This is a chapter from the book Token Economy (Third Edition) by Shermin Voshmgir. Paper & audio formats are available on Amazon and other bookstores. Find copyright information at the end of the page.
Steemit was a decentralized social network that used tokenized rewards for social media contributions. It operated on the Steem blockchain, a special-purpose blockchain that provided a public infrastructure not only for Steemit but eventually also for other decentralized social networks of the time. At its peak, Steemit was a groundbreaking Web3 application with significant user traction. However, unsustainable token economics led to a user exodus, culminating in a network split from which a competitor network, Hive, emerged. This secession is a textbook example of how and why political splits occur in Web3 networks and what their implications are. Today, neither Steemit nor Hive boasts significant user traction, yet they remain relevant as case studies due to their historical metrics and the lessons one can draw from their flawed token design.
Disclaimer: Steemit’s governance and the Steem blockchain’s protocols underwent frequent changes, with patchy documentation. Understanding its governance rules often required reading the protocol code. As a result, some details in this chapter might be inconsistent. Nonetheless, the insights presented aim to illustrate the complexities of the Steemit ecosystem and highlight the challenges and necessities of social tokens. To provide a forward-looking perspective, alternative Web3-based social networks like “friends.tech” and Web2 platforms like “Reddit” venturing into the social token space are also discussed in this chapter.
Conceptualized in 2015 and launched in 2016, Steemit was among the first social media protocols to reward content creators and curators with network tokens. It operated on the Steem blockchain, a custom-built infrastructure with its native token (STEEM) and a stable token (Steem Dollar). Its innovative content monetization attracted early crypto enthusiasts, driving rapid growth to over one million registered users by 2017. The fact that the application was settled on a publicly verifiable blockchain network ensured the transparency and immutability of all interactions, which also appealed to many early adopters.
Steemit went online around the same time that the Ethereum network emerged, which was slightly before it was possible to create a decentralized application without having to create one's own blockchain infrastructure. It was also before the emergence of a wide array of stable token applications. The project founders, therefore, had to create their own special-purpose infrastructure that was scalable enough (the Steem blockchain with the native token, STEEM) and also their own stable token (Steem Dollar). Though complex and resource-intensive by today’s standards, Steemit was a visionary project ahead of its time. The Steem blockchain also hosted other decentralized applications, such as “d.tube,” (a YouTube alternative) and “d.sound,” or Spotify alternative), using “IPFS” as a decentralized file storage protocol. However, these applications never achieved Steemit’s level of success.
Despite its early achievements, Steemit faced persistent challenges. The biggest concern was the concentration of network tokens among a small group of users and the lack of governance transparency. Content quality and spam eventually also became issues, leading to frustration among users. Even though the project founders continuously adapted the governance rules to address these issues, these protocol changes were insufficient to overcome the flaws of the initial token design. As power structures solidified, community frustration grew.
In early 2020, Steemit Inc.—the company that managed the continuous research and development of the Steemit ecosystem—was sold by the original founders and became a subsidiary of Tron, a blockchain network with centralized governance. The change in leadership led to disputes, culminating in a secession of network participants that resulted in the creation of the “Hive” blockchain and the “PeakD” social application, which aimed for better governance and fairer token allocation. The forks of both the blockchain network and the social network, including their developer and user communities, ultimately weakened all ecosystems involved.
Purpose & Political Principles
The purpose of Steemit's founders was to reward content creators and curators with network tokens in a transparent and decentralized manner, using blockchain infrastructure as a settlement layer with the aim to address the flaws of traditional social media networks:
- Incentivization of quality content and ad-free revenue sharing: The founders envisioned an ad-free environment that would incentivize the creation of high-quality content, allowing users to earn tokens for their contributions.
- Fair income distribution and financial inclusion: A fundamental principle of Steemit was to reward content creators and curators fairly and provide financial inclusion. They sought to provide equitable rewards to users, regardless of geographic or economic circumstances.
- Decentralization, also known as community governance: The founders envisioned a community-driven governance model, reducing centralized control and allowing users to shape network rules.
- Accountability, transparency, and data ownership: The blockchain infrastructure was intended to provide transparency in token distribution and content curation while giving users greater ownership over their data.
