In the era of attention economy, why are on-chain communities so important?

Written by: Joel John

Compiled by: Luffy, Foresight News

During the ICO boom of 2017, we witnessed an explosion of on-chain communities. People sent ETH through Web3 projects in exchange for newly issued tokens. Financial primitives (like tokens) are powerful tools for building communities as they provide people with a common purpose, goals, and interests. However, a year later, when the prices of these tokens fell, the communities began to waver. Now, we see this trend resurging in memes.

Three Eras of Web3 Incentives

Most airdrop activities in Web3 are merely mechanisms that combine future incentives (tokens) with current community participation. A token that whets users' appetites will attract a swarm of people.

In 2020, as games like Axie Infinity and NFTs in NBA Topshot began to rebound, the market recognized a new primitive for building communities. You can launch NFTs with a supply cap instead of issuing tokens. As long as there is some form of scarcity, the value of NFTs will be higher.

Interests will once again consolidate communities, thereby consolidating value. Yuga Labs and Animoca Brands are two companies that have created billions of dollars in value through these primitives. Artists like Beeple have earned life-changing wealth through on-chain expressions of art and content.

With the development of tools in the Web3 industry, I believe communities will benefit from integrating NFTs and tokens into their workflows. Over the past few weeks, I have been exploring how this model will work, and this article is my answer.

Community and Scale

In a 2014 article, Ben Thomson cracked a huge paradox faced by newspaper publishers. Their advertising revenue was as much as it was in the 1950s. This is because what they lost in local distribution (print media) has been compensated for by a global audience. The problem is that now every publisher on the internet has the same advantage.

Thomson pointed out a key issue with today’s internet:

The internet is a world of abundance, and a new power is important: understanding this abundance, indexing it, and finding needles in a well-known haystack. This power is held in the hands of Google. Therefore, although the audience that advertisers crave is now dispersed among an infinite number of publishers, the readers they seek to reach must start from the same place—Google—hence, that’s where the ad dollars go.

You can see this change in communities. In the 1900s, your grandfather might have attended a local church, had a favorite sports team, and a dinner date spot. By 2024, his Gen Z descendants may be active on 50 Discord servers, watching highlights on TikTok, and rarely going out for dinner.

We once formed our identities based on the tribes we belonged to. Today, we derive our identities through countless chats or Reddit subreddits, with pixels on a screen now forming the basis of our identity.

While newspapers have gained more revenue, their influence over where that money flows has diminished due to their reliance on Google. Communities have more members, but due to platform dependency, they have less say over the time they can participate.

On Twitter, you might hope to attract 100,000 users with a tweet, but you will be competing with a hundred others for the same attention. On Telegram, you can run a large community along with 50 other chat groups, using the same number of pings. Thus, while you are now part of more communities, you are less likely to feel drawn to any one of them. The internet offers you scale, but at the cost of attention being fragmented.

Blockchain enables the flow of value between communities and members in ways that today’s internet platforms cannot. They can create open reputation graphs that anyone can participate in. With the emergence of Web3-native social networks, this will be a key factor to keep in mind.

Let me explain, today’s communities struggle to identify or incentivize their most active members. The main incentive mechanisms today are status or rank. This mechanism works when people work closely together, as in the military. But for pixels on the internet—like "mods" on Reddit—this approach does not work. If these contributors were mapped on-chain, brands could directly launch communities without going through platforms like Reddit or Google.

This may seem a bit far-fetched, but I have indeed observed signs of this. In the last cycle (2021), audiences used NFTs to indicate they were core believers. For example, you could mint an NFT of your favorite author on Mirror.

Source: Tianqi on Dune

Imagine if NFTs could be rewarded simply for reading a piece of content? What if NFTs could be minted directly from the feed? Frame from Farcaster has been asking this question to their approximately 400,000 users.

Feed Connecting On-Chain

Frame allows users to engage in on-chain activities (like collecting NFTs) directly through the feed. Creators can subsidize minting activities. For example, last week I used LensPost to view some of our content and noticed it allows creators (like us) to pay for on-chain transaction fees.

Previously, users had to go to third-party platforms to mint tokens. Even if creators subsidized it on Ethereum, the scaling costs of this model would reach tens of thousands of dollars. Last week on Base, we spent about $5,000 subsidizing 10,000 minting activities.

