The Rise of Micro-Economies

0x4630
May 13th, 2021

Co-authored with Kinjal Shah

We’ve entered a new chapter of investing.

One where trading is social, and banking profits is an MMORPG game.

Look at DOGE, SHIB or GME and it’s easy to see this chapter as nothing more than a game of roulette.

However, within the midst of these experiments is the rise of something far more promising - micro-economies.

By intertwining financial assets with social capital, we’re now witnessing a new type of asset class dominated by online community coordination.

This is the rise of micro-economies.

In this post, we’ll make the case for a creator middle class, how it captures value, and why crypto primitives set the stage for the renaissance of micro-economies.

Let’s dive in.

What are Micro-economies?

Micro-economies are communities:

  • With a total market cap of less than $1,000,000
  • With under 100 active members.
  • Working for sweat equity
  • That lack legal incorporation (LLC, corp, etc.)

Micro-economies have a shared mission, are pre-product and have little to no revenue. They’re in the earliest stages of hiring and resemble structures like co-ops or committees.

Early contributors carve out their own roles and compensations - loosely resembling Teal organizations in which every member defines their scope and value to the group.

Thanks to the advent of social tokens and DAOs, communities now have the ability to create shared financial resources.

A DAO provides open access and a vehicle representing ownership. Think of this as a community bank. More times than not, that community will have a shared currency representing ownership of that bank - i.e., a social token.

All together, this foundation creates a unique position for a new business class to emerge.

Enter the Creator Middle Class

The creator middle class are future mom and pop shops. For the past three decades, the internet enabled thousands of communities to emerge. But, the primary beneficiaries continue to be the top 1% while ~97% of YouTube creators make less than the national poverty line.

Niche communities are what make the internet a vibrant and open ecosystem. Within online communities, creators are evolving into SMBs, designed to activate their 1000 or even 100 true fans.

Now the real question becomes - how do we make the long tail of creators a viable path?

In order for a niche community to become a meaningful business, they need to earn income and capture value.

Tooling for Micro-Economies

Creator tools enable micro-economies. The shift from Web2 to Web3 create revenue streams which prioritize community ownership over individual ownership.

In Web2, creators monetize their work via a SaaS model, where they’re paid for a newsletter, artwork, or craft on a regular basis.

In Web3, creators monetize through the issuance of a social token or NFTs, with non-fungible tokens acting as digital media ownership.

Tokenization offers a path to crowdfund work, while also ensuring early supporters are rewarded. It prioritizes community ownership, best seen in early Mirror campaigns like $VALUE and $ESSAY.

Monetization becomes non-linear, meaning the derivative value of tokens are often multiples of the value created from recurring revenue streams.

These tools offer a direct way for communities to earn income, while also providing mediums to share (and multiply) the value with its members.

**While Web2 is passive, web3 makes it active, thus turning communities into functioning micro-economies. **

Why Should I Care?

Micro-economies give the long-tail of creators a path forward.

Thanks to platforms like Coinvise and Rally, micro-economies can be created in an instant. They allow creators to distribute liquid instruments (in the form of tokens) to better monetize intangible contributions and sweat equity.

To contributors, it offers an unconventional path to work on what you love, and get paid in assets with exponential upside in the process.

Adoption will not happen through gambling, it will happen through 100,000 niche communities teaching ten of their closest friends how crypto can make a fundamental difference in their social life today.

Key Players

The most prominent micro-economies are seen with young guns like Anish Agnihotri - spending nights and weekends outside a degree and working full time at Polychain to build communities like PartyDAO using Mirror and Zora. Nice work, boss!

Seed Club, Six and CRE8 Club are building systems to manage the next generation of micro-economies - offering best practices to take creators from 0 to 1.

Crypto-media outlets like Bankless are now transitioning to a DAO. This comes alongside Forefront, and Global Coin Research who are all incentivizing writing contributions using their native tokens! (plus more coming SoonTM)

PleasrDAO, SongCamp, SquiggleDAO, Gremlins and CypherDAO are all starting to collect together. While most micro-economies won’t have $5M to purchase Edward Snowden’s first NFT, it’s exciting to highlight the power of what’s possible when resources are shared to follow an agreed upon mission.

How Micro-Economies Evolve

As micro-economies find their footing, it’s common to see the community band together to scale.

This is done through Treasury Diversification - a way to exchange tokens directly from the treasury with capital contributors keen to purchase sizable stakes in the group. Not only does it provide a community with working capital, but it gives the token more confidence as it’s now socially backed by world-class investors.

Communities like Friends With Benefits, Badger, Lido and Index Co-op all successfully executed Treasury Diversification proposals.

Once working capital is available, we start to see a migration from token-only compensation to more standard payment structures and roles akin to traditional companies. This hybrid mix between a community token and USDC rivals Silicon Valley compensation packages with the added benefit of tokenized equity being liquid by default, tradable 24/7 on global DEXs like Uniswap.

This flow allows revenue generation to have a more direct tie to contributors. As micro-economies earn income, they’re incentivized to route it through a community treasury as token price should increase as a multiple of the growth of the treasury.

Tools like Coordinape and SourceCred allow micro-economies to better rank contributions - ultimately building towards organizations in which compensation is tied to value created, rather than time spent.

Thanks to projects like Parcel, it’s never been easier to track, distribute and account for payments to and from a community treasury.

Put together, crypto offers the foundation for a sustainable creator middle class.

Get Involved

This post is an open call to those building micro-economies.

It’s evident that a creator middle class is emerging, and that there is now a clear path to create and capture value. While the tools exist, it’s up to us to write the playbook for the next million micro-economies.

If you’re working on micro-economies and are interested in sharing your ideas, please reach out.

Together, we’ll build the creator middle class into a force to be reckoned with.

Special thanks to Li Jin for the feedback and to Carlos Gomes for the graphics!

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