Introduction

The current state of the music streaming industry showcases Spotify's dominance alongside challenges it faces and its impact on the music ecosystem:

• Spotify's Dominance: Spotify holds a significant market share in the music streaming industry, with a 30.5% share. It has attracted millions of users with its vast library of songs, personalized playlists, and curated content]. Despite its market share, Spotify lags behind in global subscribers compared to other platforms.

• Market Insights: Spotify remains the top player in the industry, followed by Apple Music, Tencent Music, Amazon Music, and YouTube Music. The competitive nature of the industry emphasizes the need for continuous innovation and adaptation to stay relevant.

• User Statistics: Spotify has over 515 million active users and 210 million premium subscribers. The platform caters to a wide demographic range, with a strong user base among millennials and Gen Z.

• Financial Challenges: Despite its market dominance, Spotify struggles to turn a profit due to high royalty payments to rights holders. The company's financial results have not aligned with its market share, leading to difficulties in achieving profitability.

• Impact on Music Ecosystem: Spotify's success has reshaped how people consume music, transitioning from traditional formats like vinyl records to digital streaming platforms. The platform's expansion into podcasts reflects its efforts to diversify and maintain its dominance in the industry.

Spotify’s Business Model, Where it lacks & How can it be improved for users and artists?

Spotify's business model is based on a combination of freemium and premium subscription models, where users can access a limited amount of music for free, or pay for a premium subscription to access more music and features.

However, there are areas where improvements can be made, particularly in terms of artist compensation and competition from other streaming services. Solana could be used to improve Spotify's business model by introducing new revenue streams and enhancing the user experience.

• Personalized and Interactive User Experience: Imagine a world where users can seamlessly create and share playlists with fellow music enthusiasts or participate in live music events right from the platform. Solana's integration could breathe life into this vision, fostering deeper user engagement and loyalty. By enhancing the interactive elements of the platform, Spotify could solidify its position as a market leader amidst growing competition.

• Decentralized Marketplace for Music: Solana has the potential to revolutionize the music industry by enabling the creation of a decentralized marketplace. Here, artists can directly connect with their fan base, sidestepping the traditional barriers imposed by record labels and distributors. This democratization of music distribution not only ensures artists receive a fairer share of revenue but also encourages the emergence of niche music genres.

• Transparent and Fair Compensation System: Concerns about the fairness of compensation often loom over the streaming industry. Solana offers a solution by facilitating a transparent and equitable compensation system. By leveraging Solana's capabilities, Spotify could ensure that artists receive a more significant portion of the revenue generated from their music. This move not only addresses artists' concerns but also fosters a more positive relationship between creators and the platform.

• Increased Revenue Streams: Solana's integration presents Spotify with the opportunity to diversify its revenue streams. By tapping into the potential of a decentralized marketplace or enhancing the user experience, Spotify can attract both users and investors alike. These additional revenue streams not only bolster Spotify's financial health but also make the platform more appealing in an increasingly competitive landscape.

• Improved User Engagement: At the heart of it all lies the quest for improved user engagement and loyalty. Solana provides the tools to achieve this goal, whether through personalized experiences or unique revenue models. By prioritizing user engagement, Spotify can strengthen its community and fortify its position as the go-to destination for music streaming.

Let’s explore some of these ideas

Compressed NFTs

Compressed NFTs on Solana are a type of NFT that uses state compression and Merkle trees to store their data more efficiently, reducing the cost of minting and managing large numbers of NFTs. They store the bulk of NFT data on the ledger, which is much cheaper than on-chain storage, and use off-chain indexers to manage transaction data and facilitate data queries between RPCs and on-chain smart contracts. This approach allows for significant cost savings, with minting costs reduced by up to 99.9% compared to conventional NFTs. Compressed NFTs are used in various industries, including gaming, music, events, metaverses, and enterprises, and are particularly useful for minting NFTs at scale.

Advantages

Cost Savings: Compressed NFTs on Solana can significantly reduce minting costs. For instance, while it may cost around $50 million to mint a billion NFTs on Polygon, with compression on Solana, it could cost approximately $11,000 for the same quantity

Use Cases:

• Dialect: Utilizing compressed NFTs for in-chat sticker packs.

• Helium: Representing Helium Hotspots using compressed NFTs.

• Crossmint: Airdropping to hundreds of thousands of people and providing a minting API.

• Drip Haus: Conducting mass airdrops using compressed NFTs.

• Render: Considering moving to Solana to tokenize entire scene graphs for GPU

Scalability and Affordability: They are particularly beneficial when minting NFTs at scale. They can reduce minting costs by up to 99.9% compared to traditional NFTs, making them a cost-effective solution for large collections

User Accessibility: The primary goal is to make NFTs more accessible to a wider audience, shifting the focus from short-term speculation to long-term growth and utility. This aims to expand the audience engaging with NFTs

In the context of Spotify, compressed NFTs could be utilized to enhance various aspects of the platform, aligning with the mentioned features:

• They could be used to offer personalized music experiences to users. For example, unique NFTs could grant access to exclusive content, special features, or even personalized playlists based on user preferences.

• Spotify could implement a decentralized marketplace using compressed NFTs, allowing artists to directly sell their music or merchandise to fans. This would enable a more direct and transparent interaction between artists and listeners.

• These could boost user engagement by offering interactive features such as collectible NFTs linked to special events, virtual concerts, or artist meet-and-greets. This gamification can enhance user loyalty and participation.

Justification

• Sound.xyz: Sound.xyz is a music NFT marketplace that allows fans to directly support musicians and enables artists to host launch events for new singles. It offers artist-owned contracts, ensuring creators retain ownership and control over their work. The platform stores music NFTs on the Ethereum network via IPFS, providing a unique branding approach for each NFT created

• Royal: Royal is an invite-only marketplace where collectors receive a percentage of secondary sales. Artists like Diplo, Nas, and The Chainsmokers have launched their NFT collections on this platform. Users can purchase music NFTs using cryptocurrency or debit/credit cards

• Rarible: Rarible is a community-centric NFT marketplace that supports various tokens like ERC-721 and ERC-1155. It features an extensive array of music NFTs and collections, making it a diverse platform for artists and collectors

• Audius: Audius is not just a music NFT marketplace but also a streaming and sharing platform where artists can engage with fans, share works in progress, and monetize their music NFTs through the AUDIO token. It supports NFT displays and connections to Solana and Ethereum profiles

By comparing these platforms, it is evident that compressed NFTs can benefit Spotify by enhancing user engagement, creating new revenue streams, and offering transparent ownership rights to artists. The success of platforms like Sound.xyz in enabling direct fan support, artist ownership, and unique branding showcases the potential advantages of implementing compressed NFTs on Spotify.

