Safety Net Vaults in Tokenized Social Money Platforms (Phase 1)

6 min readDec 16, 2020

The world of blockchain social money and creator communities is growing rapidly. New abilities are being instilled into the very fabric of community development oriented models through new technology, software tools platforms. Its now possible for small groups of individuals bootstrap significant liquidity; without venture capital, to the betterment of their communities, followers and supporters. These new powers primarily come from tireless innovation and experimentation in the Ethereum ecosystem.

The tables are slowly turning on the centralized platforms like YouTube, Spotify and Instagram. These platforms were once a tool of liberation for many independent artists and influencers. Many formerly liberated creatives find themselves being demonetized and in captivity. Social media and content platforms freely ostracize and censor their communities; all while enjoying an endless sea of free content.

And now Facebook is being accused of violating antitrust laws. Officials seek to shatter the monopoly that Facebook has built. This is a huge moment for tokenized social platforms.

People all across the spectrum are talking about Social Money from influencers, academics, creators and blockchain communities. There’s so much variation in the people buzzing and participating in this new Social Money experiment. Singularity University’s new content distribution engine IdeaFront. The Defiant, NSFW content provider “Cherry Hot-wife”; influential people and organizations are discussing, exploring and participating in this entirely new landscape.

So what’s enabling this renaissance of community and collaboration in Social Money?

It’s powered by new innovations in the Ethereum ecosystem. New tools in the realm of decentralized finance, non-fungible tokens, and social money are enabling a whole new breed of incentivized communities. This new paradigm allows people to participate alongside their favorite artists or influencers rather than purely spectating. It creates new incentives for people to collaborate on cooperative community agendas.

Innovative platforms such as Roll allow people without intense technical knowledge to mint their own social moneys. Balancer smart pools enable liquidity bootstrapping and secondary markets for creator economies. Yield bearing open finance vaults like KeeperDAO, Aave and Yearn Finance give these crypto native organizations the means to manage their own finances.

Collab.Land allows user token balances to be authenticated for access into private and exclusive communities. It also adds simple functionality and utility to any token that can be held in an Ethereum wallet. SourceCred allows communities to monitor and reward participation, collaboration and contribution.

Some notable organizations that have actively experimented or worked to construct the tools that will now empower a new breed of social organizations would be Gitcoin, MetaCartel, MetaGame, and Raid Guild. I highly recommend that aspiring social token creators take a deep look at some of the successes and shortcomings of a range of different projects from these folks.

There is tremendous promise in the realms of social money and there is also tremendous peril.

What is the impact of massive token price dumps on community members?

How do we prevent the shift of value proposition and focus from the community and creators to the token?

Is there a way to shield both communities and issuers from the emotional impact of wild fluctuations in token prices?

( The questions above are either natural extensions of questions asked by the Defiant’s Robin Schmidt in this video https://youtu.be/i0k9oN2buA8 )

In order to build longevity into these social money token models; we need to incentivize and reinforce stability into their very tokenomic models.

These questions don’t have easy and solid answers. Social tokens have a range of different use cases and there are some particularly scary possibilities that need to be inspected and safeguarded against. This is especially true when it comes to creator communities that involve fans. Its not uncommon for a fan to be incredibly emotionally attached.

It’s clear that we need some new tokenomic paradigms which are geared in the following ways:

Encourage relatively stable token pricing with a “safety net” vault.
Maintain their utility regardless of price increase or decrease.
Enable bootstrapping of liquidity for issuers without access to venture capital.
Designed for long term, incremental growth.
Provide a means of stable income for creators and community founders.

There are tons of different theoretical solutions to the above issues. Each different platform will demand a different solution set for their particular and specific needs.

What if — a social money platform released its token over a 6 month sale period; then locked all of the raised capital into a safe(ish) yield generating protocol, or vault?

In this way the initial token sale capital could be used as a safety net to prevent token dumps, AND generate revenue for the platform.

What if — the token could launch with relatively deep liquidity with a very small amount of upfront capital?

Here is an example scenario for rolling out tokenized communities and social money distribution events. If I was going to launch a tokenized community; this is how I would do it. *wink wink*

Safely distribute the utility tokens which represent transferable membership.
Bootstrap liquidity in the project with minimal up front capital. IE use a balancer smart pool with sliding weights. Check out Bankless
Stabilize the value proposition of the token by creating a safety net threshold price at the end of the 6 month distribution event.
Capitalize a “safety net” vault that will prevent token price dumps; and provide revenue in the form of interest.

Token distribution will be accomplished with a Balancer Labs smart pool. These pools enable platform creators to capitalize deep liquidity in the pool with minimal upfront capital. This is accomplished by launching a 180 day distribution event; with pool weights that automatically adjust over the launch period.

At the end of the distribution period; platforms would lock up all of the net revenue generated through the token sale into a “safety net” vault. The “safety net” vault will always hold capital according to this simple algorithm:

Total Safety Net Vault Capital = Mean Distribution Token Price * Circulating Supply

In this way communities creators are free to do several things; protect their community members AND generate profit by buying back tokens below the safety net threshold, and generate revenue with the interest from the vault. Stability and longevity is now incorporated into the model.