- Censorship resistance: Steemit was created in part as a response to concerns over deplatforming tendencies and other censorship activities that had become common practice on Web2-based social networks. Censorship resistance aligned with the crypto community's core principles.
Functional Design
The main challenge was to create an incentive mechanism for fairly rewarding content creation and content curation. Other challenges were (a) how to create a blockchain infrastructure that was scalable enough for the purpose of the social media application and (b) how to create some kind of currency stability so that the tokenized rewards could have a relatively predictable value.
- Tokenized income: Social media had long lacked direct monetization for users, apart from niche platforms. Steemit tried to resolve this by introducing an incentive mechanism allocating network tokens (Steem, Steem Dollar, Steem Power) based on the quantity and quality of infrastructure contributions, content contributions, or content curation.
- No advertising: Unlike Web2 platforms that monetized user data and relied on ads to fund system maintenance, Steemit eliminated the need for advertising. Decentralized infrastructure maintenance and social contributions were funded with network tokens (Steem, Steem Dollar, Steem Power). With this system, advertising was expected to become obsolete. Since all user data would be collectively owned and controlled, that data could not be unilaterally exploited or monetized by any centralized operator for advertising.
- Permissionless, censorship-resistant & radically transparent: Steemit countered the opaque algorithms and censorship of Web2 platforms by using a public, permissionless blockchain network. The protocol and curation rules were open-source, enabling anyone to inspect the algorithms and making it resistant to deplatforming.
- Scalable blockchain network: In 2015, the Bitcoin network could not be used for decentralized applications, and the Ethereum network was only being conceptualized. The project founders decided to create their own special-purpose blockchain network (Steem blockchain) that would be necessary for the transaction volume on a decentralized social network. Proof-of-Work-based networks of the time could not handle large transaction volumes, but this was necessary. Steemit's founders developed a special type of Delegated Proof-of-Stake consensus mechanism, which allowed higher transaction volumes.
- Stable token: To address token price volatility and ensure predictable income for contributors, a special-purpose stable token was designed that was pegged to the U.S. Dollar and convertible to other network tokens.
- Anti-spam & anti-bot mechanisms: To prevent spam and bot abuse, the sign-up process was intentionally slow or expensive. Users could register for free via verified email addresses or phone numbers or pay a fee for instant access. These measures were intended to reduce the creation of aliases and network abuse.
Token Types & Token Properties
The Steemit ecosystem operated with three types of tokens: Steem (STEEM), Steem Power (SP), and Steem Dollar (SBD), each serving distinct purposes.
- Steem (STEEM) was the native token of the Steem blockchain network, designed to incentivize block validation and creation services by node operators (referred to as “Witnesses”). New STEEM tokens were minted upon block creation using the Delegated Proof-of-Stake (DPoS) consensus mechanism and allocated to various “rewards pools,” where they were partially converted into other network tokens—Steem Power and Steem Dollar. The tokens were subsequently distributed to various beneficiary groups according to a predefined allocation ratio: 10 percent of the newly minted Steem tokens went to the node operators of the blockchain network as a reward for their validation and security services. 75 percent would be converted into Steem Power and Steem Dollar and allocated to Steemit users for their content creation and curation contributions. 15 percent of newly minted STEEM would be paid out to the existing Steem Power token holders as an incentive not to sell the Steem Power tokens they had previously accumulated. STEEM was designed to be fungible and transferable, with no stability mechanism. Initially, the token issuance policy was highly inflationary, doubling yearly, but community pressure led to several reductions in issuance rates. A considerable amount of STEEM was issued before the network went online and awarded to Steemit Inc. for managing operations, which eventually became a major political issue.
- Steem Power (SP) was designed as a reputation token tied 1:1 to the value of STEEM. It reflected a user’s influence within the Steemit ecosystem. The more Steem Power a user held, the greater their influence on the rewards distribution for both creators and curators. Users could earn Steem Power through network contributions such as posting, upvoting, commenting, and delegating Steem Power to other users who could become active on one's behalf. Users who created a new Steemit account would receive an initial amount of Steem Power tokens. This was meant to incentivize new users to test the network without having to pay to participate, since the reward mechanism required a minimum amount of Steem Power: the more Steem Power tokens one had, the more one’s contributions to the social network would be rewarded with network tokens. Steem Power was designed to be transferable. It could be delegated to other users, often to bots that maximized curation rewards through sentiment analysis, further exacerbating profit-focused dynamics. Steem Power could also be bought and converted back into STEEM and therefore represented a convertible property right. The token could only be transferred or exchanged within the network and was not traded on external exchanges. The selling process of Steem Power was deliberately slowed by the protocol over 13 weeks to reduce short-term profit-driven sell-offs that could destabilize the internal economy.