What gaps exist that could be filled by utilizing loyalty tokens?

Spotify, despite its immense popularity and extensive music catalog, still grapples with certain gaps that could potentially be addressed through the utilization of loyalty tokens. Some of these gaps include:

• User Retention: While Spotify boasts a large user base, retaining users over the long term remains a challenge. Loyalty tokens could be leveraged to incentivize continued engagement with the platform, rewarding users for their loyalty through tokenized rewards for activities like listening to music, sharing playlists, or participating in community events. By offering tangible benefits to loyal users, Spotify can increase retention rates and foster a stronger sense of connection with the platform.

• Monetization of User Engagement: Loyalty tokens could introduce new revenue streams by allowing users to earn tokens for engaging with sponsored content, participating in promotional campaigns, or completing certain actions within the app. These tokens could then be redeemed for premium features, exclusive content, or even discounts on merchandise.

• Artist and Fan Interaction: While Spotify serves as a platform for artists to showcase their music, the interaction between artists and fans could be further enhanced. Loyalty tokens could facilitate direct interactions between artists and their most dedicated fans, allowing artists to reward fans for their support through tokenized incentives such as exclusive content, early access to releases, or virtual meet-and-greet opportunities.

• Community Building: Spotify has the potential to foster a strong sense of community among its users, but currently lacks robust features for community engagement. Loyalty tokens could be used to incentivize participation in community-driven activities such as collaborative playlist creation, music discovery challenges, or fan-driven events. By rewarding users for contributing to the community.

$SPOT token

By introducing $SPOT, Spotify could implement features that enhance user engagement, incentivize content creation, and foster a more interactive music streaming experience.

Integration of $SPOT in Spotify:

Enhanced Creator-Listener Interaction: $SPOT could enable direct interactions between artists and listeners, allowing for unique collaborations, exclusive content releases, and personalized experiences.

Token-Enabled Playlists: Introducing token-enabled playlists where users can access exclusive content or features by holding $SPOT tokens, creating a sense of exclusivity and loyalty among users.

Reward System: Implementing a reward system where users earn $SPOT tokens for engaging with the platform, such as streaming specific songs, sharing playlists, or participating in community events.

NFT Integration: Utilizing $SPOT for NFT purchases within the platform, allowing users to own exclusive digital collectibles tied to their favorite music or artists.

Potential Benefits:

Increased User Engagement: $SPOT can incentivize users to actively participate on the platform through rewards and exclusive features.

Monetization Opportunities: Introducing $SPOT could open up new revenue streams for Spotify through token sales, NFT transactions, and premium content offerings.

Community Building: By fostering a token-based ecosystem, Spotify can build a stronger community of music enthusiasts, creators, and supporters.

Conclusion

As Spotify navigates its position as a market leader, it faces both challenges and opportunities to diversify its business model, enhance user experiences, and empower artists within the platform.

The idea of introducing a loyalty token, like $SPOT, presents an exciting opportunity for Spotify. Spotify could introduce fresh features that encourage user engagement, foster connections between artists and listeners, and build a vibrant community around its platform. Through token-based rewards, exclusive content offerings, and NFT integrations, Spotify could create a more immersive and rewarding music streaming experience for its users while also addressing key areas like user retention, monetization, and community building.

Similarly, exploring the potential of compressed NFTs offers an unique approach to music distribution and ownership. By leveraging Solana's scalability and cost-efficiency, Spotify could revolutionize how artists engage with their audience, monetize their music, and deepen fan involvement. Implementing a decentralized marketplace for music, transparent compensation systems, and personalized user experiences that could redefine the dynamics of the music industry, empowering both artists and listeners.

In summary, the exploration of loyalty tokens and compressed NFTs presents a strategic opportunity for Spotify to reimagine its role in the music ecosystem. Spotify can not only differentiate itself in a competitive market but also create significant value for its users, artists, and stakeholders.

Solana’s PoS mechanism allows validators to validate transactions and add them to the blockchain based on the amount of SOL tokens they have staked. PoH is a cryptographic technique that allows validators to prove that they have waited a certain amount of time.

In Solana's PoS system, there are two main participants:

1. Delegators: These are regular users who stake their SOL tokens to validators. In return, they earn staking rewards.

2. Validators: These are node operators that run voting nodes and have stakes delegated to them.

In-Depth Analysis of Solana Validators

Validators are nodes in the network that validate transactions, and they are rewarded with transaction fees for their work. They play a crucial role in the Solana network by adding new blocks to the blockchain and contributing to the network's stability and growth.

The Role and Significance of Validators

By staking SOL tokens, validators help secure the network and facilitate consensus. Having a decentralized set of validators is important for maintaining the censorship resistance, security, and integrity of the Solana blockchain.

As more validators join, the network becomes more decentralized and resilient against potential attacks or collusion. Some key points about validators:

• Role: Validators validate transactions, produce blocks, and participate in the consensus process.

• Participation: Involves staking SOL tokens to earn the right to vote on the blockchain's state.

• Requirements: Validators must stake at least 1.0 SOL, meet specific hardware requirements, and ensure high uptime.

• Rewards: Validators earn transaction fees and additional SOL tokens for their participation and performance.

• Risks: Poor performance or downtime can lead to a loss of staked SOL.

Types of Validators

There are two types of validators on the Solana network: Consensus Nodes and RPC Nodes.

Overall, consensus nodes are vital for the security and decentralization of the Solana network. In contrast, RPC nodes offer convenient access and services for applications and users. The RPC node aids Solana developers and others in interacting with the blockchain, but due to performance concerns, it cannot vote. Therefore, a reference to a validator in Solana generally points to a voting or consensus node, not an RPC node.

The Current State of Solana Validators

Since the initial launch of Solana's mainnet beta in March 2020, the network has expanded significantly to secure the blockchain. As of now, there are over 3,400 active validators supporting Solana, of which over 2,400 participate directly in the consensus process to produce new blocks.

Let’s dive into a case study focusing specifically on Consensus Validators, highlighting their impact and challenges within the Solana ecosystem.

The Case Study of the Bitoku Validator

Problem Statement

As a new fresher validator in the Solana ecosystem, Bitoku Validator needs to quickly establish himself by gaining stake and trust in a competitive landscape dominated by larger, more established validators.

The objective of the Bitoku Validator

Bitoku Validator offers stakers an attractive opportunity to earn high staking rewards, with a remarkable 7.9% APY for those who delegate directly through Bitoku Validator. This contrasts with the lower rewards offered by other platforms such as Coinbase or Kraken, making Bitoku Validator an appealing choice for stakers looking to maximize their returns.

