A Web3 Community Formula for Brands

Two weeks after Paris Blockchain Week I'm still buzzing. We are experiencing a new super-cycle that is user-powered and community-centric. Here’s what it means for brands.

Apr 05, 2023

“It’s the first time in my life I’ve seen Hollywood to be more excited about a technology than Silicon Valley.”

This statement from Benjamin Bouygues, Ventures & Innovation Director at Kering, stuck with me. Why?

It implies that Web3 is not only a new technology paradigm for the next Silicon Valley unicorns, but also a cultural phenomenon.

Web3, the first digital layer of trust for the internet, is sparking a cultural revolution and transforming the relationship amongst users, assets, and businesses.

Let’s dive in.

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NFTs: cultural artefacts

So, where do we start?

We always start with technology. Blockchains, NFTs, you know the drill. And we’ve been there, done that. Thousands of NFT collections on many different blockchains have been created, billions of digital items traded. But what’s next?

“We need to look beyond PfPs,” said 0xb1, an elusive NFT ‘OG’ known only by the Twitter handle 0x_b1. “We don’t need digital zebras”, he added.

What does “beyond PfPs” mean? The mass market, with millions, if not billions of users collecting, trading, and valuing digital items they own.

For that, technology has to extend functional value with cultural value. It has to feel personal.

Some of us might remember Tamagotchis, the digital pets popular in the 1990s. They were small egg-shaped handheld devices with a digital screen that displayed a virtual pet that the user could take care of. The pet required attention, such as feeding and playing, and neglecting it could result in its virtual death. Tamagotchis were a cultural phenomenon and likely the first time, technology truly felt “personal” for millions of users.

What does this mean for Web3?

A hypothesis I have is that its basic currency, namely NFTs, need to become more personal, filled with cultural value.

Steve Huffman, Reddit CEO, for example, sees cultural value in creating personal connections:

“The format is irrelevant; it’s about being connected to other people in whatever format is most relevant to you.”

And he wasn’t the only one hinting at what “cultural value” could mean.

Suk-Jae Chang, CEO of Cocone Europe, a 15-year old Asian pioneer in digital avatars and fashion, spoke about the significance of creating meaning beyond the digital item itself.

Cocone’s avatars, often customizable, are designed to represent the user's personality, interests, and preferences. The platform has over 4m monthly active users and has sold over 16bn digital items.

Cocone comes from a time when iPhones came up and people could suddenly keep digital avatars on a tiny screen in their pocket. They’ve experienced how suddenly people started “caring” about virtual goods on their phones.

Suk-Jae Chang called Cocone’s approach in designing products the “ICE Principle”:

ICE:

I = Identity: Similar to a physical object, every digital object should have an identity.
C = Connectivity: Connectivity should exist not only between me and an item, but also between virtual and physical.
E = Empathy: Empathy augments the item beyond its function with help of storytelling and culture. This eventually creates the intangible value it needs to be sustainable.

Another way of creating cultural value is to connect virtual and physical. Even though most of what’s happening in Web3 is mostly virtual (until now), I sensed a growing emphasis on adding real-life elements into Web3 user journeys.

“At the end of the day, the people who use it are living in the physical world,” Suk-Jae Chang said.

0xb1 spoke about the trend towards tokenizing real world assets, i.e. connecting digital and physical:

Anything with value deserves to be tokenized. We need people to see NFTs as an assets that has underlying value.

This would mean that Porsche, for example, wouldn’t just release pictures of Porsche’s as NFTs, but “an actual PDF with all the relevant information immutably stored on it”, he said.

Eventually, NFTs codify, financialize, commodify cultural artefacts.1 They will become the technology for a new internet of cultural assets.

Now, let’s take this a step further.

A paradigm shift towards communities

I’ve written extensively about Web3 not only being a new trust layer for the internet, but also a cultural movement that grows in communities.

NFTs turned into collections, collections turned into communities. Today, you’ll see tightly knit groups of like-minded people identifying themselves as “Punks”, “Pens”, “DeGods”, “Moonbirds”, “Apes”, or other famous community brands. Each community has its own culture and lingo.

Yuga Labs, the creators of Bored Ape Yacht Club, said:

“We see ourselves as temporary stewards of IP that is in the process of becoming more and more decentralized. Our ambition is for this to be a community-owned brand, with tentacles in world-class gaming, events, and streetwear.”