- Steem Dollar (SBD), a stable token pegged to the U.S. dollar, was designed to provide stability and predictability for content creators. Fifty percent of creator rewards were paid in Steem Dollar, which could be converted into STEEM after a mandatory 3.5-day delay to prevent arbitrage attacks. Since Steem Dollar holders could miss out on potential STEEM price increases, the protocol incentivized holding Steem Dollar by offering an adjustable 10 percent annual interest rate. Additionally, the exchange rate between Steem Dollar and STEEM was regularly adjusted to maintain the stable token’s dollar peg.
Reward Mechanism & Token Flow
Creators received half of their rewards in Steem Power and the other half in Steem Dollar. Curators were rewarded exclusively in Steem Power. The exact earning potential of creators and curators depended on several factors: (i) The amount of Steem Power held by the curator, assuming that more Steem Power reflected a better reputation, making upvotes by this curator worth more; (ii) The number of upvotes that a post received within the first seven days; (iii) The distribution ratio granted by the content creator to the content curator. This ratio was predefined in the smart contract at a 75/25 percent ratio for creators/curators, but creators could choose to forfeit a higher percentage of their income to curators. This reward mechanism led to unintended dynamics, including spam, bot behavior, and content that prioritized profitability over quality due to several flaws:
- If a Steemit user with a lot of Steem Power in their wallet upvoted a creator’s post, both the creator and the curator would be rewarded with more tokens than if another user with less Steem Power had upvoted the same content. If a post performed well, the user who upvoted the post could earn more Steem Power tokens than for upvoting a less popular post. This mechanism aimed to signal reputation, but in practice, it encouraged profit-driven behavior. As a result, users focused on upvoting trending content rather than engaging with content they genuinely valued.
- Steem Power’s transferability allowed for the token to be delegated to bots, which subsequently dominated curation, further shifting the focus from genuine engagement to profit maximization.
- Since creators could opt to give curators a higher share of the revenue split, this led to some form of vote-bribing, further defying the purpose of quality curation.
- For practical reasons, rewards were only distributed for activities within the first seven days of posting, discouraging long-tail content and incentivizing short-term, meme-driven posts that maximized immediate engagement.
- Curators were limited in the number of upvotes they could perform within a set period. The idea of this mechanism was to prevent vote-spamming and incentivize quality curation. While it did restrict vote-spamming, other design choices of the Steem Power token—such as making Steem Power convertible, sellable, and transferable—defied the purpose of quality curation.
Economic Policies
A comprehensive analysis of the monetary and fiscal policies governing the three tokens within the Steemit ecosystem would require a detailed examination of the mechanisms underpinning both the Steemit application and the Steem blockchain infrastructure. However, such a deep dive exceeds the scope of this book, particularly since detailed records from its peak activity are sparse. Even during the system’s prime, researching its economic policies was challenging given the limited documentation. The decline in community activity since then has only exacerbated the difficulty of obtaining precise data for this edition.
Economists who analyzed the system’s economy in 2018 offered mixed evaluations. Some praised the inflationary issuance of the blockchain token STEEM in its early years, arguing it was an effective way to finance the system’s growth without imposing fees. This strategy enabled the permissionless network to surpass a critical adoption threshold. By gamifying participation, the ecosystem incentivized users to engage socially while earning monetary rewards. However, some also noted that the policy details appeared arbitrary and lacked a coherent economic foundation. Critics compared Steemit’s economic model to a "fair weather" system since it relied on perpetual growth. Some even described it as a Ponzi scheme, arguing that its design ensured most participants would lose unless the value of STEEM continued to rise. This concern was validated as the ecosystem matured. As the price of the blockchain token STEEM depreciated due to decreasing network demand, the collateral damage extended to the value of the application tokens—Steem Power and Steem Dollar—rendering participation increasingly unattractive.
