Shared Economy — Where is the Value?
By: Sergey Shenderov
Tags: Token Sale, Blockchain, Cryptocurrency, Decentralization, Bitcoin

Folks wrecking their brains over crypto valuation may have been helped (or further bewildered) by some insightful, if theoretical, discussions here, hereand here. They are a relevant starting point for a practical discussion of a network’s economic development and the distinction between the combined transaction value (GDP) and the network value.

Some boring theory on value and velocity of money

Perhaps the key caveat to most of that crypto valuation research is that it is applying the tautological “equation of exchange” MV=PQ to networks that need to be imagined — to explore their relative equilibrium states. In that equation M stands for the supply of money, V — for velocity, P — for average prices and Q — for volume of expenditures. The equation basically states that in a given economic system sum-of-the-parts value of all transactions (or tokens spent, left side) should equal the value of GDP (right side) in a given period. Which is true by definition.

Velocity is a key variable that is perhaps the least understood and most misused of all four. It is often applied as a balancing factor between the two sides of the equation… It reality, it differentiates between transactional currency (i.e. how many tokens feature in transactions on the network overall) and currency in circulation (average balances in users’ wallets during the same period, that sustain the overal volume of transactions). Velocity implies that during any interval of time, such as a year, a given amount of money can be used again and again to finance people’s purchases of goods and services. A velocity of 2 would effectively mean that the entire average volume of the currency in circulation was transacted twice during a given period.

A key product of the equation of exchange discussions appears to be the “velocity thesis”, which has become the unanimous key perceived threat to any medium-of-payment token value. The argument goes that because velocity is inversely related to token value (right, since M=PQ/V), it may destroy value in the purer utility payment tokens, once scale drives efficiencies up and transaction costs — down. The key implications of that are that A) in order to remain valuable in the future, a token has to have store-of-value properties and B) long term value of any utility protocol (the most invested segment of the entire blockchain space) may be theoretically problematic, as their entire GDP is transactional costs of block confirmations and there is no need for token balances, other than as a matter of platform policy imposed on the users, like in proof-of-stake models. One thing to really accept about velocity is that it is not independent from other variables and is neither “good” nor “bad” — low velocity (limited transactions) may mean either that a token is literally useless or that it has store-of-value properties to die for. Neither of that really applies to what we are building, so…

I would like to make that discussion specific to Bloom tokens we have launched within Mom.life. This is to both look at the interplay among the variables of the equation of exchange through a practical prism and to start laying the very basic foundation for analysis of economic forces at play within our experiment, which is a key part of the execution challenge ahead.

How is the value (GDP) created?

Almost the same way as in any sovereign economy. Only based on an economic activity of a global demographic, rather than a nation. Also, for the purity of experiment, there is a general commitment from the “federal reserve” not to print money and to forgo the traditional flexible policy tools, so that per-unit value of the transactional currency is simply a ratio of GDP divided by a pre-determined annual currency distribution from reserves.

The individual reward and redemption marketplaces that define GDP are either based on existing fiat monetization in Mom.life in specific geographic markets or on “popular demand”. The latter is manifested in daily user conversations or scattered p2p monetization that takes place in local communities in fiat and without any rent to platform, or both. The most important and promising marketplaces include advertising, personal data and content, p2p trade, freelance services, virtual goods and collectibles, charity, 3rd party goods, services and content. They define the major sources of transactional volume within the Mom.life digital economy and, hence, its GDP going forward.

More specifically…

We will write more about the business models and progress behind each marketplace going forward, but let me just give one relatively concise example of how the new system will function for all key players on the platform — our users, 3rd parties and Mom.life.

Consider the personal data marketplace. Data is arguably Mom.life’s most valuable asset — we have more of it per user than anyone we know in the internet. That is due to the phenomenal engagement driven by communication and underlying self-expression — core activities on the network. So, right now data is a “suitcase without a handle” for Mom.life. We have lots of it, but can’t sell it, really, despite brands and retail knocking constantly. To sell, we’d have to judge very precisely who is willing to share what and with which 3rd parties. One mistake could breach the trust of our users, which we enjoy as the defenders of their privacy.