Ryan Zurrer, founder of Dialectic, recently tweeted:

“Communities will be to the 2020s what platforms & marketplaces were to the 2010s & apps were to the 2000s - some of the most valuable assets on the planet.”

I think he’s right. But why is that?

Let’s start again with technology. Thanks to blockchains, we’re experiencing a shift from centralized to decentralized trust. Bitcoin was the first application of this, enabling true digital scarcity and digital ownership (“true” means without relying on centralized intermediaries). With NFTs, users can now own stuff and take it with them, across platforms.

Joe Lubin, Co-Founder of Ethereum and CEO of ConsenSys, called this “the foundations of a new supercycle that is user-powered and community-centric”:

The paradigm shift will usher in decentralization as the overarching organizing principle that empowers and yet knits together composable human systems and communities in a loosely coupled manner.
The paradigm shift adds newly developed horizontal coordination mechanisms to the vertical strands of traditional top-down control to form a more effective and robust social fabric.

Joe Lubin arguably delivered the most profound speech of the conference.

We are just starting to understand the implications of this. What does “owning” something actually mean?

To “own” something means I possess it, and someone else doesn’t.2 It's exclusive and makes me stand out and unique. It also gives me more agency in the projects, communities and ecosystems I participate in. Ownership turns into a tool of self-expression, the basis of identity. In contrast, in a world of abundance, where everyone can own everything, nothing will be valuable.

Identities build and form communities. Communities create culture, culture reinforces communities.3

Eventually, this means:

If: NFTs —> Vectors of identity,

Then: Owners of NFTs —> Vectors of culture,

And: Group of NFT owners —> Communities driven by culture.

For the first time, community and culture can be built on a digital, decentralized layer of trust and owned by the users.

What does this mean for brands?

The community formula for brands

Iconic brands are cultural. Cults are driven by communities. Communities are fueled by culture.

Community and culture behave in a multifaceted, complex, dynamic system. They don’t happen overnight and need constant nurturing. This is why many of the Web2 brands that enter the space are struggling with engagement beyond an NFT drop.

Meanwhile, branding hasn’t changed since Web3 took off. Branding is a set of techniques designed to generate cultural relevance and the most successful brands are still inherently cultural.

Let’s look at two examples:

Starbucks embodies the culture of a “third place”, inspired by the warmth, connection, a sense of belonging you’d find in a typical Italian coffee shop. In Italy, sipping expressos at a coffee bar is culture. Walking into a Starbucks anywhere in the world allows you to become part of that culture too.
Bitcoin embodies the libertarian beliefe that technology is a tool to give more power to people. It stands for decentralization, openness, and privacy. Bitcoin is first and foremost a cultural movement, beyond its technology.

Web3 tech builds no communities. Communities are built on purpose and culture. It has always been like that.

But Web3 augments communities by enabling digital ownership through a decentralized layer of trust, and thus enabling new forms of utility.

Here’s a framework putting all this together:

This is the first version of the Web3 community formula for brands. Please note: this is in flux! I’m learning as I go.

Culture, purpose and utility are reciprocal. Think of them as activation engines. It is possible for communities to exist with only two or even just one, but they will be weaker. I’ll write a separate piece on all the different elements and existing use-cases.4

Future brands will be built around the purpose, utility and cult around them, with ownership built in. Brands and communities will collaborate for shared growth and value creation.

Keeping communities alive

Once established (which is already hard enough), how do brands keep communities alive?

Thomas Issa, Web3 Strategy Lead at Outlier Ventures, recently said:

"Community as a Service" (CaaS) will become an integral part of the web 3 growth stack as the market becomes increasingly saturated and customer acquisition grows harder and harder every day. The other major catalyst is the absence of brand loyalty.

Given what we’ve learned, it’s not surprising that CaaS is becoming popular among brands. But I’m skeptical whether building communities can be modularized and scaled.

Sebastien Borget, Founder and COO of Sandbox, talked about “ORM”, or “ownership relation management”:

“Web3 is always about culture. It’s user-centric and community-driven. We provide tailored use cases within Sandbox for NFT communities. That’s how we keep them engaged.”

Brands often focus on one dimension instead of all three (utility, purpose, and culture). Many Web3 community projects still lack real utility, purpose or culture. Many don’t do enough to make it feel personal (e.g. by adding physical experiences).

