How Web3 Will Bring Real Yield to Social Media

By James Edwards

Web3 will only succeed if it provides something better than the status quo. Here's how to make that a reality for social media.

By now everyone has heard of some variation of the saying, "If you're not paying for it, you are the product.”

This is especially true for social media. Every bit of user data is harvested and sold while advertisers can influence what people purchase right through to how they vote. Social media users are a captive audience and a valuable resource to the networks they belong to. 

However, they aren't just passive consumers. They are responsible for creating the product that attracts the advertisers, who in turn provide the revenue. It's ironic then that the very user base creating value is also the one being exploited. Social media can't exist without its content creators who upload videos, images and posts, nor the consumers who comment, like and share.

But it doesn't need to be this way. It's high-time social media was reformed and Web3 provides the perfect tool kit to do so.

Through mechanisms such as tokenization, decentralized autonomous organization (DAO) style of governance and revenue sharing, social media can become a force for good upon its users, delivering on the Web3 promise of a user-owned and operated web.

Rewarding engagement

For starters, let's look at how tokens can be used to reward and motivate engagement within a social media platform.

Content generation is key for social media, so it makes sense to reward users for creating posts, uploading images and video or starting conversations in communities.

At the next level is engagement with that content – comments, shares and likes.

Understandably, a platform might want to reward content generation over simple engagement, so tokens could be awarded following a weighted system. That could mean awarding 10 times as much for content generation than engagement, or even rewarding certain types of content over others.

Alternatively, different types of tokens could be awarded for different types of engagement. 

Content creators might receive one type of token while those who only comment or share receive another. These tokens would then confer certain privileges, such as a say in governance or a portion of revenue. So tokens awarded to creators might have a bit more weight than those awarded to consumers.

Governance tokens are old news, but revenue share via tokens is a little less explored. While many decentralized finance (DeFi) farms have been rewarding users with tokens for years, these tokens have been largely useless, only entitling the user to voting rights or privileges within the walled garden.

Instead, what I am proposing here is a cut of the real revenue that the platform generates, paid out in USD Coin (USDC) or another stablecoin – real yield. This would provide both users and creators a means of revenue based on their participation, similar to the ad dollars awarded by Twitch or YouTube, but far more equitable.

Why revenue share? That's commie talk!

First and foremost, revenue share does not mean all revenue goes to the user base.

Instead, users are rewarded with a portion of revenue based on their level of engagement with the platform. It is up to each protocol to decide what portion that is and how much of their total revenue should go toward it.

While the thought of sharing revenue with users may cause some venture capitalists (VCs) to start panicking about reds under the bed, there are several commercial benefits that even the most aggressive capitalists need to consider: 

1. Motivation. Users will be more motivated to use a platform that rewards them for their engagement. Depending on how the tokenomics are structured, there may also be greater motivation for consumers to branch out into creating content themselves. This will further diversify the content available and work to bootstrap both the community and content creation.
2. Audience retention. Social media platforms are now greater than the sum of their parts. Individual content creators are able to move entire audiences of millions to new platforms when the commercials or experience suits them better. By better rewarding content creators and their audiences, Web3 platforms will be able to build a defensive moat in a way that was previously not possible.
3. Bootstrapping. Cultivating users and content on a new platform is without a doubt the hardest part. It quickly makes or breaks the platform – regardless of how good the service or experience is. By rewarding both content creation and engagement, new platforms have a way to stand out, attract users and compete against the Metas, Snaps and Twitters of the world. 

Consider that while network effects are powerful at retaining users, there is a clear life cycle for social media platforms. Younger generations typically act as kingmaker and decide what the next big thing is. In a Web3 world, that is likely to be the one that pays.

It's the right thing to do

Now that the VCs are happy, let's look at the real benefit – fairly compensating users.

In the current Web2 landscape, platforms like YouTube recognize that without their content creators they are nothing, choosing to reward them with ad revenue and various perks. 

However, on platforms such as Facebook, Twitter and Reddit, this is not really the case. Users are responsible for the success – and revenue – of the platform via the content they create, but are not compensated for doing so. 

For content creators, it frequently forces them to pursue alternative income streams, which can involve marketing harmful products, promoting financial scams or simply leaving the platform altogether. This leaves little motivation to stick with a platform, other than the audience it provides.

On the flip side of that is everyday users, who simply receive zero compensation despite being the cornerstone of the revenue stream. It might seem strange to "pay your customers", but this simply isn't the case. Social media users also work as entertainers, marketers and brand ambassadors. It is only fair they get a cut of the revenue they produce. 

The next question then is, how much revenue? Well, therein lies the beauty of blockchain and why it is set to be a fundamental pillar of Web3. 

Because every single interaction is recorded on a ledger, revenue can be shared proportionally to the revenue it produced. Blockchains guarantee total accuracy and automation, ensuring fair and timely compensation.

This enables a world where both creators and consumers can be fairly compensated for the value they provide. It simultaneously builds trust and loyalty with the platform, creating a positive cycle that is mutually beneficial for both the users and the underlying company and its investors. 

By building Web3 services with these ideas, we have the chance to actually redefine the web and create a truly user-owned and operated web that exists for the benefit of its users, not just the corporate end of town.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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