In other words, we can create a social graph with 10,000 people engaging with our content, with each user spending less than 50 cents. Why is this important? Once users participate in content through reliable on-chain proof (by holding NFTs or tokens), you can bring value to the audience in various ways. Historically, this community connection relied on platforms.

We might break away from Telegram and lose the entire community there. You no longer rely on a single platform to interact with or provide value to your audience.

Why is this important? If your audience is mapped to wallet addresses, you can measure their skills and economic interactions. Admittedly, this approach involves privacy, but it is a way to measure audience value. Suddenly, you are no longer talking about likes, views, or retweets, all of which can be gamified. You can meaningfully measure the balance, transaction frequency, and transaction size of the audience.

For micro-niche markets, this approach is a goldmine because:

• You can objectively prove community engagement.
• You can verify community participation through transaction history.
• You can also see where these members are trading to build better brand partnerships.

But measuring audience value this way is a double-edged sword. On one hand, you can find ways to incentivize community members: through (token) airdrops or providing access to early product NFTs. On the other hand, it makes products susceptible to vampire attacks.

Communities must not only design incentives and ways to attract users but also build a culture that keeps users engaged longer. Future community managers must design incentives (in the form of tokens, NFTs, or SBTs) and understand the dynamics of community members.

Note: What I am discussing here are crypto-native communities. I wonder if economic incentives alone can turn a member of one football club into a die-hard fan of another club.

What would that look like? To answer this question, I studied the analytics available in large NFT collections like Bored Ape Yacht Club. In the past, the best way to find the asset balance of an NFT-linked wallet was to query platforms like Dune. This has changed, and there are now solutions to observe wallet behaviors.

The screenshot below from Bello nicely breaks down the types of information that emerge when building communities around on-chain primitives.

For example, the median net worth of Pudgy Penguin NFT holders' wallets is about $171,000. They are active for an average of about two years. NFT holders tend to be most active on Fridays, and based on past on-chain behavior, the best price for NFTs released today is to set it at 0.231 ETH.

According to Bello, about 1.63% of BAYC holders are active on Lens, while 1.76% are active on Farcaster. BAYC holders have collectively made about 34,000 retweets on Farcaster. These are key data points that can be used to build on-chain activity.

Don’t get me wrong: Web2 has perfected mechanisms for collecting user data over the past decade. What interests me is how to calculate the actual net worth of a community based on its on-chain behavior. Why is this important for micro-niche markets? Suddenly, you have a tool to break the historical relationship between platforms, creators, and audiences.

Previously, you had to pay platforms like Meta or Google because they aggregated the channels through which you could interact with your audience. In my view, as protocols like Farcaster mature, this relationship is about to be disrupted, as data in historically centralized databases will now be public.

We will soon be able to map the most active users on-chain and see users whose interests intersect. For example, today, you can track Bored Apes users who completed over a hundred transactions on Uniswap last month. As communities go on-chain, players who have read game theory articles from Farcaster creators can be searched on the Ronin Network.

The ability to mix and match interest segments among community members will lead to composable communities.

What does this mean for creators? Driphaus provides some clues. They organized active users on Solana and allowed them to collect NFTs from their favorite artists. Users on Drip typically do not collect rare NFTs with limited supply but usually collect NFTs that are unlimited. Users can spend $1 to "subscribe" to their favorite creators on DripHaus. Of that, 30% is allocated to Driphaus, providing substantial income for artists.

The table below originally comes from Vibhu sharing the Driphaus seed stage deck on Twitter. It analyzes the differences between content on platforms and on-chain well.

Last month, 60% of creators on Driphaus earned over $1,000. According to Vibhu (founder of Drip), the average donation amount on Driphaus is $0.05. While microtransactions and NFT minting are interesting, what interests me more is how value flows back to users. For example, once an artist has a sufficient audience base, they can whitelist these audience wallets for early access to new product launches.

Or creators can try to airdrop brands they collaborate with to these users. Part of the recent rise of Pudgy Penguins is due to the airdrops received by its holders.

Dancing with Creators

Driphaus is interesting because it allows creators to plan their communities with relatively little effort. Creators are becoming increasingly important in the context of communities continuously evolving, as great content is where attention is concentrated on the internet today. We recognize each other through the similarities of our favorite bands, writers, or movies.