One significant policy instrument was the interest rate on Steem Power holdings, designed to discourage users from converting Steem Power to STEEM and exiting the system. By offering interest on Steem Power balances, the system incentivized long-term participation. While the approach had merit in theory, the parameters behind the interest rates seemed arbitrary and lacked a transparent decision-making process.
Another contentious feature was the pegged exchange rate of Steem Dollar to USD. Critics drew on macroeconomic history to highlight the inherent instability of pegged systems and questioned the adequacy of Steem Dollar’s reserve policies. They argued that defending the interest rate on Steem Dollar holdings was only feasible if the volume of Steem Dollar remained small relative to STEEM and Steem Power. Ultimately, these economic vulnerabilities contributed to the system’s decline as token value and user engagement waned.
Stakeholders
- Steemit Inc. was the company that initially developed the Steem blockchain and the Steemit social network, playing a pivotal role in the early growth of the ecosystem. The founding team managed technical development, protocol upgrades, and the tokenized reward mechanisms while engaging with the community and collaborating with other stakeholders. A key point of controversy revolved around the “Ninja tokens,” a large quantity of pre-minted STEEM held by Steemit Inc., which created potential voting power asymmetries over network upgrades.
- The founders of the system, Dan Larimer and Ned Scott, played crucial roles in the development and early growth of Steemit Inc. Together with the founding team, they had significant influence not only over the initial conditions of the system they created, but they were also the trust anchors for the community, even though they were sitting on the controversial Ninja tokens, which they never used for voting over protocol upgrades.
- Blockchain Validators (“Witnesses”) played a crucial role in maintaining the Steem blockchain infrastructure. Their role was to stake STEEM tokens and the tokens delegated to them by other users to validate transactions, produce blocks, and vote on network upgrades.
- Creators & curators: Creators fulfilled the role of publishing posts but would only get rewarded with tokens if and when the post was upvoted by other users (content curators). They had to split the tokenized rewards received with the people who liked their posts—the curators—and could determine the distribution key of the reward split. Both creators and curators were key contributors to the social network.
- Bot operators probably emerged as an unintended consequence of Steem Power’s transferability, as users increasingly delegated their voting power to bots that optimized votes for profit and shared earnings with their delegators. Bots also created a market for paid votes, amplifying fake engagement and distorting the intended role of curators.
- Passive users could consume content without engaging in upvoting, potentially avoiding leaving a public data trail on the Steem blockchain, but also forfeiting potential earnings by not participating in the ecosystem.
- Other decentralized applications used the Steem blockchain as a public infrastructure for token settlement. These applications influenced blockchain traffic, potentially causing congestion and impacting the demand for STEEM tokens. Since the value of Steem Power and Steem Dollar was tied to the blockchain token STEEM, other applications could indirectly shape the economic dynamics of the social network tokens. Additionally, the open-source and modular nature of the underlying blockchain infrastructure allowed for the development of analytics services like “Catch a Whale” or “Steem Market.” These tools enhanced the network’s utility, driving demand for the social network, blockchain infrastructure, and its tokens.
Power Structures
One of Steemit’s critical weaknesses was the lack of transparency in token distribution, an ironic flaw for a blockchain-based network where all transactions are supposed to be publicly verifiable. The main reason for this was that Steem Power and Steem Dollar were convertible tokens, and lists of which tokens were converted, when, and by whom were either strangely ranked or abandoned. It seems that token conversion operations were not even executed on-chain. Early chain analysis tools like “Steemwhales.com” and “Steemd.com” briefly published token distribution data, but they ceased operations, probably because token distribution statistics became difficult to research. In the early years, the top ten token holders controlled 79.3 percent of Steem Power, 85 percent of STEEM, and 45 percent of Steem Dollar. Median users, by contrast, held 2,000 Steem Power or less, while “whales” held up to 2,000,000 Steem Power. Over time, this disparity likely grew due to incentive mechanisms that disproportionately rewarded large token holders, exacerbating economic and governance centralization.