Moreover, tools for brands to grow and manage communities and the tools for users participate in communities are still missing. Keeping track of Discord channels, Twitter and Telegram is hard, even for digital natives. Many people have never entered a Discord channel. Start-ups like Bubbles, Fam.xyz, Towns, Collab.Land, Bonfire or Decommerce are actively building solutions for that.

Some brands, such as Coinbase, are experimenting with “Open Editions”. Open Editions NFTs allow for an unlimited number of NFTs to be minted. From a user perspective, minting a brand NFT also means that users suddenly own part of a brand, a cultural artefact, increasing their stakes in the brand ecosystem. This is an excellent example of a top of the funnel initiative that makes use of this new paradigm.

Borderless culture

An internet of cultural assets only works if it spreads among users and communities. Locking cultural artefacts onto one platform will prevent the formation of culture and communities.

It’s an inherent feature of Web3 that digital asstes can be transported in digital wallets across platforms, with the user owning them. But they also need to be built on the same standards.

This is why a key theme throughout the conference was interoperability. Interoperability simply refers to the ability of different dApps and virtual environments being able to exchange information or assets seamlessly with one another.

And everyone agreed that this new paradigm will only work if users can transfer their assets seamlessly between virtual environments and platforms, but also between virtual and physical.

Some see the lack of connectivity as the most critical stepping stone towards an open metaverse, such as Steve Huffmann, Reddit CEO:

“The swirl about the metaverse is just a swirl; it’s already here, we just need to connect it. ”

The most prominent industry initiative to make this happen is the Open Metaverse Alliance (OMA3), joined by brands such as Animoca Brands, Sandbox, Decentraland, Dapper Labs, and others.

What’s next

So, where do we go from here?

The technology is ready, said Joe Lubin:

“The tools, components and infrastructure necessary for Web3 are ready now to support the killer apps that will define the next generation of hot virtual neighborhoods and killer ecosystems.”

As we embark on a new internet of cultural assets, I would like to leave you with a dire warning:

Culture cannot be centralized.

Joe Lubin said in his speech:

The universe is saturated with awareness and likely brimming with life and intelligence. If you were the universe and alive before the beginning of time, you would create novelty, invention, creativity. You would champion diversity and decentralization, so all the fragments of yourself could be empowered to self-organize, and become sovereign. And God like. Like yourself.

This new paradigm shift will only work if we allow individuals to create novelty, invention, and creativity, if we champion diversity and decentralization and ultimately give ownership, power and agency back to the user.

Or, in Tim Draper’s words:

Trust the people and set them free.

Back to building.

– Marc

PS: This is a thesis in development. In a future post, I would like to go deeper on specific areas within the model with practical examples and also focus on regulatory aspects. All the feedback is highly appreciated. Just answer to this email or leave a comment below.

For example, owning an NFT of a digital artwork may grant you the right to display, sell, or trade the artwork, but it might not grant you copyright or other intellectual property rights over the work. In some cases, NFT ownership might be more akin to a limited license to use the associated digital asset.

e.g. NFTs are often advertised as granting “ownership” of a “unique” digital asset, but in reality the purchaser may only receive a limited license.

This is often specified in the terms and conditions of a specific collection. With the Bored Ape Yacht Club collection, for example, owning an NFT conveys to the owner all the rights associated with the NFT.

Water & Music writes:

Sophie Goossens, a partner at Reed Smith LLP, explains this issue as follows. What an NFT brings to the table is a form of ersatz ownership — namely, an ownership established by contract. So while there is no such thing as legal property in a digital file — and, therefore, no such thing as legal ownership of digital property — two parties can still agree that such a thing exists. Goossens thus sees NFTs as adding a third layer of ersatz digital ownership onto intellectual property, where previously you had solely a tangible item and the IP rights connected to it. The structure then looks like this:
Creator owns the IP,
Analog-world buyer owns the physical item,
Owner of the NFT on blockchain has the ersatz ownership, created by contract.

In this context, I define culture as a complex system of shared values, beliefs, customs, arts, and practices that shape the behavior and identity of a community.

Seedclub would likely argue against this with its “Meme-Utility-Spectrum”-Theory, stating that:

This meaning comes from two fundamental places – the tangible utility (access, benefits, services) that holding the token provides, and the intangible memetic value (status, association, belief, provenance, memory) that it captures.
The Utility-Meme Spectrum recognizes the fact that these two foundational pillars of meaning are actually competing with each other for attention. The more defined utility an object has the less effective it is at capturing belief in the underlying meme, and the better an object captures the mimetic value of a project the less effective it is as a utility.