Content Token Explosion: Is Base's "Creator Economy 2.0" a revolution or just another game played by market makers for suckers?

Original Title: You may have misunderstood $JESSE, this is an attempt to bring income to the Base chain.

Original author: Auditless Research

Original source:

Reprint: Daisy, Mars Finance

Content Coins may be the only way to get creators excited about Rollup. But be aware that the house always wins.

Crypto Twitter's reaction to the launch of $JESSE has not been friendly:

(The tweet above is actually one of the more rational and down-to-earth criticisms I have seen.)

Others have pointed out some issues:

Poor timing: The launch coincided with an article by David Phelps, in which he complained that Base was too focused on creator tokens;

Extraction issue: Some believe that $JESSE has extracted a large amount of transaction fees from sales;

Purchase issue: Due to $JESSE using the Zora x Doppler bond curve auction mechanism, it unexpectedly attracted purchasers.

But I do not share these concerns.

The timing issue is indeed a bit unfortunate, but I suspect Jesse had already planned the launch time and chose his birthday as this special milestone.

The extraction question is also untenable. In his birthday live stream, he was able to reinvest the fees into other creators on Base. He also claimed that he does not intend to sell these tokens.

In the end, Doppler and 11AM had a quite good discussion regarding the purchase issue:

We will delve deeper into the pros and cons of different auction mechanisms in next week's content, but Austin's research on auction mechanisms far exceeds those who complain about the rush on X (formerly Twitter).

If it wasn't out of malice, then why would Jesse do this?

The real reason for promoting creator tokens

Most of the income of rollup (aggregation chain) sorters comes from transaction fees.

As of now, Base has generated more revenue from meme token trading than from any other activity. The issuance of new tokens and the resulting speculative trading volume are significant factors driving trading fees.

Source: Allium

It is likely that Base has spent more than ever on core team, funding, activities, proprietary applications (such as Base App), and support for the founders. However, these expenses have not significantly increased Base's contribution as a Rollup to Coinbase's financial statements.

Creator tokens and content tokens are a very clever solution to this problem:

Their issuance even surpasses that of meme tokens (token issuance is the main battleground of Rollup);

They can stimulate trading and speculative activities;

They are built by converting attention into on-chain fees, and anything that can trigger viral spread can almost be bound to a content token;

Compared to meme tokens, they don’t even need any underlying economic activity, community support, or commitment.

Although users view the surge in gas fees as negative, from the perspective of Rollup, creating excessive demand for block space is actually a sign of success.

No other forms of monetization for creators can achieve the same effect:

Payment: The transaction volume for any form of payment (such as donations) is insufficient, especially the part paid to creators, which is extremely low.

Rewards: Base indeed utilizes a reward mechanism to support the Base App ecosystem, but these rewards have a negligible impact on revenue.

Advertisement: On-chain advertising is almost non-existent, thus contributing nothing to the sorter fees.

Are creator tokens really good?

We have understood why creator tokens are a key area of Base, but are they really the best mechanism for users and creators?

Source: Zora Docs

The logic of the flywheel effect of creator tokens is very simple:

If you publish content, a Content Coin will be generated, and you will own 1% of its supply.

Each content token can only be purchased with your Creator Coin. If you issue a Creator Coin, you will hold 50% of its supply (gradually unlocked).

The demand for content tokens will naturally drive the demand for creator tokens. This mechanism incentivizes you to create high-quality content while benefiting from holding creator tokens and transaction fees.

To some extent, the behavior of content tokens is similar to Patreon membership subscriptions. If you spend $1000 to purchase a content token, your opportunity cost is using that $1000 for other market investments to gain returns. The forgone part of the returns is essentially like paying a subscription fee to a creator. In return, the creator may reward you for holding these tokens. These rewards can be tiered like Patreon, or distributed proportionally or randomly (similar to a lottery).

However, creators cannot directly receive subscription fees unless they sell their own creator tokens. Therefore, even if your costs are covered through revenue subscriptions, not all costs will effectively be transferred to the creators you support, unless they “cash out and run” (i.e., “rug”). Jesse also pointed out this issue:

In addition, Content Coins also have attributes similar to fan collectibles. As an artist's popularity increases, the rewards they can offer to subscribers become more valuable. Therefore, Content Coins carry a certain speculative component. Even if you are not concerned about supporting the artist or obtaining rewards, you may still purchase Content Coins simply to speculate on their potential future reward value (whether material or non-material). This is similar to buying a first edition CD of your favorite artist, which you might resell at a higher price in the future.

However, this characteristic of creator tokens also brings significant drawbacks: they have essentially become a financial instrument, and their market may attract institutional participants with more advanced tools than ordinary fans.

Just as true fans need vision, patience, and commitment to identify, preserve, and invest in classic CDs or merchandise, the market for content tokens also requires genuine fans to provide support. On the other hand, a savvy trader can profit from content tokens simply by taking advantage of buyouts or other speculative means.

When exiting “membership,” you need to achieve this by selling tokens, which will incur slippage. Ironically, the lower the liquidity of the creator's tokens, or the greater your contribution to the creator, the higher the slippage you will face. Content tokens, to some extent, penalize the most generous sponsors.

The house always wins.

My core concern with the creator token model is that it attempts to combine sponsorship and curation to maximize trading volume, but it may have brought out the worst aspects of both.

Real sponsors have to face issues such as price volatility, antagonistic market participants, and trading taxes.

Curators lack a clear guarantee of future rewards, as creator tokens are not explicitly tied to the creator's equity or other value streams. Curators are essentially speculating on the potential demand for unknown future rewards.

This model tends to front-load the income of creators, which may result in high transaction fees during the initial price discovery phase, but the sustainability of long-term trading volume remains uncertain (the performance of $JESSE will be a point of observation). This mechanism has not truly achieved incentive alignment between creators and token holders.

The final result is that the profits extracted from the underlying blockchain and trading venue (in this case, Uniswap) far exceed those of a simple membership model payment solution.

You could argue that the curation market does provide an additional function, but the two (sponsorship and curation) cannot be clearly separated.

As a comparison, we can study Craig Mod's model. He built his own membership system, focusing on keeping the setup as streamlined as possible, and he has been successful.

He can proudly say that no one has lost their hard-earned money for supporting him.

What attracts me to Craig's model is that its focus is on the creation itself (such as books), rather than on the content or the individual creator.

I personally believe that an interactive-centric creator economy is inferior to a model based on real value exchange. Content should merely serve as a discovery mechanism and a way for public creation, rather than being the core product. To some extent, a free foundational level can be provided for user experience.

I also believe that these issues can be resolved, and there is no doubt that the Zora and Base teams are working hard on this.

At the very least, creator tokens represent a brand new attempt at monetization for creators. Even if it ultimately fails to become the optimal solution, it is still worth a try.