- Policymaking power: In the ecosystem’s early years, policymaking power was largely centralized. Steemit Inc. coordinated development, upgrades, and policy changes, significantly influencing both the Steem blockchain and the Steemit social network, whose governance and economics were deeply intertwined. Community members, including STEEM holders, Witnesses, and developers, could propose changes, sparking discussions on Steemit and other channels. However, Steemit Inc. employees often took the lead in driving these proposals.
- Voting Power (blockchain network & Protocol upgrades): STEEM holders had to delegate their tokens to elected Witnesses, not only to validate transactions and produce blocks but also to vote on protocol upgrades for both the blockchain network and the social network. The consensus mechanism of the blockchain network operated with Delegated Proof-of-Stake, which was controversial. While more scalable than Proof-of-Work networks, it was considered more prone to collusion and censorship. The more STEEM a user held, the greater their voting power, reinforcing the link between economic and governance power. Users of the social network could only vote if they held STEEM. They could not vote based on their role in the system or with Steem Dollar or Steem Power. Approximately 20 percent of all STEEM tokens in circulation were the aforementioned “ninja tokens,” which were issued before the network went live. They were held by Steemit Inc. with the intention of funding content creators and supporting platform growth, but in theory, they could also be used to vote on protocol upgrades. They were not minted through the same consensus mechanism as regular STEEM tokens, raising concerns about centralization and governance control. The original founders had the community's trust by abstaining from using these tokens to influence governance decisions. The same level of trust was not granted to the new owners who took over Steemit Inc. in 2020, which is why and when the community forked into Hive, which eventually led to Steemit’s decline.
- Voting power (social network): Steem Power holders had similar influence over content curation in the social network. Users with more Steem Power could cast more influential votes on posts or delegate their voting power to others, including bots. This dynamic led to the aforementioned behaviors, such as bots voting in circular patterns to maximize profits and content creators offering curators larger reward shares to secure votes. The protocol also permitted self-upvotes, sparking controversy. Critics argued that self-upvoting undermined curation quality, while proponents defended it as a necessary mechanism to prevent stake dilution and to deter users from creating multiple accounts to manipulate the system.
- Executive power: Early strategic and operational management of the ecosystem was in the hands of the employees of Steemit Inc. The execution of certain functions within the social network was decentralized. The execution of network transactions was conducted by the blockchain’s validators (aka Witnesses). Content provision and curation were executed by the users of the Steemit social network. Functions of other decentralized applications operating on the Steemit blockchain were executed by the users of these other decentralized applications.
- Market power: While both content creators and curators could influence Steemit’s content economy, curators held greater power due to the design of the reward mechanism. Success depended more on strategic alliances with curators and bots than on content quality, discouraging genuine content creation. As financial incentives became concentrated among a few bot operators, content creators stopped posting, user growth stagnated, and the economic foundations of the network eroded.
Steemit Hard Fork: Hive Network
In February 2020, Steemit Inc. was acquired by the Tron Foundation, the organization behind the Tron blockchain. The takeover sparked significant concerns within the Steem community, particularly regarding Tron CEO Justin Sun’s plan to migrate STEEM tokens to the Tron network. A key point of contention was the Tron Foundation’s control over the controversial Ninja tokens. The situation worsened when the Tron Foundation, in coordination with several exchanges, reversed a community-led system upgrade. These exchanges misused their clients' STEEM tokens to vote against the fork, further eroding trust in both the new Steemit Inc. leadership and the participating exchanges.
In response, the Witnesses—the validators of the Steem blockchain—initiated a soft fork using votes delegated by network users. They justified the move as a temporary measure to protect the status quo and prevent the misuse of Steemit Inc.’s stake. Later, a hard fork formalized the split, resulting in the creation of the Hive blockchain. The hard fork censored all Ninja tokens controlled by Steemit Inc., effectively preventing them from influencing protocol votes on the Hive network. All other network tokens were ported to Hive, and the social network data from Steemit was migrated to a forked application called “PeakD.” Creators had to choose between continuing on Steemit or transitioning to Hive and PeakD. Users of other applications operating on the Steem blockchain, such as Splinterlands, Steemian, DTube, and DSound, faced a similar choice.