About Bitoku Validator

Bitoku Validator also known as Xandeum Labs, was established as a Solana validator with a vision to provide staking opportunities for Sol holders.

The validator has quickly gained momentum and reached an impressive stake of over 466,221 SOL, over the nine months showcasing confidence and trust from the Solana community.

Validator Ranking and Performance

In the Solana Network, Bitoku Validator has achieved a prominent position, currently ranked number 7th out of 2,400 validators at the time of writing. The validator consistently demonstrates top-tier performance, evidenced by its high yield and overall ranking within the network.

• Vote Success Rate - This measures the percentage of votes that a validator can successfully cast in the network. A higher rate indicates better technical capabilities and infrastructure reliability to participate in consensus. Target rates should be above 90%.

• Skip Rate - The lower the skip rate the better, as it reflects missed opportunities to produce blocks. Very low skip rates below 1% demonstrate excellent uptime and infrastructure. This metric must stay low over longer periods.

• Commission - Validators can set varying commission fees up to 100%. Lower commissions, like 0-10%, can help attract more stake from the community. But higher commissions also allow reinvesting more into operations. An optimal rate balances both.

• Operating History - Longer operating history spanning months or ideally 1+ years demonstrates technical competence and stability. New validators have a higher risk of performance issues or shutdowns.

• Stake Weight - The total stake delegated to a validator drives block production chances and rewards. Higher stake weights signal greater community trust. Most aim for at least 1% network stake weight.

• Withdraw Authority - Separate withdrawal authority minimizes security risks. This ensures validator keys compromised won't lead directly to loss of staked funds.

• Concentration Metrics - High concentration in terms of location, network, hardware, etc. reduces decentralization and exposes validators to correlated failures. A good validator will score low on concentration risk.

• Uptime - Sustained high uptime of 100% for long periods ensures reliable validator performance and avoids missed blocks which can incur slashing penalties.

• Version/Penalties - Validators running outdated software or incurring superminority penalties pose security issues and lose trust. Up-to-date validated software is a must.

The scorecard shows that it is a reliable, secure, and community-supported validator on Solana.

Challenges faced as a Validator

As a new validator establishing itself in the Solana ecosystem, Bitoku has to overcome the following difficulties:

• Hardware Requirement for processing transactions and data storage

• Gaining recognition and trust as an unknown validator in the beginning

• Competing against established validators with much larger stakes

• With zero commission, There’s no profit.

• Maintaining consistently high-performance standards expected of top validators

• Optimizing infrastructure and operations to keep pace with Solana's rapid growth

• Adapting to policy changes like the initial restriction for US validators in the testnet

Strategies Used for Growth and Earning Passive Income

Let's look at how Bitoku Validator grew its stake and earned income, offering insights into successful strategies within Solana.

• It started with a 5% commission went down to a 3% commission and then to a 0% percent commission, where top APY's were given to the stakers which helped increase the stake.

• Bitoku Validator’s zero percent commission approach had attracted stakers with the promise of superior APY. They are currently ranked 15th according to Stakewiz. However, it is considering increasing the commission once there is a 1M SOL total stake.

• Bitoku Validator earns a small amount through MEV Maximum Extractable Value by running the Jito Mev client. This results in earning rewards through Jito, but the amount is currently less than 100 dollars a month. It believes that as the stake continues to consistently increase, in a matter of month or year, there is a possibility to reach a million SOL or even two and a half million SOL.

• Currently, its profits are derived from the incentivized test net. It was previously closed to U.S. residents for a period, but it has now reopened to people in the U.S. It is actively running that TestNet validator.

• It has to purchase or rent the hardware through a provider that is nominated by the Solana Foundation. “Enterprise-grade Antsle Two Plaid hardware, top tier datacenter with 10 Gbps connections" - This refers to using high-end, enterprise-level server hardware from a manufacturer called Antsle to run the validator node. The validator node is hosted in a state-of-the-art, top-quality data center facility with fast 10 Gigabit per second internet connectivity.

• In its case, the provider is Edgevana. It rents the server through Edgevana for 850 a month but gets paid twice the amount in the form of SOL. The SOL tokens are locked for 12 months, but he receives them every month. So it's like paying 850 in cash but receiving 1,700 in locked SOL, which is a nice source of passive income.

• Gain recognition within the Solana Community by engaging with members on Discord and participating in community meetings to increase visibility.

• Believe in the future of the Solana chain. It is the fastest smart contract blockchain, so at some point, every chain will need to demonstrate its scalability. The validator believes Solana is still well-positioned to be the most scalable smart contract platform.

Plans for Future Scalability and Profitability

Looking ahead, Bitoku Validator is poised for future scalability and profitability. With a focus on building a storage layer to power the Web3 and ongoing engagement with the Solana community, the validator is positioning itself for continued growth.

Furthermore, the introduction of an incentivized test net has provided additional avenues for earning passive income, enhancing the potential for sustained profitability.

Conclusion

Bitoku Validator's journey in the Solana blockchain has been marked by strategic decision-making, a commitment to excellence, and a clear vision for growth.

As Bitoku Validator continues to establish itself as a leading validator within the Solana Network, its ability to attract stakes, provide lucrative staking opportunities, and navigate the evolving landscape of blockchain technology positions it as a compelling player in the ecosystem.

By presenting the experiences and achievements of Bitoku Validator over the past six months, this case study sheds light on the opportunities and challenges present in the world of blockchain validation and staking, providing valuable insights for prospective validators and stakers alike.

Challenges Faced by Solana Validators

Operating as a Solana validator comes with certain technical and financial challenges.

1. Hardware Requirements: Validators need to meet minimum hardware requirements for processing transactions and data storage as the network scales.

   • As a high-performance blockchain capable of 50,000+ transactions per second, Solana has demanding hardware requirements for validators to process transactions and add blocks quickly. Minimum recommended specs involve running multiple high-performance GPUs or CPUs with substantial RAM. Validators need the required hardware specifications.

   • Additionally, redundancy is required via multi-node server setups across different data centers to ensure 24/7 reliability.

   • Meeting these specs allows validators to quickly validate proofs and vote on state transitions. As Solana aims for further transaction throughput, hardware requirements may evolve.

2. Slashing: Validators also face the risk of slashing if their nodes go offline or fail to validate properly. Maintaining consistently high uptime and block production requires substantial investment in infrastructure and monitoring tools.

   • Slashing refers to a penalty that Solana validators face if their validator node goes offline or fails to validate and vote on new blocks properly.

   • Validators are required to have consistently high uptime and block production rates to help secure the network.

