The introduction of tokenized economies within Web3 applications such as Brave Browser, AdEx and Audius has resulted in the creation of new monetization strategies. Web3 dApps are offering powerful incentives to their users, rewarding them with tokens for their participation and building more symbiotic relationships along the way.
Traditional Web2 applications have built their success on three main monetization strategies, including the time-tested, ad-based model. With this, the product or service is accessible for free, but users end up becoming the product as their data is stored and sold onto advertisers.
Other routes to monetization include the paid model, where consumers are asked to pay up front to use an application, while the freemium model can be more enticing, offering free elements within the app before encouraging users to spend money to unlock additional features and functionalities.
Now, as the internet evolves to become more decentralized, Web3 has introduced a fourth kind of business model. It’s called the tokenized economy, and it’s where dApps issue their own native cryptocurrency tokens as rewards for those who interact with their products and services.
What Is A Tokenized Economy?
So-called dApps are decentralized applications backed by their own, in-app monetary policy, referred to in crypto circles as “tokenomics”. Most dApps try to design their tokenomics structures in such a way that the value of their token appreciates the more widely adopted it becomes, increasing value for users. With dApps, consumers aren’t just customers, they’re also part owners and investors in that application.
DApps will distribute tokens to users according to established rules that are written in smart contracts. These rules cannot be changed. The aim is to incentivize adoption of the dApp by rewarding users for participating, whether the dApp in question is a game, a social network, a ride-sharing app, hotel booking portal or something else. In many cases, the tokens awarded to users allow them to vote on matters of governance, and many dApps have established decentralized autonomous organizations or DAOs to organize community consensus.
While users are free to sell their token rewards for crypto such as Bitcoin, they’re also encouraged to spend those coins within the dApp, receiving discounts for doing so. Tokenized economies also introduce new concepts such as staking to secure the network, in return for more rewards.
One of the key distinctions of tokenized economies is that they operate without any intermediaries. As such, payments are made in a peer-to-peer fashion, so ownership and value is distributed across the entire economy. The more the network grows, the greater the value generated, meaning the more the token appreciates. As for governance, those who possess more tokens will have greater voting power on key issues.
Tokenized Economies In Action
Web3 dApps have learned that the tokenized economy enables them to create stronger, symbiotic relationships with their users. One way they can do this is by offering discounts or even more rewards to users who pay using the dApp’s native token.
Already, many fascinating examples of how this works are up and running. For instance, the decentralized advertising network AdEx has created a system that rewards people for seeing in-app advertisements. One of the main advantages of AdEx is that users retain control of their private data, with their browsing histories and activity all stored on the user’s device and masked using Zero-Knowledge Proof cryptography. It means users can retain their privacy, or alternatively share their browsing data and purchasing history with select advertisers, and earn rewards in the native $ADX token. Users can then sell those tokens, or alternatively stake them via the Ambire Wallet to earn additional passive income.
The Brave Browser is built on a similar idea. It’s essentially just a regular browser based on Google Chrome but it comes with a powerful, built-in ad-blocker that prevents any annoying ads from showing up. It even blocks ads on YouTube.
However, Brave supports advertisers in a different way, by letting them pay users to view their ads. Users are awarded Basic Attention Tokens or $BAT for every ad they view, and these tokens can then be sold for $USDC, meaning users profit every time they agree to see an ad. To boost its in-browser economy, Brave has created a mechanism where users can tip their favorite content creators with $BAT tokens. It all adds up to a much fairer rewards distribution. Advertisers get to target their ads at the right audience, and that audience is compensated for being interrupted. Win-win.
The tokenized economy can be implemented in various other ways. For instance, Audius is a decentralized version of the Spotify music streaming service, built on the Solana blockchain. With Audius, musicians and bands can interact directly with their fans, without any money going to any middleman, as is the case with Spotify. Users earn daily rewards in $AUDIO tokens for playing with the app, and these tokens can then be spent to pay to access songs. To date, Audius has been a big hit, amassing more than 7.5 million active users by September 2022, just five years after its launch. Spotify still rules the roost with more than 165 million subscribers at the last count, but Audius has definitely emerged as a viable alternative that’s far more rewarding for its users.
Tokenomics Incentivizes Mass Adoption
The most fascinating thing about tokenized economies is that developers, who once only had to worry about building their applications, must now think about their tokenomics policies and governance structures to ensure incentives are aligned in a way that benefits the entire community.
It’s a brave new and experimental world that has profound implications for the technology industry, with its strong potential to disrupt existing business models and ensure better distribution of value. It’s a powerful thing, and although there are still teething problems to be ironed out, tokenized economies clearly have the potential to overcome traditional network effects.
In order to gain mainstream adoption, new technologies must help to educate unfamiliar new users. Consumers who are new to Web3 barely understand concepts such as setting up a digital wallet, logging in by linking their wallet, and trading tokens on a decentralized exchange. By paying users and guiding them through these onboarding processes, and offering continued rewards for their ongoing participation, dApps are forging a new path to mass adoption, and threatening many internet giants that were once thought to be untouchable.
In the past, consumers didn’t understand the internet. But they learned to use PCs and smartphones and reaped the benefits in untold ways. Now, with Web3, those people are being asked to learn again, but this time it is the financial benefits that are providing the main incentive.
