By David Tomu, Co-Founder @mintgate_app
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NFTs enable and make fractionalized ownership more accessible. Not just in ownership of an art piece, but a share in the community.
An NFT asset can grant fans membership access, but we are still figuring out how the distribution model will work. On the other hand, social tokens are the incentive layer for creators to distribute value to their fans.
Some projects are aiming to bring utility to social tokens, which are crucial for the value generated by the community. Yet even if this is achieved, the liquidity issue still remains. The market is not quite ready for these tokens yet, as there is not enough volume.
These communities could generate social tokens backed by an NFT to cover all three main properties of a token: utility, distribution, and liquidity.
What if super fans become Liquidity Providers?
1- Community members are the ones providing liquidity to the token.
2- The only way to be part of the exclusive community is by staking your tokens to the pool.
3- The LP token, grants access inside of the community to different services, as exclusive content drops, private channels inside the Discord server as well as content on a website, a pre-release album, in-app gaming access, or voting on community actions.
The tokens issued grant access to a new layer, the one where content is produced, opening the door to a whole new economy. NFTs have proven mainstream adoption, but they also offer novel ways to distribute ownership where fans co-own the community.
How does this work?
A creator drops a collection. Once the auction ends, all those who acquired an NFT will receive on their wallets a respective number of fungible tokens based on their bids. The value in USD will be the number of tokens received, in this case, 17880 tokens issued if the highest bid of one NFT was 10ETH.
The creator can decide what percentage of total ETHs received are deposited to the pull. This article will simplify things by setting 50% of funds received and tokens minted will be deposited into the pull. A total of 50% of the ETH received from the collection will be transferred to the creator’s wallet, with the remaining 50% deposited directly into the pool.
The total market supply will be the number of tokens minted by each NFT included in the drop. So, in our example, the super fans who bought the NFTs now have 50% of the supply of the artist’s social tokens issued because of their bids. To provide liquidity to the token, 50% of tokens automatically go into a Uniswap pool.
- At the end of the auction, the highest bid is automatically accepted and the NFT is transferred to the highest bidder’s wallet.
- The number of tokens minted are based on the USD value of the highest bid.
- The NFT + 50% of the fungible token supply are transferred to the highest bidder’s wallet.
- The 50% of ETH received on the collection drop are transferred to the creator’s wallet.
- A Uniswap pool for the fungible token is created.
- The smart contract deposits the respective funds into the pool to bootstrap the community’s token liquidity.
This experimental design can be applied to the entire collection or a single drop of NFT. Everyone who bids on that drop receives a respective amount of tokens.
Social tokens backed by the reputation of a community. These LP tokens grant access to a fan-based community with an incentive to help bootstrap the token’s liquidity. Users will earn fees based on the trades made on Uniswap.
The NFTs represent access to the community. The fungible token represents ownership in the community.