Progressive Ownership: A Model for Application Tokens and the Hard Thing About Easy Things in Ecommerce

Progressive Ownership: A Model for Application Tokens and the Hard Thing About Easy Things in Ecommerce

In the world of cryptocurrencies and blockchain technology, the use of tokens as a user incentive has proven to be successful for bootstrapping infrastructure networks like Bitcoin and Ethereum. However, when it comes to the application layer, there has yet to be a proven model for using tokens to grow networks effectively. In fact, many examples have shown that distributing tokens can actually impede sustained growth and retention by attracting more speculators and mercenaries than genuine users.

This has led many to dismiss the use of tokens for applications, but there is still potential for a more bottom-up and opt-in ownership distribution model that we call "progressive ownership." Progressive ownership aims to iterate token design towards a model that incentivizes users to become more economically aligned with the success of a network, leading to stronger loyalty and network effects.

Looking back at the evolution of token incentives, we can see how different eras have shaped the use of tokens in various ways. The proof of work era, which began in 2009 and continues to this day, showed that token incentives can be effective in bootstrapping supply in networks where contributed value can be quantified, such as computing power. Miners in these networks are forced to sell the financial asset (tokens) to cover their costs, creating a separation between the capital asset (hardware) and the financial asset.

The ICO era, from 2014 to 2018, allowed projects to bypass intermediaries like venture capitalists and bankers and reach a broader range of participants. However, this era also highlighted the need for more thoughtful token design and distribution models that prioritize community alignment and long-term development. Many projects focused solely on capital provision rather than product-market fit and community engagement.

The airdrop era, which took place from 2020 to 2023, introduced a shift towards a more user-centric and community-driven ownership distribution model. Airdrops rewarded users for their historical usage, but often resulted in users converting ownership to income by selling the majority of their tokens. This left decision-making to governance referendums that most tokenholders did not fully understand, leading to a mismatch between growth strategy and organizational execution.

Progressive ownership takes a different approach by employing economic incentives in degrees to increase user loyalty and retention. Users are incentivized with revenue share income (such as ETH or stablecoins) but can choose to trade individual income for tokens representing ownership of a proportional share of the community's revenue. This model allows users to move fluidly between income and ownership, with fewer steps than the previous default of converting tokens to income.