BitClout is drawing from successful DeFi principles.
If you haven’t heard about BitClout yet, that’s alright, but it would be failing its intrinsic purpose of virality. So check it out if you haven’t!
A high-level overview of BitClout is:
- Every big creator (on Twitter) has a pre-made profile, and anyone else can sign up and create one.
- Each profile is a “coin” that is minted when people buy it and burned when people sell.
- People who buy early mint it for a cheap price and people who buy after lots of others buy mint it for a more expensive price.
- The price paid goes into a pool to award payout when coins are burned.
- Creators can get a portion of minted coins, and all parties involved are incentivized to hold on to it (kind of like a Ponzi scheme).
This simple architecture has created a ridiculous amount of value out of thin air. Elon Musk’s profile, which he hasn’t claimed yet, has millions in value waiting for him (created by people buying and minting the tokens):
I’ll stop at that, leaving the mind open to ponder the mechanics of such a system, and what the end state might be. Oh, and did I mention that there’s a lot of ~blockchain~ being used here, for what it’s worth.
I want to turn the attention now to DeFi, which has spent many months (wow what a long time) experimenting with fungible tokens as seen in BitClout.
As a hypothesis, coming from the world of defi, what BitClout is doing is it’s taking the successful principles of security tokens, liquidity mining, and bonding curves to create a frictionless value capture for any individual creator to maintain a capital weighted table of their following.
It’s an important step forward in what value is in a digital world. Even if it fails, this idea is here to stay. By buying the $bitclout coin as base currency (only acquirable through trade with BTC), a closed system is created that forces people to limit their allocations to their favorite creators as bringing in more capital raises the base $bitcout price and rewards all network participants.
Similar to traditional securities like stocks, security tokens are just a digital asset that represents some share of a protocol (or really any other intangible asset in the crypto world).
In the BitCloud world, each profile can be considered a security token as a representation of an intangible asset (perhaps clout). The genius of security tokens lies in their ease of use and open representation. A token can be sent, minted, and burned digitally, with no intermediary if so desired. By turning creator profiles into security tokens, BitClout essentially lowered the barrier to entry for people to own the intangible “creator share”.
Imagine a vast oilfield worth billions with the catch that you know oil will be really valuable next year. If you want to realize that value, it might certainly be better to pump that oil rather than buy it on the market due to the cost of equipment remaining constant in excess of returns. You can buy more and more oil on open markets and sell as prices increase, or you can have oil rigs that produce a fixed rate of oil, eventually supplanting your initial investment and producing free flow assets that appreciate.
In DeFi, projects that plan to create a “governance token,” a security token that has voting rights, will plan to fairly distribute it to stay in accord with the pillars of decentralization. And protocols require liquidity to realize their purpose (lending protocol needs lenders as an example). Liquidity mining is the incentivized system of rewarding security tokens to participants in your protocol through the staking of their capital. This can be seen as a vote of confidence that the community wants this to exist.
If all goes well, as time passes, more and more tokens that govern and/or receive cash flows from a protocol come to existence in a controlled manner. I see this as security-through-capital, a self-reinforcing system that seeks to draw outside capital from the limited total value in the world as a vote to proxy the protocol. In BitClout, liquidity is used as a payout system both to “mine” new creator coins as people buy, and to offer settlement when coins are burned. And given the incentive to hold onto the assets when they’re minted rather than take profits, I think it then makes sense to apply the security-through-capital analogy here: as BitClout attracts more and more capital, it legitimizes the digital assets (creator coins) by growing the total value locked (TVL) in the system.
DeFi sure isn’t the first to use a bonding curve, but simply put — a bonding curve is a fixed price calculation for the issuance of a token.
This determinate pricing is in contrast to automated market makers (AMMs) that are all the rage in DeFi. The advantage of a bonding curve is that liquidity is not needed to bootstrap the price, and it directly creates a reward function for early buyers (token #1 was cheaper to buy than token #20).
A great viral use case, originally, was that of unisocks, a sort of NFT meets clothing fun-but-also-very-serious concept launched by Uniswap (a decentralized digital asset exchange).
This mechanism makes BitClout feel scammy, but unisocks has demonstrated that this distribution method doesn’t have to fall apart on itself (as each pair of socks now trades at over $100k).
This is quite the puzzle piece for BitClout to fulfill a vision of incentivized creator usage, early supporter rewards, and DeFi compatibility. Theoretically, these tokens can be used in the existing DeFi ecosystem raging over on Ethereum, and I’m sure this will happen once critical mass is reached.
Anyway, it’s really not a Ponzi because nothing is promised in return. There’s lots of FUD going around, and I think this is fundamentally a valuable system and people are getting caught up in the instantiation of it. I’m long $bitclout and a bunch of creators/influencers.