The takeover and subsequent forks highlighted both the decentralized nature and vulnerabilities of blockchain networks, particularly those using a Delegated Proof-of-Stake (DPoS) consensus mechanism. The Tron Foundation’s collusion with exchanges to manipulate governance exposed how centralized entities could exploit delegated voting power, undermining the principles of decentralization. Conversely, the Witnesses demonstrated the resilience of community-led governance, orchestrating the hard fork to preserve the integrity of the network.
Tron’s CEO, Justin Sun, publicly denounced the Hive hard fork, labeling it the work of "malicious hackers" and citing a violation of "private property sanctity." Approximately 4,500 posts and comments related to the Hive fork were censored on Steemit. The mass migration of creators and curators to Hive, however, forced the Tron Foundation to moderate its stance. Acknowledging the backlash, Steemit Inc.’s new owners admitted to censoring posts about the Hive fork, justifying the action as necessary to protect private interests. In an attempt to regain user trust, they published a blog post promising to "return governance to the community" and encourage users to rejoin the Steemit project. This conflict underscored a cultural clash between Web2-style centralized control and the decentralized ethos of Web3. It also revealed the challenges of managing power and governance in Web3 protocols, particularly during transitions involving centralized entities and community-driven initiatives.
Purpose & Reality
Steemit faced significant challenges in achieving its goals of incentivizing quality content, financial inclusion, privacy, and governance while maintaining an ad-free and decentralized social network. Many of these challenges stemmed from design flaws in its token and governance systems, as well as broader limitations of early blockchain networks.
- Quality content & reputation: The design of the reputation token, Steem Power, did not take into account that different users have different interests and that individual tastes are subjective. Any meaningful reputation token design needs to account for individual tastes and preferences, rather than finance-based universal reputation metrics. Furthermore, the design of Steem Power as a fungible and transferable token undermined its role as a reputation signal. Instead of fostering genuine content creation and curation, it incentivized clickbait and profit-driven behavior. Users could buy Steem Power outright, gaining disproportionate influence, while bots and vote-selling distorted the intended reputation and reward mechanisms. These flaws encouraged short-term gains over long-term value, intensifying economic inequalities within the network. Reputation tokens can only provide adequate signaling if they are designed to be context-related and non-transferable.
- Fair distribution of revenues & financial inclusion: Despite its aim to fairly reward content creators and curators, the system disproportionately benefited early adopters and those with financial and technical expertise. Many users, particularly those without advanced financial skills, found it difficult to profit from the network. Delegating votes to bots concentrated power among a small group of operators, further entrenching system inequality. Over time, income disparities and declining returns disincentivized new contributions, which led to a decline in user engagement, ultimately breaking the market.
- Privacy, data ownership and control: While Steemit sought to address the privacy concerns of Web2 platforms, its implementation fell short. The inherent transparency of the early blockchain network meant that all user activity was publicly accessible, making privacy even more limited than on centralized platforms. Tools like "Catch a Whale" and "Steem Market" leveraged this transparency for community insights, but true privacy and data sovereignty would have required advanced cryptographic obfuscation techniques, which were not available at that time in blockchain ecosystems.
- Ad-Free environment: Steemit adhered to its ad-free model, funding operations through tokenized rewards rather than advertisements. While the protocol founders remained true to their initial value proposition, it is not unlikely that, with time, had the network prevailed, the protocol designers might have implemented some form of advertisement—for example, in the form of attention tokens.
- Governance & content moderation: While the founders aspired to create a permissionless and censorship-resistant network, governance was opaque, and economic power imbalances allowed large token holders to dominate the network dynamics. While there was some moderation, including bans for terms-of-service violations, documentation was sparse, leaving users unclear about how exactly moderation was enforced. True community-driven governance mechanisms never fully materialized.
- Usability & key management: The lack of user-friendly key management or social-key recovery solutions created significant usability barriers. Users who lost their credentials were permanently locked out of their accounts, highlighting the challenges of early blockchain-based applications.
Despite its flaws and eventual decline, Steemit demonstrated how we can rethink social networks in a tokenized economy, where individuals are incentivized for their contributions to a public good. A wide range of alternative decentralized social media applications were built over the past years, most of which have ceased to exist or never gained considerable traction because of the difficult nature of building manipulation-resistant and coordination mechanisms for social networks.
