If you don't deal with blockchains and cryptocurrencies on a daily basis, community tokens are probably not yet a familiar concept. But that could change soon. Football clubs are already showing interest in this tool. But what exactly are tokens? Could they be used as a reward system in a business context? And what does a community need to generate added value for each participant?
We are a team of five business informatics students from the University of Applied Sciences and Arts Northwestern Switzerland (FHNW) and examined exactly these questions as part of a project for Qudits.
What are tokens?
Crypto tokens are digital assets on the blockchain that represent a fungible (i.e. exchangeable, non-unique) and tradeable currency. They are created, stored and traded digitally and can be used as an investment, store of value or for purchases. Unlike crypto coins, which are native to the blockchain on which they were created, tokens are not tied to a specific blockchain but are generated on an already existing network. Ether, for example, is the native coin of the Ethereum network, but other tokens such as Tether or Uniswap also use the Ethereum network.
Crypto coins are similar to money in a bank account. Your assets are not tied to a specific note or coin until you withdraw them. Tokens, on the other hand, are a static representation of a specific asset you own. Once you send a token to another person, it leaves your account and is transferred to theirs. This exchange is made possible by smart contracts – blockchain applications that automatically execute actions such as trading or transfers when certain conditions are met.
How do I build a community?
A community – a group of individuals with similar intentions and goals (professional, social or geographical, for example) – offers many advantages. Of course, some preparation is required to build one optimally:
- The first step is to define the audience. To communicate appropriately with members, it must first be clear who belongs to the community.
- Next, a shared vision must be established. A group of people is strengthened by shared thinking and a shared pursuit of ideas.
- A community needs a fixed communication channel.
- A central point in community building is generating enthusiasm among members.
- Not least, transparency is the most important characteristic in the token phenomenon.
Another important aspect is creating tailored incentives. We focused on three sub-topics:
- Social incentives: creating incentives through social value, such as a collectible item with a specific value.
- Vision incentives: creating incentives through an appropriate vision. Vision incentives can work very well for long-term projects.
- Economic incentives: creating incentives through economic value. Since everyone benefits from this performance-based system, more skills are automatically added and knowledge is shared.
Use case: FC Basel fan token
Fan tokens are currently gaining more and more attention. This is also noticeable in the sports industry. Many sports clubs are in the process of launching their own fan tokens.
The basic principle is simple: by owning a fan token, the user is given the right to participate in various votes. While fans get the opportunity to incorporate their opinions into the club's day-to-day business, they can also benefit from price fluctuations. The club benefits both by generating attention and financially.
In the German-speaking world, BSC Young Boys is currently the only club to have launched fan tokens (as of February 2022). There are various approaches to generating fan tokens and releasing them in tranches. Currently, Socios is probably the largest platform offering fan tokens.
Conclusion and outlook
Community tokens are becoming increasingly popular and deserve their rightful place in the digital world. We believe that the possibilities of community tokens bring significantly greater advantages compared to the potential risks. The main risk is fraud, which can be a problem with almost any new and innovative project.
We also see enormous potential for the private sector. For example, this could be the beginning of a decentralised company: instead of distributing tasks linearly, the CEO creates contracts that can be accepted by any person within the company. If an employee accepts and successfully completes a contract, they receive a sum of company tokens specified in the contract.