Communities built using on-chain primitives have composability. This means users can interact with each other to create value for the entire community. Today's community interactions are largely top-down. That is, they require creators to constantly come up with new forms to provide value to the audience. But what if the audience could coordinate on behalf of the creators themselves?

From a scale perspective, it allows communities to actively participate in content creation.

These are not new ideas, but I mention them now for a reason.

• Feeds like those on Farcaster allow algorithmic discovery of on-chain content.
• Primitives like soul-bound tokens allow for permanent records of user engagement.

Stepping back, in the past, you could create content on Mirror and issue NFTs. But content discovery still relied on social graphs on third-party platforms like Twitter. Now, this shift stems from the crypto-native audience gathered on Web3-native social networks.

In turn, these feeds allow users to mint or donate directly without leaving the interface: just a click of a button to facilitate commercial interactions between creators and audiences.

The ability to pay creators is not powerful in itself. In 2019, you could tip creators as little as $0.10 on Medium. The difference now is that you can collect wallet details and create a new set of user experiences while allowing algorithms to enhance your content. In the past, you either relied on algorithms (on Twitter) or financial suites provided by platforms like Mirror. Today's tools (like Warpcast) combine on-chain primitives with very large subsets of audiences. This means you can grant access to content to wallets with specific characteristics. For example, I might only want to publish a study to the first 1,000 wallets that interacted with Uniswap.

Why is this important? Because as a creator, you need to know which audience segments you want to attract. Are wallets with niche skills (like building and running complex machine learning models on Numeraire) more valuable than early adopters of niche tokens? If a creator has been writing about AI, they might want to incentivize the former to mint their own tokens.

In the past, niche communities were dark pools of attention. As a creator, you knew very little about the people interacting with your content. If you have a history of wallets, and those wallets have credentials in the form of SBTs, you can prove your audience is more valuable with verifiable evidence.

You can see an early version of this today on YGG. Players engaging in YGG-integrated games can earn Soul Bound tokens by completing the Guild Advancement Program (GAP). Currently, about 220,000 holders have SBTs to mark their skill levels in games like Pixels Online and Axie Infinity. Why is this important? YGG has taken some of the earliest steps to create an open graph of verifiable skilled users.

Whenever a new game launches, they may target those players who have spent countless hours coordinating resources and providing feedback, otherwise risking being deceived by anonymous wallets.

Beyond Community

So far, what I have depicted is a vision for the future where niche communities built around verifiable identities and engagement proofs with creators will yield better outcomes for every participant. This future may arrive much sooner than we think, as on-chain primitives like minting NFTs are now allowed by news feeds on platforms like Warpcast.

But this still involves the relationship between creators and audiences. This vision has already been reflected in products.

For example, you can check the historical behavior and most used products of Layer3's user base. Third parties using Layer3 to drive users do not need to prove their users' proficiency. You just need to check the user's wallet address and see their history. In fact, you can use Airstack to get a complete list of its users and their on-chain handles. Enterprises trying to target these users do not even need to negotiate with Layer3. This is a huge added value for Layer3 users. Once their reputation is established, any product can provide value to them without relying on Layer3.

At the same time, users have ample reason to remain loyal to Layer3, as it serves as a curation engine for discovering and sharing significant on-chain opportunities.

Similarly, Boost Protocol has created a permissionless protocol around users. Last month, they released a tool to check users' gas expenditures on chains like Optimism, Arbitrum, and Base, allowing users to mint passes. These passes are ranked based on users' gas expenditures. Boost Inbox is a tool that allows products to precisely find users who have spent specific amounts of gas.

I think it is not far-fetched for the protocol to have an additional layer of verification, just like Gitcoin's upcoming Passport feature. As I write this, the Boost Protocol treasury holds about $180,000, and there are 47,000 Boost mint holders.

I believe the arrival of economic incentives will change our perception of the term "community" in Web3. If you can verify the quality of the user base and their engagement, then well-executed communities will gain value. We may be a few quarters away from seeing fully on-chain media brands scale. Unlike traditional media networks, these media networks will be able to verifiably quantify how much economic activity their audience has engaged in.

In an age of attention scarcity, economic incentives will help engineers focus their attention.