   • If a validator misses votes or goes offline temporarily, their staked SOL tokens can be slashed (deducted) as a penalty. This helps incentivize good validator behavior. However, the slashing on Solana is only temporary - if the validator comes back online and resumes proper functioning, they start earning rewards again and can recover the slashed amount over time.

   As per the Solana Health Report 2023, despite general network health being strong with 95.8% median validator uptime, the report identified 63 validators that failed to meet minimum uptime or performance standards in March. They will face slashing or suspension based on severity.

3. Opportunity Cost: When staking, a validator is locking up capital to secure the network. In doing so, they are forgoing other rewards. For instance, a validator has 10,000 SOL tokens that they could potentially stake to secure the network. However, by staking these tokens, they are locked up and cannot be used for other potential investments. Let's assume there's an attractive investment opportunity that could yield a return of 10% over the same period. By choosing to stake their SOL tokens, the validator is effectively forgoing the potential earnings from this investment, thus incurring an opportunity cost.

Potential Solutions

1. Optimizing Hardware: Validators can optimize their hardware to high-performance servers with more memory and faster processors. This optimization improves the block production rate and reduces the risk of slashing.

2. Implement Redundancy at every level by running multiple validator nodes in different data centers and using automated failover systems to ensure uninterrupted service,

3. Managing SOL holdings: Validator service providers could offer SOL Management features to help validators optimize staking rewards by rebalancing stake accounts to maximize returns. and collaborate with other validators.

4. Joining a validator collective/alliances: Be a part of the delegator’s program where a group of validators can work together to improve the network’s security and reliability for best practices and emergency support can also help validators manage risks and costs.

5. Ongoing Research and Development: Solana’s ecosystem developers can work on making hardware and bandwidth optimized for validators which would make it feasible for individuals and smaller entities to participate in the validation process.

Overall, validators play an indispensable role in Solana. As the ecosystem matures, supporting and retaining qualified validators will be key. Both technical and community efforts to make the validator role more sustainable will strengthen Solana.

Exploration of Fee Economics and Spam Reduction

Solana has a crypto-economic system designed to create long-term sustainability and incentive alignment for network security and decentralization.

The main participants are validation clients. They contribute to validating network state and transactions. Also to participate as a validator, their primary expense is the upfront capital for the hardware, on-chain voting, and opportunity costs. However, to prevent validators from making heavy investments, Solana Foundation has created a server rental program in partnership with Edgevanna, Equinix, Lumen, and Stackpath.

Solana validators earn rewards from the following:

Protocol-Based (inflationary) Rewards: These are generated from newly created SOL tokens through an inflationary process. The network has a predefined schedule for gradually releasing new tokens into circulation. Validators receive rewards at the end of each Solana epoch. These rewards are a commission on the annual inflation rate, calculated based on the following:

• Initial Inflation Rate: The network starts by creating new SOL tokens at a rate of 8% per year. This means if there are 100 tokens at the start of the year, there will be 108 tokens by the end of the year.

• Disinflation Rate: Each year, the inflation rate decreases by 15%. So, if the inflation rate is 8% in the first year, it will be 8% - (15% of 8%) = 6.8% in the second year. • The model was activated on February 10th, 2021 with the payment of 213,841 SOL.

• Long-term Inflation Rate: The yearly decrease continues until the inflation rate reaches 1.5%. After reaching this point, new tokens will be created at a stable rate of 1.5% per year. As of February 2024, Solana's inflation rate is at 4.94% and the staking yield is equivalent to 7.09%.

• Inflation Reward: Solana's inflation model assumes 400ms block times, during which a validator has the opportunity to produce a block. [Epochs are periods that are used to calculate staking rewards and block rewards. An epoch is defined as 432,000 slots. A slot is an opportunity for a validator to produce a block. An epoch is typically 2.5-3 days in length]. However, the difference in slot times can directly affect the economics and business viability of running a validator on Solana. Longer block times will lead to smaller rewards, as there will be fewer epochs in a calendar year, reducing the amount of SOL distributed to network participants.

• Commission Rate: The commission rate is an important factor for stake owners to consider when choosing a validator. Validators on Solana can set a commission rate between 0% and 100%. If a validator changes their commission rate during an epoch, the new rate will be applied to the rewards for the entire epoch. A higher commission rate means that the stake owner will earn a smaller portion of the inflation rewards. However, stake owners may be willing to pay a higher commission rate to a validator that they trust to provide reliable and secure service.

  For example, if a stake account earns 100 SOL in rewards and the validator has a 5% commission, the validator will receive 5 SOL and the stake account's active stake will increase by 95 SOL. Stake owners should carefully evaluate the commission rate, as well as other factors such as uptime, performance, and reputation, before making a decision.

• Engagement: Validator’s engagement encompasses uptime and the proportion of slots in which the validator effectively voted, impacting their overall earnings.

Transaction Fees: When transactions occur on the Solana network, a portion of the transaction fees is distributed to validators. The percentage of the reward is at 0.79% as of February 2024.

• Token Burn: Currently, 50% of the transaction fee is burned (permanently removed from circulation), and the remaining 50% goes to the validator leader of the respective slot (a slot is a unit of time on the Solana blockchain).

• Validators earn a share of the transaction fees based percentage of stake: This means that validators with more SOL staked will earn more because the number of slots that a validator is assigned to produce blocks is based on the validator's proportional stake.

To conclude, validation clients play a key role, in receiving rewards from protocol-based inflation and transaction fees. The protocol-based rewards, driven by a predefined issuance schedule, are the initial primary incentive for network participation. These rewards, distributed among the active validator set, are based on a disinflationary schedule, providing long-term stability.

Transaction fees, essential for network interactions, also contribute to economic stability and forking protection through partial burning. The design includes features for validation-client economics, inflation schedule, transaction fees, validator delegation opportunities, and storage rent economics.

A Comparative Analysis

Here is a comparative analysis of Solana validator economics with Ethereum and Polygon:

Architecture: Solana is known for its high throughput and monolithic chain, while Ethereum and NEAR have modular designs. Avalanche emphasizes a heterogeneous approach with multiple custom blockchains, and Polygon offers layer 2 scaling solutions.

Consensus: Solana and NEAR use Proof-of-Stake, Ethereum 2.0 also Proof-of-Stake, Avalanche utilizes a consensus protocol called Avalanche, and Polygon has a combination of PoS and PoA (Proof-of-Authority).

Active Validators: The number of active validators in Ethereum is 941,287 for Epoch #263,085. However, some node operators may run multiple validators, leading to uncertainty regarding the total number of node operators. In contrast, Solana has more active validators as compared to other POS blockchains like Avalanche with 1996 validators, Cosmos with 180 validators, NEAR with 202 validators, and Polygon with 105 validators.

