The Ownership Economy 2022 – Variant: Exploring the Potential of User Ownership and Token Incentives

The Ownership Economy 2022 – Variant: Exploring the Potential of User Ownership and Token Incentives

In recent years, the concept of the ownership economy has gained significant traction. It not only provides builders with a powerful tool to leverage market incentives and jumpstart new networks but also has the potential to create positive social change through the wider distribution of wealth-building assets. The ownership economy is all about transforming users into owners and giving them a stake in the products and services that define the next generation of the internet.

As of April 26th, 2022, the market capitalization of tokens tracked by CoinMarketCap exceeded $1.76 trillion, showcasing the growing popularity and value of the ownership economy. However, it is important to note that while user ownership can jumpstart growth, sustaining it is a more challenging task. Simply giving users ownership is not enough to ensure the success of a product. Strong product-market fit and solving a widespread need for users are essential factors in sustaining usage.

Tokens can be effective in capturing user attention and bootstrapping initial adoption, but they need to be coupled with intrinsic incentives and a focus on liquidity. For users of marketplaces, the presence of a counterparty for their desired transaction remains a strong motivator in choosing one platform over another. It is crucial to optimize token incentives in terms of timing, magnitude, eligibility, and other factors to preserve users' intrinsic motivation.

In the quest for user loyalty, new token distribution designs have emerged. Axie Infinity, for example, has managed to maintain strong player retention over time, indicating that engagement is not solely dependent on novelty. While liquidity mining programs have driven short-term participation in new products, they have not contributed to long-term sustainability. To address this, token incentives are now placing greater emphasis on contributor growth rather than solely deepening liquidity. Lockup periods and vesting mechanisms are being introduced to encourage long-term engagement.

User ownership not only benefits individuals but also fosters richer ecosystems of projects and contributors. The permissionless nature of blockchain projects has attracted users, creators, and developers, who have begun building around and on top of these platforms. CC0 NFT projects, for instance, enable the free use of assets, extending the definition and possibilities of ownership. This approach stimulates building, creation, and collaboration, reinforcing network effects and creating a disincentive to switch to other blockchains.

One of the key advantages of the ownership economy is that it allows users to become owners earlier and participate in value creation. Web3 companies, on average, launch a token 2.7 years after founding, compared to VC-backed companies that go public approximately 5.3 years after securing their first investment. Ownership is becoming a keystone of new experiences across various software product categories, following Chris Dixon's prediction that what the smartest people do on weekends is what everyone else will do during the week in ten years.