Will social capital ever matter in web3?
Looking at ways to build reputation natively in cryptonetworks
JammSession is a newsletter about the latest trends and stories of crypto & gaming. Each week, I jam on the latest trends and happenings of how the story is unfolding.
One of the biggest questions being pondered by many in crypto is how people start accruing social capital natively in web3 and have it acknowledged across the ecosystem.
In many ways, our reputation as a proof of history already exists, but we don’t uniformly believe in a reputation system that can change our behaviors for using applications. Reputation systems are sort of like languages. We must all believe in them to be true. So how do we start getting consensus on a standard of reputation?
One way to do this is to turn existing social capital into financial capital. Platforms like Roll, Zora, and Foundation are capitalizing on this trend by giving the creators the ability to monetize the existing audience that they build for themselves.
Reddit is another example of this. They’ve spent a decade perfecting their reputation algorithm and now want these communities to exist outside of their platform by giving communities to assemble around a form of money ($BRICKS and $MOONS).
Yet, given the existing decentralized applications that we have today, we’ve never found a way to build social capital in web3. Two reasons for this may include the inability to recognize addresses across applications and the lack of meaningful experiences for users to be identified.
But these are solvable.
Solutions like ENS will solve the inability to recognize addresses, and applications will become more meaningful over time with more scalability. (since scalability directly correlates to spending more time in applications).
Building social capital web3-first
So how can we start to build social capital natively in web3? It comes down to three main buckets:
Whale Hunting (i.e., liquidity mining)
Open Source Contributions (Gitcoin, SourceCred)
Making correct predictions (Public.com, TokenSets, Erasure Bay)
Whale hunting
We’ve already seen projects and protocols incentivize existing holders to migrate to their projects. This phenomenon first started with NFTs back in 2018: projects like CryptoStrikers would pay players large sums of money to lock up their NFTs to give players their free NFTs. This is still happening today: just last week, EOS announced that a project called Upland is paying CryptoKitties holders to transfer their kitties to EOS for “retirement.”
Whale hunting also includes liquidity mining (aka yield farming). Projects are using subsidies and token incentives to pay whales to migrate their liquidity onto their networks. (See Balancer). Yield farmers are getting a get a better return by borrowing assets on these networks rather than lending.
Whale hunting is the most straightforward place to start because they can bootstrap new networks and move capital efficiently.
Open Source Contributions
The most significant missing puzzle piece for building social reputation is the lack of “skilled work.” Arguably one of the only successful types of skilled work is open source contributions. Erasure Bay is an interesting example of leveraging social capital (Twitter) to give a financial incentive (bounty). Although, it would be neat if there was a way to limit who could fulfill bounties based upon a reputation score.
Samczsun has built his entire reputation by discovering exploits in smart contracts and working on bug bounties. Now, instead of projects creating bug bounties, many projects just go straight to him because he has built a reputation for himself. If others could make a public reputation for completing bounties in addition to the financial incentive, we may be able to have more individuals working on bug bounties.
SourceCred is one project working on this. Using the PageRank algorithm, SourceCred assigns credibility and reputation based upon open source contributions. If a user builds up enough reputation, they can receive tasks that match their skill set.
Making bets
Making bets to accrue reputation falls into two categories: making the most profitable trades in the market and making correct predictions.
For instance, take Public.com. Public is the social version of Robinhood, except you can see the trades made by others and comment about specific stocks. This gives individuals a way to build status while they earn money.
Token Sets is a similar example. On Token Sets, individuals can create a token strategy and have others match the trade.
Meanwhile, with the current spread of misinformation, there’s a big opportunity for users to gain social capital by using prediction markets. Just this week, Facebook launched a prediction markets platform called Forecast. To start, Facebook is targeting scientific experts who want to make their predictions on things like the election and the coronavirus. By making correct predictions and providing reasoning, forecasters can earn points and gain credibility.
Crypto-native prediction markets like Polymarket can reward users with social reputation for making correct predictions along with the financial reward. This additional social incentive would motivate users to make accurate predictions to boost their social status and credibility within the community.
Reputation systems can incentivize acquisition with quality users
While projects are considering whale hunting for acquisition in the short term, the most sustainable form of bootstrapping new networks will come from open source contributions and individuals who have built reputation through accurate predictions. Over the next year, we’ll start to see digital identity and reputation become a significant motivating factor to use cryptonetworks. We have the tools and Middleware necessary to build these systems. It’s just a matter of finding the right experience for users to understand what they’re earning.
A note to readers: Support Jamm Session on Gitcoin Grants
A huge thank you to all the readers of Jamm Session throughout the past two years. I don’t usually ask for donations, but if you enjoy Jamm Session and wish to support it, I’ve set up a Gitcoin Grant here. Because Gitcoin Grants using quadratic funding, a small donation will go a long way. I hope to keep Jamm Session subscription-free for the foreseeable future. Thanks for your support! 🙏