Rewards

• Solana: Validators receive 0.79% of the total transaction fees.

• Ethereum: Validators receive a portion of 3.0 % per year.

• Polygon: Validators receive a portion of 4.95 % (In the first year, most tokens will be given as staking rewards to reduce their dominance over time.).

• NEAR: 12% of the amount staked

• Avalanche: 8.5%

Inflation Rate

• Solana: initial rate 8%, presently 4.9%

• Ethereum: 0.52%

• Polygon: 5%

• NEAR: 5%

• Avalanche: 22.21%

Minimum Stake

• Solana: 1.0 SOL.

• Ethereum: 32 ETH.

• Polygon: 1 MATIC.

• NEAR: 180,687 NEAR

• Avalanche: 2000 AVAX

Rewards

• Solana: Validators earn rewards based on their voting power and the number of blocks they produce.

• Ethereum: Validators earn rewards based on the number of blocks they produce.

• Polygon: Validators earn rewards based on the number of blocks they produce and the amount of MATIC they have staked.

• NEAR: Validators earn rewards based on the number of blocks they produce and the amount of NEAR tokens they have staked.

• Avalanche: Validators earn rewards based on their staked amount of AVAX tokens and the number of blocks they validate.

Risks

• Solana: Validators face the risk of slashing if they are offline or malicious, which could result in the loss of some or all of their stake.

• Ethereum: Validators are penalized for misconduct or negligence. The risk is high due to the value of the staked ETH.

• Polygon: Validators risk being slashed for downtime or malicious behavior, similar to other PoS networks, but with lower financial risk compared to Ethereum due to reduced stake value.

• NEAR: If a validator is caught misbehaving, then they get "slashed", meaning that their stake (or part of it) is burned.

• Avalanche: Staking AVAX has no slashing risk, only withholding rewards for slow performance or incorrect validation. Unbonding period for AVAX is 2 weeks to 1 year.

Here is a table summarizing the key differences between Solana, Ethereum, and Polygon:

Ultimately, the best platform for validators will depend on their individual needs and preferences.

Challenges & Implications in the Solana Network

Let’s explore how Solana's fee economics affect its overall network performance, user experience, and validator incentives.

Network Performance

Solana faced many widely criticized network issues in 2022 and 2021, including bot-caused disruptions overwhelming the blockchain.

• In September 2021, bots flooded a token sale on the Raydium exchange, causing Solana to crash and go offline for 17 hours, impacting its network performance, user experience, and validator incentives.

• To address the issue, Solana has introduced "priority fees" over "first-come-first-service." Yet, St. Gnu observed spam issues persist due to low costs despite new fees. More measures are needed to deter spam economically, as Chorus One's analysis shows spam will continue while MEV opportunities exist.

• Economic incentives still enable wasteful bots to congest the network.

• Solana has upgraded RPC transaction pricing and hardware improvements to mitigate spam. Solutions like Jito's bundling mechanism help create spam filters. For validators, maximizing MEV capture is crucial for optimizing revenue and ensuring that the incentives align with the interests of the network participants.

User Experience

• Network Downtime and Delays: The direct impact of network disruptions on users is significant. Downtime and transaction delays degrade the user experience, eroding trust in the network's reliability for both simple transactions and complex DeFi interactions.

• Priority Fees: The introduction of priority fees to skip the transaction queue can improve the experience for users willing to pay more for faster processing. However, this could also lead to a two-tiered system, disadvantaging users unable or unwilling to pay higher fees.

• Also, Firedancer, a next-gen independent validator client for Solana, is being developed by Jump Crypto to enhance performance and scalability, introducing diversity to the ecosystem.

Validator Incentives

The economic incentives that make spamming profitable, particularly through MEV (Maximal Extractable Value) opportunities, can discourage validators if the cost and effort to process spam outweigh the rewards. This could potentially lead to a reduction in validator participation or investment in the network.

Costs vs. Rewards: The balance between the costs incurred by validators in processing transactions (including spam) and the rewards they receive for their efforts is crucial. Measures to deter spam need to ensure that validators are adequately compensated for their role in maintaining network performance without imposing undue burdens. Below are some of the actions taken by the Solana Foundation:

• Voting Cost Coverage: Cover validators' voting costs for the first year with a decreasing support structure: 100% for the first three months, 75% for the next three, 50% for the following three, and 25% for the last three months. This will end coverage after one year. Initial voting costs can deter new, smaller validators, so limiting this support to one year encourages validators to reach sustainable stake levels.

• Stake Matching: Match external stake 1:1 up to a cap of 100,000 SOL from the Foundation. To support validators in attracting external stake and to foster engagement with the broader Solana community.

• Base Delegation: After the matching process, allocate the remaining SOL evenly among program participants as a base delegation. To ensure validators have the minimum stake required to participate in block production.

• MEV: Validators are incentivized to include transactions relayed to them via RPCs and other validators in the form of priority fees. However, there is no strict requirement for a validator to include these transactions. For validators, maximizing MEV capture is crucial for optimizing revenue and ensuring that the incentives align with the interests of the network participants.

  • Currently, the majority of MEV extracted on Solana is obtained by searchers. When the leader is operating the native Solana client, searchers' only methods to strongly indicate inclusion preferences are spam and priority fees, both of which are non-deterministic. Furthermore, half of the fees are burned, placing a strict limit on the amount of MEV the leader can capture at 50%. This presents an inefficient means for validators to secure the MEV under their control.

  • When the leader is running Jito-Solana, searchers can transfer value more efficiently through Jito bundle auctions. As seen below, 100% of bundle tips go to the validator and their stakers.

Source: Umbra Research

However, Validators must meet specific baseline requirements and maintain acceptable performance levels, including vote credits and skip rate performance, to qualify for the above support.

While the steps aimed to mitigate these issues, ongoing adjustments and innovations are necessary to ensure the network can run efficiently.

Negative commission rates can occur when network and Maximum Extractable Value (MEV) fees are high

In scenarios where network and Maximum Extractable Value (MEV) fees become sufficiently high on the Solana network, there is potential for negative commission rates and criticism. This means that validators could charge delegators a fee to process their transactions, rather than paying delegators a portion of the fees they earn.

• Selective Staking and Centralization Concerns: Negative commission rates might lead to a scenario where only delegators willing to pay the fees or those with significant stakes can afford to participate. This could inadvertently promote network centralization, as smaller delegators might be priced out or choose not to participate, concentrating stakes among fewer, larger entities.

