BitClout 101: From a High Frequency Crypto Trader
By Jeff Tang, High frequency crypto trader and crypto enthusiast. Princeton Operations Research and Financial Engineering, Ex-Getco, Ex-Founder Serenity Capital.
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Disclaimer: This article is not investment advice, do your own research.
I discovered BitClout on Friday, March 12 and have gradually played around with the platform and navigated through countless website downtimes, slow exchange acknowledgement times, and general FUD on clubhouse chats about the platform. The mystic nature of the identity of the founders and the venture capital firms backing the project (which has since been confirmed on Coindesk) has led to an aura of uncertainty: is this the coolest crypto project over the last two years or is it a defi/NFT rug pull of the most epic proportions?
What is BitClout? At the simplest level it is an experiment using bitcoin blockchain technology that takes your bitcoin, converts it to its native token (called BitClout or BTCLT) and then with that native token enables the user to interact with other fellow users in a social medium (through clouts – those are what a post in BitClout is, right, not a tweet?), re-clouts, tagging, and messages but also economically through investing in BitClout creator tokens for which every user has his or her own BitClout creator token. The investment in a BitClout creator token and the BitClout token’s price is driven purely by supply and demand through a bonding curve. In the case of BitClout token, more bitcoins deposited in the BitClout ecosystem incrementally increases the price of BitClout for the next buyer of BitClout and thus creates a demand to buy early. On the Creator side, the price to buy Creator Tokens is also a bonding curve where the incremental cost to buy the next Creator Token increases for each additional individual Creator Token purchased, making early purchase of Creator Tokens much cheaper in price than later ones. There is currently a redemption mechanism too where one can sell Creator Tokens back to the platform and thus decrease the supply of Creator Tokens floating, decreasing the price of the subsequent next purchase.
Sounds simple right? It gets more interesting. The top 15 thousand twitter accounts have been pre-loaded where one can claim their BitClout account by tweeting their public key (your private key is a 12-word key phrase that you should never share with anybody) and then their BitClout account will take over the pre-loaded BitClout account. And finally, as an economic incentive, Creators have an option to receive 0-10% of all incoming investments as a Founder Reward Payment (in BitClout) for their popularity or clout.
Great, but what is the use of all this?
1) Price speculation. While some Creator values are intuitive such as Elon Musk being the top-priced Creator on the platform as of this writing (a great spokesperson of the current technology paradigm), there is at the moment great opportunity to consider who will have long-term permanent value here as a Creator who uses and interacts with this social media platform.
2) Creator engagement is the next area of obvious utility. Like livestreaming platforms, BitClout allows creators another avenue of fan engagement. I believe BitClout has a chance to solve this puzzle through the economic component of the platform.
3) Resilient Reputation Score. Have you ever been to a 4.9 rated restaurant and left it thinking, “wow that was definitely not worth 4.9 points?” This tends to happen when I am not in my home city so I cannot use word-of-mouth recommendations and previous experience to guide me. While Sybil attacks on ratings systems such as Yelp and OpenTable are common via robot accounts pushing the price up (or the locations incentivizing you goodies for a 5 star hotel which is banned on these apps but still rampant in some countries), tipping a restaurant by buying their BitClout tokens is win-win for every party involved. The restaurant earns a tip via the allocation to the Creator, the diner invests in this restaurant because they liked the food and believe its BitClout value will increase, and everybody is happy.
4) Tipping. This is applicable to more than just restaurants. Similar to Live-Streaming platforms, Creators can have value added to them through their daily activities by requesting purchases of their Creator tokens (for which they derive a fraction) so that tippers can gain upside monetary value in addition to transfer of money via Founder Reward Percentage tokens to the Creator.
5) More accurate Ratings Systems. This is related to the previous point, but total number of followers on Twitter and Instagram is not a proxy to how popular a person or entity is but can be a good guess. After Search, a viable Ratings system is crucial for applying mechanisms for organization, hierarchy, and efficiency to streamline decision processes—who should I follow and interact with on Social Media? BitClout offers at the moment three methods to prioritize: Category– Verified (blue check mark), Preloaded (clock next to name) and Normal, quantity (number of BitClout followers) and price (value of the Creator Coin). There can be additional methods of prioritization as well in the future such as number of investors, average investment size, percentage of Creator token fee Creators charge, and time on the leaderboard (like a Billboard Hot 100 and Billboard Top 100).
6) Concert and Speaker negotiations. A speaker’s clout generally dictates the speaking fee they charge for an appearance. The space is opaque and while one would probably guess that Justin Bieber or Ariana Grande demand the most cost, it’s unclear at the middle and micro tiers. Having a BitClout value is a transparent way to navigate these discussions as one can check their reputation score (via their price) on BitClout.
7) Applying value to advertisers. Monetization can go beyond a Patreon or OnlyFans ecosystem where creators can interact directly with their fans. For example, at maturity, advertisers will likely be given more data points to what advertising campaigns and CPMs should look like for certain influencers.
8) Giving Creators a way to monetize content. BitClout can launch an auditory platform like Youtube and users can either invest to see content or the Creator can screen only investors above a certain number of tokens to have access to their original content. This is a model that has never been used before and could prove quite attractive.
9) Integration with other platforms. As mentioned earlier, BitClout provides organization and hierarchy that is safe from Sybil attacks. Clubhouse could integrate with BitClout and conversations could be based on clout value or integrated MicroClout on that platform. There can be both minimum and maximum Clout value thresholds for entry into various chat rooms.
Now back to the speculation part where I receive frequent inquiries both in person and on ClubHouse: Who are good Creators to obtain Creator Tokens for?
I use a two-pronged method—the heart and the brain. The brain suggests finding lower-priced (typically $500-$1200) Creators who are leaders in their field with high fan engagement and who are adding significant value to society. They do not need to be in the crypto community. They can be from any genre such as a company, a politician, an athlete, a writer, tech founder, or a philosopher or meme. The heart suggests finding a Creator who you really like regardless of their price. Who would you really like to have dinner with tonight if you can choose anybody in the world, dead or alive? What brand or company can you not live life without? The heart-focused BitClout Creator tokens should have a longer hold-time, possibly infinite, while the brain-focused BitClout tokens can have a shorter time horizon where one can wait for the price to double, or wait for a week, or any other exit criteria.
Here are some candidates that fit the brain-focused criteria:
I would like to thank @richardxdai and David Choi for their contributions and review of this post.