We are often asked the question: What is the exact meaning of tokens? Why do projects need tokens?
Generally speaking, tokens are seen as a more efficient fundraising tool that allows equity holders to avoid dilution risks. On the other hand, tokens are also seen as practical tools that can be used in games and other virtual environments, similar to virtual currencies.
However, the functionality of tokens is not limited to these scenarios. In fact, they can possess all of the above characteristics at the same time. In our view, tokens represent a new way of owning a certain class of assets that did not have a clear ownership structure before the advent of tokens.
In summary, we view tokens as a new way of owning assets with network effects.
Network Effects
Some readers may already be familiar with the basic concept of network effects.
As the number of users of a product, service, or platform increases, the overall value of the network to users also increases. Network effects are an important indicator of value evaluation for both luxury brands and tech giants. Investors often evaluate the value of a company by measuring its network effects, including the growth expectations and impact of these effects.
Metcalfe’s Law states that the value of a telecommunications network is proportional to the square of the number of users or compatible devices connected to it. In other words, the more people or devices that participate in a network, the greater its value. We can roughly evaluate the value of networks like Facebook, Google, and LinkedIn based on the number of users. The larger the user base, the higher the value of the network and the potential valuation ceiling it may reach.
The same evaluation method is also used to estimate the potential of Web3 networks, such as the number of active addresses, transaction volume, and number of developers. Although some people like to directly apply Metcalfe’s Law, we believe that Reed’s Law (which states that the utility of a large network can grow exponentially through subgroups of network participants) may be more appropriate here.
In general, tokens represent the network effects of a specific network, platform, or ecosystem. The emergence of tokens allows users to have partial ownership of the network for the first time, which is significantly different from traditional equity tools. Additionally, since tokens themselves have multiple functionalities and often have characteristics such as openness and permissionless, they can more conveniently support various practices and innovations. Therefore, Web3 can create network effects faster and more efficiently than closed networks in Web2.
Inequality of “Individual” Value
Both Metcalfe’s Law and Reed’s Law are difficult to use to evaluate the value of infrastructure projects or large social networks because they assume that each user and device in the network has more or less equal value and contributes equally to the overall value of the network and its network effects. However, the actual situation is different, and the value of individual users in a network is an important factor.
For example, in an economy, the population can be seen as the size of the network, and the gross domestic product (GDP) can indicate the value of the network. The population of Hong Kong is about 7.5 million, and its GDP is about 407 billion US dollars. The population of North Korea is 27.5 million, and its GDP is 48.3 billion US dollars. The difference in the value (GDP) of these two networks mainly lies in the value difference of network nodes (i.e., the population or enterprises in the economy). Although the network scale of North Korea is more than 3.5 times larger than that of Hong Kong, its economy is isolated, and its network effects are closed, resulting in a relatively lower value of the entire network compared to the smaller-scale Hong Kong.
The same applies to the Web3 world, where networks with lower potential will have lower attractiveness in terms of investment, developers, users, and so on. Therefore, anyone building in Web3 should strive to create a network with higher value and stronger network effects.
How to Measure Network Effects?
There is no one-size-fits-all approach to driving the growth of network effects. Project teams must combine various appropriate methods to create lasting attractiveness for the network. This includes emphasizing the reach of users (similar to TON), attracting more developers and investors (such as Ethereum and other Layer 1, Layer 2 solutions), or increasing total transaction volume through various measures.
In addition to focusing on the number of network users, another commonly used measure of network effects is to focus on the total investment within the network. Many blockchains focus on increasing the total value locked (TVL), which is an indicator of the total value of assets locked or staked in the network, and it helps attract investment and entrepreneurial activities.
In the current Web3 world, one of the most important metrics to consider may be user stickiness because Web3 networks are generally designed to be open and permissionless, meaning that users can freely enter and exit rather than being trapped in a “closed network”. This is in stark contrast to the situation in Web2, where network effects cannot be owned by end users but are strongly monopolized by the network itself (such as it is difficult to transfer data and network effects from Facebook to TikTok).
Web3 provides greater flexibility for users than Web2, so when building decentralized networks, it is crucial to focus on user retention, and one effective measure to improve user stickiness is to invest in “cultural capital”.
“Cultural Capital” and NFTs
According to Pierre Bourdieu’s theory of capital and class division, “cultural capital” consists of intangible resources such as knowledge, skills, and experiences, which play an important role in social mobility and opportunities. “Economic capital” and “cultural capital” can complement each other—for example, joining a high-end club, attending top schools, or living in specific communities can significantly increase opportunities for personal economic and social improvement.
NFTs, due to their unique nature and their ability to reflect personal identity and “cultural capital,” can create deeper and more complex network effects than fungible tokens (FTs). The network effects driven by NFTs may not grow as rapidly as fungible tokens, but they can build deeper and more loyal relationship networks based on shared “cultural capital,” thus forming stronger defenses and more powerful network effects.
This phenomenon is already evident in the real world, where we can see people’s loyalty to brands such as Hermès, Nike, or Apple. In the virtual world, we are also starting to see the emergence of similar cultures in projects like Pudgy Penguins, Bored Ape Yacht Club, and Animoca Brands’ Mocaverse.
Mocaverse’s Vision
One of the key indicators for measuring the potential of a network is to observe the level of investment it has received, which often represents the growth potential of the network. It is similar to the investment made by a country in infrastructure development—the more investment, the greater the development potential.
Animoca Brands is one of the most active investment institutions in the Web3 field, with more than 450 companies under its umbrella and a balance sheet size of billions of dollars. We will continue to invest to expand our network and its related economic and cultural network effects, which will lay the foundation for the expansion of the Moca Network (an interoperable economy consisting of subnets and users connected by the Mocaverse). At the same time, we will use the native token MOCA to drive the growth of the Animoca Brands network.
So what is Mocaverse? It is an interoperable infrastructure stack designed to enhance network effects and bring together various “cultural capital” and “economic capital” for maximum mutual benefit. Mocaverse will integrate multiple domains, including games, music, sports, animation, NFTs, and digital identities (DID), to build a collaborative ecosystem where each sector can promote the development of the entire ecosystem.
Mocaverse is currently developing Moca ID, a universal identity and reputation layer that spans the entire chain, which will serve as a connection across the ecosystem. Given that Animoca Brands is already one of the most active investment institutions in the Web3 field, this will help drive the growth of the entire Web3 industry. Both Mocaverse and MOCA itself are forms of “cultural capital,” which may still seem somewhat “isolated” today (similar to most NFTs). However, as the reputation layer of Mocaverse grows, its significance will become more socialized.
Our goal is to create a truly reciprocal relationship that brings more value to our portfolio network and incentivizes Mocaverse users based on time, loyalty, and attention. All participants will be able to benefit from this shared network effect, which embodies the core spirit of Web3.