• MEV Opportunities: If MEV opportunities become more lucrative, validators may prioritize their own MEV strategies over processing transactions for delegators, leading to higher commission rates.

Sustainability and Future Outlook

Looking ahead, we assess the sustainability and prospects for Solana validators, considering the evolving economic landscape. Here are several key considerations:

1. Reduced Inflation Rewards: As the inflation rate stabilizes at the long-term rate of 1.5%, the amount of new SOL issued as rewards for validators will decrease compared to the initial years. This means validators will earn less from inflation rewards over time as the rate decreases to its terminal value. Validators may explore diversifying their services, such as offering additional value-added services or participating in other network activities that generate revenue. Validators should aim to build resilience in their revenue streams, balancing transaction fees, inflation rewards, and potentially new revenue sources as the network evolves.

2. Increased Importance of Transaction Fees: With the reduction in inflation rewards, transaction fees will become a more significant source of income for validators. As the network grows and the number of transactions increases, the total amount of fees collected could offset the decrease in inflation rewards. The economic viability for validators will then depend more on the network's usage and less on the inflation schedule.

3. Network Growth and Validator Costs: The long-term economic viability will also depend on the growth of the Solana network. Increased adoption and more on-chain activity can lead to higher transaction volumes and, consequently, more fees for validators. However, validators must also manage their operational costs, which include hardware, bandwidth, and energy consumption. The validator needs to ensure that the increase in income outweighs the increase in costs. The overall health and participation of the Solana network will play a crucial role in sustaining economic stability for validators. Network governance, security, and performance will impact validator economics.

4. Staking Dynamics: As the inflation rate decreases, the dynamics of staking may also change. Validators with a higher stake can potentially earn more rewards, creating an incentive for the consolidation of stakes. This could impact the decentralization of the network. For example, a validator with a stake of 1,000,000 SOL will earn more rewards than a validator with a stake of 100,000 SOL, even at a lower inflation rate. Therefore, validators will need to attract and retain delegators by maintaining high performance and reliability, as well as competitive commission rates.

5. Adjustments and Governance: The Solana community and governance mechanisms may adjust parameters in response to economic conditions, technological advancements, or changes in network usage. The inflation target could lower the minimum amount needed to break even for validators of all sizes. Validators will need to stay engaged with the community and governance proposals that could affect the economic model of the network.

In conclusion, the long-term economic viability for Solana validators as the inflation rate reaches its terminal value will depend on a combination of factors, including the growth of the network, the balance between inflation rewards and transaction fees, operational costs, staking dynamics, and potential adjustments to network parameters. Validators that can efficiently manage their operations and adapt to changing conditions are more likely to remain economically viable in the long term.

Potential Solana validator sustainability models during low inflation periods

1. MEV Revenue Pool: Redistribute a portion of validator MEV revenue into a protocol treasury to fund projects supporting sustainability. For instance, if a Solana validator identifies a profitable MEV opportunity and earns extra revenue, a predetermined percentage, such as 30%, is allocated to a communal treasury. This treasury can then provide grants for developers working on energy-efficient validator hardware or software optimizations, indirectly bolstering the network's sustainability.

2. Value-Added Staking Models: Stakers who provide extra value, such as running public RPCs, nodes in specific regions, or building tools, receive incentives. For example, a validator in a region with fewer nodes gets extra staking rewards to encourage them to maintain their service and prevent geographic centralization. Another validator offering a highly reliable public RPC service receives bonus rewards from network fees, promoting the provision of valuable infrastructure beyond block validation.

3. Cross-Chain Reward Bridging: Pooling interoperable rewards across multiple chains improves yield sustainability even if one chain has declining inflation. For example, a staking platform aggregates yield from validators operating not only on Solana but also on other chains like Ethereum and Polkadot. Stakers on this platform receive a diversified yield stream, mitigating the impact of lower rewards on any single chain. This model uses cross-chain bridges to pool and distribute rewards, enhancing yield sustainability for participants.

4. Contribution-Based Rewards: Transitioning over time to more activity-based rewards (such as validated transactions, provided storage, etc.) rather than passive staking could be beneficial. For instance, Solana might introduce a new reward mechanism, allowing validators to earn extra rewards based on their active involvement in the network beyond staking. This could encompass rewards for validators processing a substantial number of transactions, providing storage solutions, or actively engaging in network governance. Using a points-based system to monitor and reward these contributions could foster a more engaged and robust network.

The optimal path likely involves a combination of mechanisms - capturing multiple revenue sources while aligning incentives towards the behaviors and contributions most valuable for the Solana network in the long run. The community can iterate on various models through research and data-driven analysis.

The importance of fees and incentives for Solana validators

The role transaction fees, staking, and other economic mechanisms play in ensuring ongoing validator incentives on Solana.

Transaction Fees

• Fees directly reward validators for processing and validating transactions, blocks, and smart contracts.

• As inflation drops over time, fees take higher proportional importance to cover infrastructure costs.

Staking Rewards

• Staking rewards incentivize validators to remain online and actively participate in consensus by slashing for downtime.

• Provides baseline revenue stream separate from variable transaction flow. Acts as a reliability incentive.

Other Economic Mechanisms

• MEV revenue sharing - rewards validators for quick settlement of DEX arbitrage and on-chain operations.

• Tipping contracts – users add priority fees to incentivize validator performance for specific transactions.

• Reward multipliers for decentralization contributions like running public RPC endpoints.

• Redistribution of burned supply or fee treasuries to active validators.

The combination of direct fees per validated unit of work, staking rewards for uptime, and extra incentives for providing value to the network stack together to directly align validator success with Solana's growth and sustainability. This design helps mitigate risks as inflation drops over time.

In conclusion, Solana validator economics face evolving dynamics. Sustainability hinges on diversifying revenue streams, managing operational costs, fostering network growth, and adapting to governance changes. Adapting to these challenges is crucial for long-term economic viability and network resilience.

References

• Solana Validator Guidebook: What is a Validator

• Solana Doc: Solana Validator Requirements

• Solana Validator Economics: Chorus One

• Solana Staking Rewards & Validator Economics — how does it work?: Michael Hubbard

• Solana Foundation Validator Health Report: March 2023: Solana Foundation

• Solana Has a Spam Problem. Can It Be Fixed?: Blockworks

• MEV on Solana: Umbra Research

• Solana Validator Economics: Helius

And the new year seems even brighter.

Spacekayak is a creative team for crypto companies. We love crafting creative solutions for early-stage crypto companies. In the past year, we have worked on crypto research, crafted web3 brand & product design, curated onchain and offchain experiences, and built scalable design systems and practices with founders building in crypto.

