Crypto is one giant game where people transfer both money or status to projects (coins, tokens, protocols) to try to win more money or status in the future.
You’ve learned all about the money part, but not about the status part. Status is a combination of a person or project’s reputation, credibility, and value. It represents how important a person or project is in the crypto economy. People want high status because it provides them with opportunities, power, and the feeling of success. Projects want high status because it attracts attention, investment, users, and developers. Having status constitutes winning the crypto status game.
When trying to win, people often transfer their status to the wrong places. Each person’s status is unique and non-fungible (not able to replace or be replaced by another person’s status). The popular projects they transfer status to, like Bitcoin and Ethereum, are fungible. This creates a misalignment.
People think the way to win is by copying someone like Elon Musk. Elon is a high status Dogecoin advocate. Every time he tweets about Dogecoin, he is transferring some of his status as a successful entrepreneur. People perceive Dogecoin as more legitimate because Elon is advocating for it. He raises the status of Dogecoin and this causes people to invest.
Many people try to copy Elon and fail because they are low status. They think their status can impact the market but are wrong. The status of these projects is made up of its participants and the actions of a low status person cannot impact the status of a large, fungible project like Bitcoin, Ethereum, or Dogecoin. Low status investor’s dollars are valuable, their status is not. Investors’ status can only make an impact on the project as part of a large group (like we’ve seen with WallStreetBets and Dogecoin).
There is no way to win the crypto status game in large, fungible projects unless you are ultra-high status or part of a large group that creates a collective status. You are stuck investing your money and riding the wave.
To win the crypto status game, you have to start at a level similar to your status: a smaller project, or more likely, a non-fungible project. Non-fungible projects create better alignment on status than fungible ones do.
To best leverage your status, you must look for areas where being unique is a benefit. You must find a market you can influence yourself. Even small, fungible crypto projects might not allow this. An area that does allow people to win is single, unique tokens aka non-fungible tokens (NFTs).
Transferring status in tokens is direct as there is a single place your status goes, while still benefiting from a larger network. An increase in the status of a token increases the collective status of the network. This creates individual incentives combined with network effects.
There is a market and status for the overall network of related tokens, like other crypto projects, but also a market and status for tokens. A token’s ownership, aesthetic value, and story all become relevant. Just as people perceive Dogecoin as more legitimate because Elon is advocating for it, people perceive tokens as higher value based on the artist, athlete, or creator involved.
To connect people to tokens requires verification. Verification involves transferring real-world status into the project. It connects activity in real life with activity in the project and vice versa.
Projects like NBA Top Shot, CryptoPunks, or Bored Ape Yacht Club use centralized verification. A centralized group creates the tokens and ensures their relation to the network. Centralized NFT projects usually have a theme across every token. This centralization causes the network status to be stronger and a larger factor in token status.
Other projects like Mirror, Foundation, and Bitclout rely on decentralized verification. People create tokens and verify them with some mechanism like tweeting a code. It doesn’t require a central authority to create tokens or approve them. It creates a one-to-one status connection between the verified person and the token. Decentralized verification also causes the token status to be more independent from network status than centralized verification.
Both types of projects allow people to create or buy an NFT connected to a network, transfer their status to the token, raise the token’s value, and cash out. In this case, their status investment is higher, but their monetary investment is often lower. It is a better way for people to “win” with status.
The higher importance of status in non-fungible projects creates better alignment between people and projects. It creates another area for people to contribute value to a project. You can better understand by looking at the evolution of these projects:
- Create a network of connected but tokens
- Connect people with those tokens either through investment or verification
- Owners attract new people to invest money and transfer status to the project
- Create utility (avatars, writing, content) or community to retain and attract more people, generate status, and attract investment
- The network and token value increase. Win-win for projects and people
The Future is Utility
The successful projects and networks do well with steps one, two, and three so far. The innovation will come from step four as people come for the network but stay for the utility. Initial hype and investment create liquidity early that can be invested into creating utilities. The projects also benefit from a better connection to user-owners who want to see the network succeed. The users are better aligned to provide valuable insights into what the utilities will keep them active with the project and attract people like them.
For example, projects like Bored Ape Yacht Club, CryptoPunks, and Cool Cats are art NFTs that provide avatar images to their users. Instead of sitting unseen in a database, people use them on Twitter, Clubhouse, and Discord to signal their membership to the group and attract new members to the projects. It is a simple yet useful expressive utility.
The projects that will win in the long run are the ones that create the best utilities for people. The people who win the crypto status game are the ones who transfer their status with the right projects early. Finding the next great utility is a path to winning that doesn’t require high status or high investment.
The non-fungible and utility-based projects of Web3 create more opportunities for average people to win the crypto status game. Being a high status billionaire isn’t the only way. Anyone can pick the right project early, connect their status to it, and contribute how they can. Find the right one, and you may come out a winner.
Thanks to Jesse Germinario, Tom White, Rhishi Pethe, and Alex Azoury from Foster for the feedback.
Let me know what you think on Twitter.