Reddit: Tokenizing Web2 Platforms
Reddit, a prominent Web2-based social network founded in 2005, has over 2 million user-created discussion channels known as "subreddits." It features a contribution rating system where users can collect “Karma points,” which determine their reputation within the network.
In May 2020, two subreddits—r/Cryptocurrency and r/FortNiteBR—each with a combined user base of over 8 million at the time, announced the launch of their own subreddit tokens: “MOON” and “BRICK.” Both tokens were somewhat tied to the Karma point system and were considered a test use case for a potential Reddit-wide tokenized community points system. Eventually, the r/ethtrader subreddit also announced its own token, “DONUT.”
The idea was that while Reddit itself would remain privately managed on a centralized server infrastructure, the tokens would be issued and executed using Web3 infrastructure. These tokens were designed to be transferable and also granted special voting rights within their respective subreddit communities. Reddit developed its own blockchain wallet for managing the tokens and integrated it into its existing mobile application. Various exchanges started listing the tokens.
However, in October 2023, Reddit announced that it would discontinue the experiment, citing scalability challenges and regulatory concerns. The system most likely failed for reasons similar to those of Steemit: the transferable nature of the reputation tokens turned them into fungible financial products, undermining their intended purpose of signaling real reputation and facilitating quality content curation.
Following this announcement, the prices of MOON, BRICK, and DONUT dropped significantly. Despite this, the r/ethtrader subreddit community expressed intentions to continue using the DONUT token independently of Reddit's support. As of January 2025, DONUT tokens remain actively traded on decentralized exchanges, with a circulating supply of approximately 223.58 million tokens. The r/ethtrader community continues to utilize DONUT tokens for various purposes, including tipping, special memberships, and governance participation, demonstrating the resilience and adaptability of decentralized communities in maintaining their ecosystems.
Friend.tech
Friend.tech was a Web3 protocol for a social network that allowed creators to monetize their social presence by selling tokenized keys and granting followers access to exclusive content. The keys represented both property rights (equity within the influencers' social presence) and access rights (to content). Followers who wanted to leave the group could sell their keys, thereby losing access rights. It was launched in August 2023 on the Base blockchain and quickly gained popularity, attracting over 100,000 users and settling trades worth around 50 million USD within its first weeks.
The price of a key was calculated for each creator/group separately, starting at a base price, which changed over time. The price followed a bonding curve, a plug-and-play market mechanism that determined the price of each key based on the number of followers, engagements received, and overall influence—i.e., number of keys bought, initial price, number of keys sold, etc. This mechanism used two separate mathematical formulas for buying and selling: the more keys were bought, the higher the price for the next entry keys to the gated community would be. The selling price of the keys followed a slightly different mathematical formula, such that the difference between the buying and selling prices of keys increased over time. Key prices were designed to increase as an influencer's follower base grew larger, which would result in larger rewards for the creators and their followers, who could sell their keys at a higher price if the price appreciated since the time of purchase.
The mechanism drew criticism for encouraging speculative behavior akin to a Ponzi scheme. Despite initial success, Friend.tech faced challenges, including declining user activity and allegations against its anonymous founders. In September 2024, the development team transferred control of the platform's smart contracts to a null address, effectively ceasing their ability to implement future changes or collect fees. By this time, the creators had accumulated approximately 44 million USD in fees. This led to a significant drop in the protocol's native token value and user engagement. Friend.tech's rise and fall underscored the complexities of designing sustainable token systems for social networks, emphasizing the need for well-designed incentive structures and transparent governance to achieve long-term success.
Footnotes
[1] “Catch a Whale” is an application that tracks what large token holders (whales) have voted for.
[2] “Steem Market” was a decentralized application that let users buy, sell, and rent goods with Steem.
[3] Multiparty computation is a cryptographic effort that allows several servers to jointly compute an output without any single server knowing all the inputs. This technology can help with anonymous aggregated advertising.
[4] Zero-knowledge proofs are cryptographic schemes that allow a party to verify a solution with as little information conveyed as possible. Usually, applications here are confidential transactions, and allow proving authenticity without giving up personal details. Another possible use case could be in proving applicability of ads to publishers without giving up personal data.