Decentralization, blockchain, and wealth creation have been a revolution even before the term Web3 was coined. From the early images of Hal

Finney describing the concept of NFTs to the revolutionary Ethereum whitepaper published by Vitalik Buterin, the community has realised the potential of web3 and worked towards it. Still, the strange fact is that people outside the circle didn’t know about the innovation until recently.

Our hot take: Web3 still hasn’t reached the masses, and the next million users are still not onboard.

The adoption of Web3 and making it mainstream requires the coordination of multiple factors; educating the masses, lowering the barrier of entry, better security standards and regulatory landscapes, inviting onramp experiences, and inclusivity and accessibility, to name a few. Contributing to it in any way is adding a brick to the great wall of history being made in front of us.

Our contribution to it is through design because, in tech, innovation speaks through design.

Too often, design is perceived as only visual, adding the cherry on top. But design is how things work first and how they look later. Oftentimes, it’s so functional it’s invisible, built from underground to above the surface.

Our core team was brought together by this collective inspiration, wanting to bring Web3 to the masses through dApps, wallets, bridges, NFTs and DAOs that are so simple they feel obvious. With this vision, we grew into a full-blown creative team working with hyper-growth crypto companies who envision a tomorrow owned by everyone.

Keeping our mission in mind while we were establishing our core values, we established our design thesis 👉🏻

https://twitter.com/spacekayak/status/1537097316875718656?s=20&t=-ehDNa8DNCvTFDf9-W7pVw

TLDR; we are designing beyond isolated initiatives to create well-rounded web3 experiences for users and a perpetual framework for brands on-chain and off-chain.

New ways of Creating + Delivering + Capturing Value = an Entire New Market

Studio partners

This is where and who it all started with. Our earliest partners, who we started working with pre-seed.

Pillow: Creating a suite of high-quality, secure, and transparent financial products that give users access to global economic opportunities and let them take control of their financial future. Pillow is now a community of more than 75,000 users in over 60 countries and just raised $18.1M Series A!

Market: Market started with the idea of designing financial products to unlock the full potential of DeFi, accessible by each individual around the globe. Today, Market has 8500+ unique users, benefiting from their vision of DeFi and 1B+ in overall volume! Market raised an undisclosed round of funding from top-tier VCs and is building towards equitable markets.

Looking back at the initial days of brainstorming with the spacecrew breaking into web3, and where our partners are today is surreal. We’re super proud that Spacekayak gets to be a pixel in the bigger crypto canvas.

Along the way, we’ve had great expeditions with even greater founders. As their ambition scaled, so did ours. And now, we have worked with household names like Ikonz, EthIndia, Solvent, Onjuno, The Product House, Llama, Polygon, Obvious and more.

Crafting the world’s largest Ethereum hackathon experience

At Spacekayak, we love crafting experiences on and off the chain, and to take it up a notch, we creatively partnered with ETHIndia 2022—The world’s largest Ethereum hackathon.

https://twitter.com/ETHIndiaco/status/1597108754087956480

Our intention with ETHIndia was to simulate the best hacking experience for over 2000+ hackers.

All our designs were crafted following the narrative of Ethereum as the infinite garden, which insinuates that more than a technology, it is a diverse ecosystem of individuals and organizations that build and grow alongside it.

Over 2000+ hackers from 321 cities who built 450+ web3 projects experienced the magic of infinite garden through the art installations and official merch to the stage that hosted Juan Benett and even Vitalik Buterin, albeit digitally.

We couldn’t be happier knowing that ETHIndia 2022 turned out to be the world’s largest Ethereum hackathon.

https://twitter.com/ETHIndiaco/status/1600360556375916549

Not only this, but while the hackers were busy hacking their way to the top with full force, we worked with CopperX to hack our own on-chain experience curated exclusively for them at Astro Garden.

Check out the astrogarden collection

The Spacecrew behind all the awesomeness

We learnt a bunch of new cool things like using on-chain data for user research, lore crafting for web3 communities, and building headless brands for crypto companies.

I also want to give a BIG shout-out to the communities that helped our entire Spacecrew learn and grow: The Product House, Ondeck Design, Crypto Culture Society, 1729 by Balaji S, 10k Designers, Odyssey DAO, and Phoenix Guild.

Ecosystem Intiatives

To bring web3 education to the masses and drive awareness and adoption, we started our in-house initiatives targeting web3 beginners and builders.

This Week in Web3

30+ issues, 22K+ readers

We built Kabl3, a one-stop web3 resource for everyone getting into web3, packed in the form of a newsletter. As a pivotal moment in Kabl3’s growth, we partnered with our frens at The Product House. Today, Kabl3 is known as This Week in Web3, and we promise to bring you the best of web3 as the editorial team.

The Ramp Show

After bringing web3 to the masses, it was time to ease builders' entry into web3 directly from the people building it. Introducing The Ramp Show—a series of conversations filled with insights, advice, and the experiences of the aces in the Indian web3 scene—a podcast directly from the founders’ lens.

NFTLab

NFTs have been the first-time experience for many getting into web3, why not utilize them to encourage web3 adoption for companies and masses alike, art is awesome anyway. NFT Labs by Spacekayak is an internal creative experiment that did top NFT collabs and design for metaverse experiences.

A year of Spacekayak’s creative expeditions

https://twitter.com/spacekayak/status/1603367148432543744?

Spacekayak’s Eternal Contribution

At Spacekayak, we do things intentionally. We align our work with our vision and then make it eternal.

Working on-chain gives us the opportunity to make our work imperishable; you might leave the company, but your work and ideas stay on-chain and form the fundamentals of something bigger to come. It also serves as proof of work and builds a reputation.

Join the awesome crew

What are we most excited about moving into the next year?

1. Great time to think, observe and work on a new design paradigm for web3.

   https://twitter.com/huddle01com/status/1597485093828067329?s=20&t=jeB3XayFKZa5YflLfIMamQ

2. Moving most of our work and design on-chain and imagining a composable design future.

3. Experiments with private DAO for creatives with focus on economic enablement.

So if you like our work and know someone who’d want to work with us, reach out to us at gm@spacekayak.xyz to foray into the future of crypto with our creative capital.

You can also follow us on twitter to get regular updates on our work and collab opportunities on some awesome projects we have lined up!

Web3 — The next generation of the internet, is a cultural and technological watershed.

The Web3 revolution is already underway and led by some of the early-adopting innovators who are building and using new technologies to improve upon most of the problems that plagued Web2—user data security, privacy, content monetization, and centralization.

How to be an early user of Web3?

