Animoca Founder’s Handwritten Note: As MOCA Launches, Let's Talk About the Significance of Tokens Again

Author: Yat Siu, Co-founder of Animoca Brands

Compiled by: Azuma, Odaily Planet Daily

We are often asked the question: what is the exact meaning of tokens? Why do projects need tokens?

Generally speaking, tokens are seen as a more efficient fundraising tool that allows equity holders to avoid dilution risks; on the other hand, tokens are also viewed as utility tools that can be used in games and other virtual environments, similar to virtual currencies.

However, the functions of tokens are not limited to these scenarios; in fact, they can possess all of the above characteristics simultaneously. In our view, tokens represent a new way of owning a certain type of asset, for which there was no clear ownership structure before the advent of tokens.

In summary, we see tokens as a new way of having partial network effects.

Network Effects

Some readers may already have a basic understanding of the concept of network effects.

As the number of users of a product, service, or platform increases, the overall value of the network to users also increases. Network effects are an important indicator for evaluating the value of large companies, whether luxury brands or tech giants; investors often assess a company's value by measuring its network effects (including growth expectations and impact).

Metcalfe's Law (Metcalfe's Law) states that the value of a telecommunications network is proportional to the square of the number of connected users or compatible devices within it. In other words, the more people or devices participating in a network, the greater the value of that network. We can roughly assess the value of networks like Facebook, Google, and LinkedIn based on user numbers; the larger the total number of users, the higher the network's value and its potential valuation ceiling.

The same evaluation method is also used to estimate the potential of Web3 networks, such as focusing on the number of addresses, transaction volumes, developer counts, and so on. While some people prefer to directly apply Metcalfe's Law, we believe that Reed's Law (Reed's Law, which states that the utility of large networks can grow exponentially through subgroups of network participants) may be more appropriate here.

In general, tokens are a manifestation of network effects within a specific network, platform, or ecosystem. The emergence of tokens allows users to own a part of the network for the first time, which is distinctly different from traditional equity instruments. Additionally, since tokens themselves possess various functionalities and often have open and permissionless characteristics, they can more conveniently support various practices and innovations, enabling Web3 to create network effects faster and more effectively than the closed networks of Web2.

The Value of "Individuals" is Not Equal

Whether it is Metcalfe's Law or Reed's Law, it is difficult to use them to evaluate the value of infrastructure projects or large social networks, as they both assume that each user and device in the network has more or less equal value and contributes equally to the overall value of the network and its effects. However, this is not the case; having more users in a network does not necessarily mean it has greater value or better network effects than a smaller network. The value of individual users within the network is also an important factor.

For example, in an economy, the population can be seen as the size of its network, while its Gross Domestic Product (GDP) indicates the network's value.

Hong Kong has a population of about 7.5 million and a GDP of approximately $407 billion; North Korea has a population of 27.5 million and a GDP of $48.3 billion. The difference in the value (GDP) of these two networks mainly lies in the value differences of the network nodes (i.e., the population or businesses within the economy). Although North Korea's network size is more than 3.5 times that of Hong Kong, its economic system is isolated, and its network effects are closed, resulting in a relatively lower value, making the overall value of its network far below that of the smaller Hong Kong.

The same is true in the Web3 world; networks with lower potential will also have lower attractiveness in terms of investment, developers, and users. Therefore, anyone building in Web3 should strive to create a network with higher value and stronger network effects.

How to Measure Network Effects?

There is no single path to driving the growth of network effects. Project teams must combine various appropriate methods to create lasting appeal for the network, which includes emphasizing user reach (similar to TON), attracting more developers and investors (such as Ethereum and other Layer 1, Layer 2 solutions), or implementing various measures to increase total transaction volume, among others.

In addition to focusing on the number of network users, another common method for measuring network effects is to focus on the total investment within the network. Many blockchains focus on increasing Total Value Locked (TVL), which is an indicator of the total value of assets locked or staked within that network, aiding in attracting investment and entrepreneurial activity.

In the current Web3 world, the most noteworthy metric may be user stickiness, as Web3 networks are generally designed to be open and permissionless, meaning users can freely enter and exit rather than being trapped in a "closed network." This is in stark contrast to the situation in Web2, where network effects cannot be owned by end users but are strongly monopolized by the network itself (for example, it is difficult to transfer data and network effects from Facebook to TikTok).

Web3 provides users with greater flexibility than Web2, therefore, when building decentralized networks, user retention will become crucial, and one effective measure to enhance user stickiness is to invest in "cultural capital."

"Cultural Capital" and NFTs

According to Pierre Bourdieu's theory of capital and class division, "cultural capital" consists of intangible resources such as knowledge, skills, and experience, which play an important role in social mobility and opportunities. "Economic capital" and "cultural capital" can complement each other— for example, joining high-end clubs, attending top universities, or living in specific communities can significantly increase an individual's chances of improving their economic and social status.

NFTs, due to their unique nature and their ability to reflect personal identity and "cultural capital," can create more profound and complex network effects than fungible tokens (FTs). While the network effects driven by NFTs may not grow as rapidly as those of fungible tokens, they can establish deeper and more loyal relational networks based on shared "cultural capital," thereby forming stronger defenses and more powerful network effects.

In the real world, this phenomenon is already very evident; for example, we can see people's loyalty to brands like Hermès, Nike, or Apple. In the virtual world, we are also beginning to see similar cultures emerge, such as in projects like Pudgy Penguins, Bored Ape Yacht Club, and Animoca Brands' Mocaverse.

Vision of Mocaverse

One of the key indicators for measuring network potential is to observe the scale of investment it has received, which often represents the growth potential of the network, much like a country's investment in infrastructure development; the more investment, the greater the development potential.

Animoca Brands is one of the most active investment institutions in the Web3 space, with over 450 companies under its umbrella and a balance sheet size of billions of dollars. We will continue to invest to expand our network and its associated economic and cultural network effects, laying the foundation for the expansion of the Moca Network (an interoperable economy composed of partner "subnets" and users connected by Mocaverse). Meanwhile, we will leverage the cross-chain token MOCA to drive the growth of the Animoca Brands network.

So what is Mocaverse? It is an interoperable infrastructure stack designed to enhance network effects and bring together various "cultural capital" and "economic capital" for maximum mutual benefit. Mocaverse will integrate multiple fields, including gaming, music, sports, anime, NFTs, and digital identity (DID), to build a collaborative ecosystem, where any segment can drive the development of the entire ecosystem.

Mocaverse is currently developing Moca ID, a universal identity reputation layer across the entire chain that will serve as a connective role across ecosystems. Given that Animoca Brands is already one of the most active investment institutions in the Web3 space, this will help drive growth across the entire Web3 industry. Both Mocaverse and MOCA itself belong to "cultural capital," and while this may still seem somewhat "isolated" today (similar to most NFTs), its significance will become more socialized as the Mocaverse reputation layer grows.

Our goal is to create a truly reciprocal relationship that will bring more value to our portfolio network and incentivize users of Mocaverse based on time, loyalty, and attention. All participants will be able to benefit from this shared network effect, which embodies the core spirit of Web3.