Let us for our purposes here consider a fictional company named OrangePilledMusic (OPM). We will assume that OPM is a music-streaming service that offers consumers access to Digital Rights Management (DRM) protected content via a mobile app. Users of the app can browse or search for songs and can create and share playlists with other users. OPM licenses content from record labels and other content owners in order to make that content available to its own users. It offers a freemium model which allows users to stream content for free with advertising. Alternatively, there is a premium service that charges a monthly subscription to access the content without advertisements.
OPM is now considering introducing a token, OPMCoin, to its platform and using blockchain technology for some of the platform’s activities.
The introduction of a token could primarily benefit OPM by creating incentives for new users to join the network. As soon as users onboard the service, such a token economy should reward users for activities that bring value to the platform. Allowing users to freely transfer and trade tokens on crypto exchanges could attract users, especially if OPMCoin is listed on major exchanges. However, it is crucial that such a token is not only a speculative asset, but allows user to unlock premium subscription, access functionality, and gain status in the app.
The OPMCoin should be used on the OPM platform such that it reflects actual value generated on the app. Users could earn tokens by watching more adds, allowing them to trade attention for value. Consequently, users could also spend tokens to remove adds. The platform could have an algorithm that rewards users in relation to how popular their playlists are with other users, e.g., the number of times their playlists are accessed. Users could spend their tokens to upvote (their own or others’) playlists. The power of the upvote could be proportional to the number of tokens a user owned, such that user with few visitors could earn tokens by providing high quality playlists for other high status members. This would allow the platform to be of interest both for members most interested in the last pop hits as well as for users searching for recordings of obscure 16th-century composers. Members should have the possibility to freely add each other as friends and favorites, which would allow for easy access to playlists from the same user, and being notified when they add new content. Premium members could also gain access to view playlists of their friends’ favorites and friends. All playlists should be searchable, but such a feature would allow for easy access to similar playlists. Tokens could be spent in order to upvote own playlists on the platform, which would make them more visible on the platform. In order to encourage value creation and loyalty, early adopters who onboarded friends could be rewarded with tokens that could only be redeemed within the platform initially. At a later stage, these tokens could be freely exchanged. Premium services would allow users to create an unlimited number of playlists. However, created playlists would remain on the platform no matter if the user downgraded, or transferred their tokens out from the platform, at a later point. Users activity on the platform, such as upvoting playlists, or writing reviews, could also generate a small amount of tokens. Initially, accessing the app regularly could also be rewarded, such that for instance using the app every day for a week, month, or a year would generate a certain amount of tokens.
There are many risks of introducing these rewards, both in terms of barrier of entry, and potentially promoting disadvantageous behaviour. It is essential that the technical barrier implied in introducing the OPMCoin does not outweigh the benefits for the users. Convenience is a powerful attractor, and blockchain developers have typically focused less on the users’ experience than on the technology. This could be solved by making the interface as simple as possible in terms of easy storage and transfer of tokens. Users would for instance need to be guided through the process of how to store the private key. By using stake-weighted voting for content, the platform would incentivise the creation of both popular and exclusive playlists. However, one possible risk is that the ability to upvote own content could be misused. Hence, one would need to build the reward system to prevent a small circle of early adopters upvote each other, and gain control of a majority of distributed tokens. The app would also need to have an algorithm that blocks music creators to create income by using OPMCoins in order to upvote their own playlists. OPM may risk being distracted from focusing on simple value creation, such as increasing the available library of music. The company also risks employing programmers who generate smart contracts that could be exploited. Further, there are currently few public blockchains that could process all the transactions involved. The platform should probably consider to process as much as possible in a second layer, and build the token on top of for instance Ethereum (an ERC-20 token) or on the Solana blockchain. If the initial hype around the project is high, then it also takes a lot to surpass the high expectations, something typically associated with attracting returning customers. Earning tokens from simply being active on the platform may sound too good to be true for many users. Therefore, creating a sound reputation and social proof is a crucial success factor. If this succeeds, such a platform could gain from the network effect, and stand out in this market.