What Are Social Tokens, And How Are They Used?

A social token is a cryptocurrency backed by a person’s social reputation, which may or may not have any utility (or value). This is different from crypto projects that are promoted by celebrities which can often be sketchy. So far, Web2 has not provided a mechanism for fans to invest in and be rewarded by their favorite content creators, and methods for content monetization on platforms like YouTube are often restricted to advertisements, subscriptions, and tips that only benefit the creators.

For the most part, content creators use social media as a marketing and PR platform for their content (video, music, or art), but fans rarely gain anything by liking or sharing a content creator’s posts. In contrast, Web3 provides the ability to create value-bearing assets easily, and social media blockchain DeSo provides optional social tokens for every profile on its network.

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As Protocol explains, social tokens allow content creators, businesses, and artists to provide more tangible rewards to their fans by creating their own cryptocurrency. A social token’s value is determined by several factors, much of which is influenced by demand for the utility provided by the person or organization the social token is made for. Small businesses and artists can accept their own social token as a payment method for Web3-specific rewards, such as NFTs or special services, or issue their token as a reward for user engagement. However, because social tokens aren’t usually backed by anything other than their creator’s reputation, they are prone to higher volatility than meme coins.

Which Projects Offer Social Tokens?

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While there are many platforms that offer similar services, two platforms worth highlighting are Rally and DeSo. Rally was among the first blockchain projects to offer social tokens for content creators, though they still operate by invitation only, and the benefits of ‘HODLing’ a creator’s social token depends on the creator. DeSo, especially its leading social media app Diamond, offers every user profile their own Creator Coin, allowing anyone to create and use their own social token if they choose to do so. On DeSo, Creator Coins are backed by DESO locked in the creator’s profile, and can be exchanged for DESO (or vice versa) at any time, whereas Rally’s social tokens are backed by RLY tokens.

On the downside, social tokens are especially vulnerable to manipulation, pump and dump crypto scams, and having little to no utility. Because social tokens have very low market capitalization, it is very easy for a ‘whale’ to manipulate the price while hyping up the coin, driving retail investors who want to get rich quick to pile everything into the Creator Coin as the price goes up, only for the whale to dump their holdings once the coin has gained enough value. Creator Coins and social tokens in general do not carry inherent utility either, and providing utility is entirely the content creator’s responsibility. Social tokens that have no utility are little better than meme coins, are far more volatile, and could easily be used for common cryptocurrency scams.

While social tokens may one day have a place in social media as a new form of marketing and community engagement, they have yet to achieve any meaningful adoption. They tend to be more volatile than most cryptocurrencies and are prone to whale manipulation due to shallow markets, and should be avoided unless they offer tangible rewards for buying, holding, and using them (i.e. exclusive content, NFTs, private Discord groups, etc.). Perhaps in the future social tokens will be a standard component of social media, but for now, they remain on the fringes of Web3.

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Source: Protocol, Rally, DeSo, Diamond