reddit. This AMA featured several important figures online, including Ethereum founder Vitalik Buterin, as well as researchers Danny Ryan, Dankrad Feist, Justin Drake, and Domothy. Vitalik mainly discussed the future development direction of Ethereum, the challenges and opportunities of DeFi (decentralized finance), the progress and expectations of Ethereum 2.0, and his views on the current cryptocurrency market.

Interestingly, it wasn't just Vitalik Buterin; the San Francisco division of the U.S. Secret Service also held an AMA on Reddit.

According to a public display of a post on r/CryptoCurrency, the event aimed to educate crypto users to protect themselves from crime: "In San Francisco, we have a small group dedicated to protecting cryptocurrency and its users. We are made up of agents and analysts who embrace future currencies, eager to share our work with this cryptocurrency community and provide resources and education to help protect your funds. We also look forward to learning from you."

However, with the discontinuation of points tokens, Reddit's originally close relationship with the crypto circle seems to be gradually fading. "Is Reddit no longer crypto?" many people are questioning.

Although in the past, this social platform made countless contributions to the entire digital currency and NFT space and had a deep connection with it, the reality of compliance requirements has forced Reddit to adopt a more cautious approach. To avoid potential compliance risks, the ties between Reddit and the crypto space have become increasingly tenuous, ultimately choosing to isolate itself more from it.

This is undoubtedly a regrettable decision, but it also reflects the ongoing challenges and tensions between regulation and the crypto world in reality. Not only token and NFT holders, but many hope that Reddit can regain its intimacy and enthusiasm for crypto.