The case for Reddit's crypto tokens
The history of NFTs can tell the future of Reddit's crypto tokens
JammSession is a newsletter about the latest trends and stories of crypto & gaming. Each week, I analyze the latest trends and happenings of how the story is unfolding.
It feels like crypto is on the brink of something big with Reddit launching subreddit crypto tokens— a real and tangible way of introducing crypto in a practical way to millions of users.
But we should be skeptical, we’ve seen this story play out before.
After the launch of CryptoKitties in December 2017, two things became evident to Dapper Labs: 1) Ethereum wouldn’t be able to scale past DeFi and 2) Composability is blockchain’s superpower.
It took three months for games like KittyRace and KittyHats to appear on CryptoKitties built by third-party developers. While these games were the first examples of composability on Ethereum, it showcased the potential benefits of creating a world of infinite possibility: a world in which IP and brands can be infinitely propagated by leveraging existing on-chain data (in this case, CryptoKitties)
The KittyRace team eventually saw an opportunity to create a product studio on top of existing smart contracts called Endless Nameless. One of their first projects was building a Sandbox for developers to easily create content on top of these contracts to increase the network effects of their own games. They figured if developers had a better experience building on top of existing contracts, they would be able to create more products of their own.
However, the team ran into two significant issues:
There was no clear business model to build on top of existing NFTs unless there was heavy t/x usage
To get more users playing KittyRace and third-party applications on top of CryptoKitties, gas fees needed to be cheaper and there needed to be higher scalability.
These issues led the Endless Nameless team to start researching layer-two scaling opportunities, along with hundreds of other researchers. And some layer-two solutions emerged like POA, Loom, and Matic for consumer-applications. Many of the most popular Ethereum blockchain games like Axie Infinity, Sandbox, and others have moved to these sidechains.
It’s pretty complex to build consumer applications on layer-two solutions. To start, you lose out on composability. To take advantage of building blocks like automated market makers like Compound or Uniswap, the state needs to live on the main chain. The speed of innovation is lost when you make it harder for developers to build applications.
Reddit’s Crypto Tokens
Last week Reddit announced that they’re launching Reddit tokens for two subreddits: /r/cryptocurrency and /r/fortnite.
Let’s talk about the benefits first:
If platforms can emerge that build on top of these credit tokens, Reddit gets additional distribution (more users coming back to their subreddit)
Subreddits become a forum for governance, a breeding ground for new communities to emerge.
It’s one of the first real shots at a large tech company incorporating crypto into their products. But despite the benefits, I’m not sure Ethereum is ready for it. It simply cannot handle that many transactions per second on layer one as it is already filling up blocks on Rinkeby:
If Reddit were to bring this to mainnet, they would be spending hundreds of thousands of dollars on transaction fees. If they want to bring it to layer-two, well, we’ve seen the story play out before. If you want to achieve scalability in your own application, layer-two scaling is ok, but at that point, you lose out on all the benefits of blockchain (interoperability/composability)
I’m predicting that either one of two things happen to Reddit’s crypto tokens:
They build on top of Libra
They end up building their own chain on top of existing blockchain framework like Cosmos/Polkadot
Only time will tell if this works. In the meantime, expect large brands to take advantage of speculators on Ethereum with their own creator tokens & NFTs with the sell of “bringing crypto to the mainstream”.
I’m currently working on RabbitHole, a platform for new users to learn crypto, build reputation, and earn by using crypto applications. If you’re interested in jamming on topics I mention in my newsletter or on RabbitHole, hit me up on Twitter @flynnjamm.