Reddit is often ( self) described as the front-page of the Internet. Fred Wilson has described the platform as an Internet Treasure — a service on the Internet that 1) is open 2) gets better when more people use it and 3) solves a need that many/all of us have.
While Internet Treasure is accurate, I prefer to think of Reddit as the Internet underworld. A place where you find both incredibly valuable pieces of information as well as strange stories that you can never forget. Ever.
Rumor has it that Reddit is working on an internal crypto project that will launch an ERC-20 token based on Reddit’s “Community Points”. It appears that Reddit will also be launching a crypto wallet that will enable individuals to manage their tokens. Obviously, this is all rumor and speculation, but it’s exciting to think about Reddit potentially launching an ERC20 token!
The post mentioned a few features about this token launch. Here’s the TLDR:
- Community Points: similar to Reddit Karma (more on this later), but tradeable between individuals. Apparently, they already exist in some subreddits but go by different names.
- Reputation: Measured by points within a community and displayed next to usernames and posts.
- Memberships: Users can use points to purchase memberships in communities (subreddits) that will unlock exclusive features like Badges (icons/images), Animated Emojis, and special GIFs (pronounced Giff, NOT Jiff. ) Reddit will not take any points/percent spent on Memberships and instead the points are burned which decreases the supply and increases the value of other member’s points. Memberships can still be purchased in dollars and Reddit will burn the points for the user.
- Voting: Normal voting view (1 vote per person) and a new “weighted vote” (one vote per point). The weighted vote will be calculated using an individual’s current Community Point balance or total Community Points ever earned (whichever is less) to ensure influence cannot be bought.
Distribution of Community Points (CPs):
- There will be an initial distribution of 50 million CPs based on Karm earned in subreddits.
- Over the first year, 50 million more CPs will be distributed which will decrease until 250 million CPs have been issued.
- 20% of CPs will go to Reddit
- 20% of CPs will be reserved for the Reddit Community
- 10% will go to Moderators for their admin work
- Half of all burned points are reintroduced each month into the next distribution
Reddit’s new crypto wallet:
- It appears it will function very much like a MetaMask wallet
- Option to secure an encrypted backup on Reddit’s servers that will have a separate password. Reddit claims they cannot access the private key.
- There will be a standard 12-word recovery phrase that will enable someone to recover their account/wallet.
There’s a popular Reddit thread called TIFU — Today I Fucked Up. The thread contains common stories like that time you met your girlfriend’s parents and pretended you’d never seen a potato. You know, the relatable stuff…
Anyway, the question becomes isReddit making a terrible mistake or is this a moment of genius? There are two major questions that can help answer this:
1) How does Reddit currently make money AKA is Reddit creating a token because it is having financial trouble — a la Telegram — or because it sees a way to add value to its platform?
2) What is the added value and how does a token make Reddit better?
The short answer: Advertisements and venture funding. However, Reddit is a private company and doesn’t look like its wildly profitable.
The longer answer: Reddit is massive yet appears to be unprofitable. It’s the ninth most visited website and maintains over 330 million monthly active users around the world. In the U.S, Reddit is used by nearly 25% of all Internet users between the ages of 18–29.
Reddit’s last private valuation was at $3 billion. For comparison, Twitter and Snapchat have market caps around 20 billion, in large part because advertisements on Twitter and Snapchat are much more effective.
Finding Reddit’s Revenues
In 2014, Reddit donated 10% of its 2014 ad revenue (800k) to 10 non-profits and therefore made $8 million in total. Then, there were rumors that the company made $100 million in ad revenue in 2018. In 2019, Reddit raised $300 million rather than going public, probably because the company needed the cash (14-year-old companies typically try to have a liquidity event by now).
Reddit is an Internet Treasure and the problem with lots of Internet Treasures (Reddit, StackOverflow, Quizlet, Wikipedia) is that they usually don’t have great business models. They become widely successful but don’t return the economic value compared to the value they generate. It’s honestly really sad and I wish our society could figure out a way to value these companies/services. The bright side is cryptonetworks present a unique opportunity to value these types of Internet Treasures. So let’s examine the added value behind Reddit’s Community Points token.
Reading between the Subreddits: What are Community Points Used For?
Community Points (CPs) are issued as ERC-20 tokens on Ethereum but the points don’t have any cleary stated utility, instead claiming:
“Points are intended to be a flexible tool that can be use in different ways be different communities. Over time, communities will find ways to use points that are unique to them and fit their culture.”
“Community points can be traded freely without restriction or control of Reddit”
Now, for those who frequent the rabbit holes of Reddit, you probably know that Reddit already has a similar feature called Karma which is how Reddit rewards individual accounts for posting, upvoting, commenting.
Karma already serves the purpose of preventing trolling. Many subreddits require individuals to have a minimum amount of Karma points in order to post, comment or share something in Subreddit. Karma will remain a centralized point system maintained by Reddit while Community Points become a more open form of Karma that has monetary value.
Reddit also provides the option to buy “ Coins “ which are separate from Karma and can be awarded to contributors to signal great comments or posts. Money spent on Coins goes directly to Reddit as a form of goodwill from users. At first glance, Community Points appear to be a rehash of the same concept with the added benefit of being publicly tradeable.
So, while I’m desperately excited for a world where the Internet Treasures are represented as cryptonetworks — I’m unsure that this move by Reddit will be fruitful.
A Platform Searching for Utility
Most Reddit communities (there are over 50,000) don’t have a lot of monetary value at stake, other than the internet traffic that some subreddits generate. Karma already does a good enough job preventing troll posts. Lots of subreddits have bots that automatically remove content that violets Reddit policies. Additionally, if I can pay for a Subreddit membership in cash, then the Community Points seem obsolete.
I see a private company that is searching for a way to monetize their user base and create economic value. The problem is that best crypto tokens are the tokens that, well, provide actual utility. So far the most successful tokens have been in the form of collateral, securities, or claim to a resource. Reddit’s token doesn’t provide an explicit claim to Reddit resources. CP holders aren’t entitled to any cash flows. Nor is there any reason the token would appreciate in value, other than the fact that half of the tokens are burned in exchange for purchasing memberships. It appears that the Community Points may have some voting/governance role, but I’m not convinced Reddit needs such a mechanism in its current form. The vast majority of individuals on Reddit are consumers, not content creators or community participatory. Excepting the Reddit community to come up with or discover uses for the community points seems like a red flag. If Reddit, the owner of the platform, can’t think of great uses for its token — besides status signaling Icons and GIFs — then maybe you should think about the token a little harder.
If this rumor is true, I hope that Reddit releases more information that shows Community Points have clear utility. My intention is not to bash on Reddit — I love Reddit. I use it all the time which is why I want the company to be successful. If Reddit does release a token, it will be a fascinating experiment regardless of whether or not it succeeds.