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 risk. 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 functions of tokens are not limited to these scenarios. In fact, tokens can have all of these characteristics at the same time. In our view, tokens represent a new way of owning a certain type of asset, which did not have a clear ownership structure before tokens emerged.
In summary, we see tokens as a new way of having 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 also increases for users. 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 participating 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 more users there are, the higher the value and potential valuation ceiling of the network.
The same evaluation method can also be 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 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 advent of tokens allows users to have partial ownership of the network for the first time, which is significantly different from traditional equity tools. Moreover, due to the multiple functionalities inherent in tokens and their open and permissionless nature, tokens can support various practices and innovations more conveniently, enabling Web3 to create network effects faster and more effectively than closed Web2 networks.
The Unequal Value of “Individuals”
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 reality is different, and the value of individual users in a network is an important factor.
For example, in an economy, the population can be considered as the size of the network, and the Gross Domestic Product (GDP) can indicate the value of the network. Hong Kong has a population of about 7.5 million and a GDP of about 407 billion US dollars, while North Korea has a population of 27.5 million and a GDP of 48.3 billion US dollars. The difference in the value (GDP) of these two networks is mainly due to the difference in the value of network nodes (i.e., the population or companies within the economy). Despite having more than 3.5 times the network size of Hong Kong, North Korea’s economy is isolated and its network effects are closed, resulting in a relatively lower value for the entire network compared to the smaller-scale Hong Kong.
The same is true in the Web3 world, where networks with lower potential have less attractiveness in terms of investment, developers, and users. 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 single path to drive the growth of network effects. Project developers must combine multiple appropriate methods to create lasting appeal for the network. This includes emphasizing user reach (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 measures the total value of assets locked or staked in the network. This helps attract investment and entrepreneurial activities.
In the current Web3 world, user stickiness may be one of the most important indicators to pay attention to because Web3 networks are generally open and permissionless, which means users can freely enter and exit instead of being trapped in a “closed network.” This is in stark contrast to the situation in Web2, where network effects are not owned by end users but are strongly monopolized by the network itself (such as it being difficult to transfer data and network effects from Facebook to TikTok).
Web3 provides users with greater flexibility than Web2, so when building decentralized networks, user retention becomes crucial. 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 exclusive clubs, attending top universities, or living in specific communities can significantly increase opportunities for improving economic and social status.
NFTs, with their unique nature and ability to reflect personal identity and “cultural capital,” can create more profound and complex network effects than fungible tokens (FTs). While network effects driven by NFTs may not grow as rapidly as fungible tokens, they can establish deeper and more loyal relationship networks based on shared “cultural capital,” thereby forming stronger defenses and more powerful network effects.
This phenomenon is already evident in the real world, such as people’s loyalty to brands like Hermès, Nike, or Apple. In the virtual world, we are also beginning to see the emergence of similar cultures in projects like Pudgy Penguins, Bored Ape Yacht Club, and Animoca Brands’ Mocaverse.
Mocaverse Vision
One key indicator to measure the potential of a network is to observe the amount of investment it attracts, which often represents the growth potential of the network. Just like how a country’s investment in infrastructure development determines its growth potential—the more investment, the greater the potential.
Animoca Brands is one of the most active investment institutions in the Web3 field, with over 450 companies in its portfolio and assets totaling 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 Moca Network (an interoperable economy composed of partner “subnets” and users connected by 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 forms of “cultural capital” and “economic capital” for maximum mutual benefit. Mocaverse integrates multiple fields including games, music, sports, animation, NFTs, and digital identities (DID) to build a collaborative ecosystem where each sector can contribute to the development of the entire ecosystem.
Mocaverse is currently developing Moca ID, a blockchain-agnostic identity and reputation layer that will serve as a cross-ecosystem connector. Given Animoca Brands’ position as 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” that may still seem somewhat “isolated” today (similar to most NFTs), but 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 rewards Mocaverse users based on time, loyalty, and attention. All participants will benefit from this shared network effect, which embodies the core spirit of Web3.