Under the new reality, users will have full ownership of their data and will sell it directly in a decentralized marketplace for tokens. 3rd parties interested to acquire now “self-sovereign” user data will have to compete for it based on their reputation among consumers, quality of user experience within a data sale process, how the acquired data is used and the price, among other factors. And as all those factors are considered and decided upon by individual users in a bilateral disintermediated sale process, real magic happens. Each individual sells the maximal amount of data they are willing to share, which finally delivers income and full control to users, best data product to date — to the 3rd parties and maximizes the implied network GDP contribution from the data marketplace that will clear its entire theoretic inventory of data.

On to velocity — why would anyone hold the tokens?

To crystallize the very general question we are faced with now, lets further simplify the key variable. Velocity = Total Transaction Volume / Average Network Value. Network value is really the aggregate value of token balances held in participants’ (users’ and 3rd parties’) wallets. My recent accidental debate with one of the above mentioned crypto valuation pioneers and my literary sensei (respect his work deeply for helping structure my own thinking) focused on the opportunity cost of money for the core demographic. To what degree that compels users to convert token earnings into $$, as opposed to HODLing or spending within the network. I think this is spot on and applies in equal measure to the 3rd parties employing users and selling goods and services to them. So the key basic question for us is really why would anyone on Mom.life hold the tokens?

Users

Token earnings — moms get tokens by earning them or being rewarded, not by purchasing them for $$ right before spending them on something specific. In other words, token balances appear on the network before a user is faced with a dilemma of how to spend. Complex token utility that is very evolved from, say, a tokenized ticket network described here (where the only reason to buy a token is to immediately spend it on a ticket in a heavy UX). Current difference is that on Mom.life tokens have been launched 12 months ago and are acknowledged as symbols of social status and community recognition (as p2p rewards for content and support). They will accumulate increasing non-monetary value as a gamified engagement and communication tool. As we add redemption choices and instant universal payment infrastructure that allows to avoid using fiat on staple purchases from 3rd parties (like diapers, cleaning products or baby food), as well as online goods and services, holding tokens becomes a practical necessity. Structural limitations for ongoing conversions of token earnings into fiat. We are committed to developing a robust and liquid forex market for Blooms, that will become an ad hoc source of funding for the network and a real exit opportunity for users and investors. That said, the inevitable extra layer of exchange infrastructure with complex UX (sensitive for our users) and 3rd party fees (protocols, exchanges) will make the Blooms-to-fiat flow more relevant to the larger token balances accumulated overtime. That especially applies to the concern about tokens potentially losing value — much less relevant for smaller balances from current earnings. Less attractive pricing for equivalent fiat spending. 3rd party marketplaces on Mom.life have implicit virtues for the vendors who will be stimulated to offer advantageous prices (in fiat equivalent), further motivating users to spend here and in tokens — more on that below.

Employers/Vendors

3rd parties will have to buy Blooms in bulk to run advertising and data acquisition campaigns, in line with seasonal and episodic nature of those. It is the institutional demand for the native currency that will make it uniquely resilient to speculative volatility, reducing the opportunity cost for the users related to the fear of the loss of value broadly associated with crypto holdings. Blooms can be bartered for merchandise. Quite simply, a major diaper manufacturer (most global leaders are advertising on Mom.life) can acquire tokens by placing its merchandise in the platform marketplace. Sales in Mom.life return the tokens paid as incentives/salary to users for data/advertising — back to the vendor in a matter of days (as to buy merchandise is a major redemption case for the users — they are saving fiat generally and in comparable prices). Advertising campaigns by a vendor aimed at revenue generation in an entire range of revenue channels in a region can be funded by incentivised/discounted sales in the Mom.life internal marketplace. Blooms are a virtuous consumer engagement tool. To spend tokens here is a need more immediate and broad for the advertisers than what could simply be aimed at supporting sales in Mom.life’s internal marketplace. Mom.life has been the highest-performing advertising channel for our clients (see diagram below) before financial incentives to the users are introduced in tokens. We expect them to maximise attention and data acquisitions here vs their other channels, as incentives will drive user acquisition, engagement and the already record-breaking conversions in their target markets.

4. Blooms will be utilized by advertisers outside Mom.life. As the incentives drive conversions further up, the tokens become an engagement and incentivization medium for the mom demographic effective on other on- and off-line channels where moms can be targeted. More token acquisition by the 3rd parties.

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