To understand what Web3 is, you need to have a good idea of how blockchain works. To keep it short and to the point—A blockchain is a "decentralized" database shared across a network of computers (nodes) that structures its data into blocks strung together like a chain. And Web3 is essentially the application layer built on top of this blockchain technology. It defines how we interact with the world and each other on decentralized platforms.

In the last year, the utilitarian value of blockchain has increased immensely, and so has the adoption of Web3. Substantial practical use cases for blockchain have come up around financial services, marketplaces, and gaming platforms like Axie Infinity—a play-to-earn game that rewards players with value creation, co-creation, and co-ownership of the platform.

Interesting, right? There are a plethora of such models that Web3 enables:

https://twitter.com/yb_effect/status/1463240719594831872?s=20

The ultimate goal of such models is to reinvent the mechanism of how money works online and create an equitable outcome for an equitable future for everyone—one of the primary goals of Web3.

It’s still early days for the Web3 ecosystem, and there are plenty of opportunities for you to contribute to this rapidly developing space. In this article, I’ll introduce you to some of the ways to kickstart your Web3 journey because if you start today, you’d still be early.

Getting started with Web3

Understanding blockchain technology and cryptocurrency fundamentals are crucial before jumping into Web3 resources and innovation opportunities. Many people jump straight into investing and joining communities out of FOMO, but the majority of innovation is happening at ground zero, and that’s where you need to be.

Be a curious Learner

We are in the design stage of Web3 or crypto in general. Knowing the basics like how blockchain works and the math behind cryptocurrencies is a huge advantage when you first get into the space, even if you’re non-technical. It can also help you understand the limitations of crypto and new frontiers.

The best way to learn all you can is to get into spaces where an active discussion already exists. Getting into communities and asking questions is the best way to learn from real-life experiences.

https://twitter.com/jillrgunter/status/1491495729017212932

This doesn’t mean online courses and tutorials are useless; you just need to find the best ones and squeeze out every bit of deep knowledge you can. There are many free and paid resources online that take you through the working of blockchain. Here are some in-depth courses and resources to help you make a solid Web3 base.

• CS 251: Cryptocurrencies and Blockchain Technologies The course by Stanford covers all aspects of blockchains and cryptocurrencies, including distributed consensus, smart contracts, economics, scalability, and applications. It focuses on Bitcoin and Ethereum as case studies.

• The Product House 25k people are already learning fundamentals of web3 from The Product House. It is all you need to go from “I have no wallet” to “Show me some awesome Web3 projects to get involved in!” in just a few days and it’s free! You can sign up for The Product House and start your web3 journey.

The next step would be to invest in Web3 and stay invested. The way you do that is by just being present and active on the many projects or sub-sectors it has to offer. With all the pieces surrounding web3, a lot goes into getting familiar with it, including these sub-sectors, each with its own rabbit holes. When you first start diving into this world of decentralized technology, web development, or protocols, you’re bound to ask yourself: Where do I start?

I’ve put together this pyramid to illustrate the different levels of participation in Web3.

Investor

To get started with Web3, you first need to understand that there’s an entry barrier. It’s a tad bit high, but it’s not impossible. This barrier is the fact that you need crypto and the knowledge surrounding its working, returns, volatility, and security.

No Crypto = no dApps = no fun.

Investing in crypto can be an exhilarating and profitable experience. But remember that cryptocurrency involves a lot of time, both in active learning and investing. You’re going to have to spend a lot of energy researching and studying the market and currency. It’s a high-risk, high-volatility, and high-reward asset class.

You can either hold your assets and play the long-term game or try trading.

Long-term Investment:

If you believe in the fundamentals of blockchain technology, then jumping into crypto as a long-term investment is the best for you.

1. You need to do good market research and find cryptocurrencies you believe in.

2. The next step would be to visualize your portfolio and make a rational decision on how much you can afford to put in. Thumb rule: Allocate only 1-5% of your portfolio to crypto.

3. Implement good investment strategies that minimize the risk like Dollar-cost averaging into whatever you choose to buy.

4. Hold the coins for a minimum of 1 year or 2-3 years, ideally.

5. Do not give in to the panic caused by momentary price changes.

Trading:

Trading works best for people seeking a short-term gain by buying crypto at a low price and selling higher as the price fluctuates throughout the day. However, trading is a practice not many people back or stand by for understandable reasons; one of them being the massive volatility of cryptocurrency. DO NOT trade if you’re just a beginner; chances are you might lose more than you gain.

Once you decide what you’re in for, start buying cryptocurrencies like BTC, ETH, and more directly via exchanges and follow these basic steps:

1. Find the right exchange that caters to your needs: Crypto exchanges offer the ability to buy and sell digital currencies, just like a stockbroker. It would be best to research your platform options to make the best choice. Some widely used exchanges worth checking out: Coinbase, Binance, and CoinDCX Other exchanges with their own pros: Vauld: where investors are able to earn up to 12% interest on crypto, Kukoin: Rare early stage coins available to invest with a simple interface, FTX: Derivative market for crypto trading.

2. Explore news about cryptocurrencies and follow the trends: View and evaluate relevant trends in the cryptocurrency market. Read papers that analyze and visualize how the market has evolved and what coins to invest in. Here are some credible resources: Delphi Digital reports, Messari, Decrypt, and Benzinga.

3. Familiarize yourself with common technical indicators used in crypto markets: Dive into the crypto-community on Twitter or join discord channels to learn the crypto jargon and common technical indicators. This will help you actively engage in conversations around trends and connect with more investors. This article by Cointelegraph can help you understand trading and reading market trends better. Another great place to understand crypto charts and patterns is this tutorial by moneyZG on youtube.

4. Establish your investing plan and set realistic profit targets: If you’re in for trading and not holding long-term assets, set up a goal and develop strategies that allow you to build up your assets. Keep realistic profit targets to avoid investing more than you can afford to lose. Investopedia’s 10 Steps to Building a Winning Trading Plan is a great guide for setting up profit targets. To learn about prominent trading strategies, A Beginner's Guide to Cryptocurrency Trading Strategies by Binance Academy is an excellent place.

5. Keep an eye on crypto regulation within your country: Every country or jurisdiction worldwide may differ in its approach to cryptocurrencies or even regulate it differently. Follow the news of crypto legislation and recent crypto trends. Always be aware of your country's crypto laws, follow crypto news, and learn to be a responsible investor. For starters, add these to your bookmarks: CoinTelegraph, Bitcoin Magazine, CoinDesk, or you may subscribe to The Token Dispatch for daily updates in your inbox.

Wallets

Once you buy some crypto, it’s time to get yourself a wallet. Crypto wallets technically don’t store your crypto like a regular wallet stores cash. Your crypto lives on the blockchain and can only be accessed by a private key. Your keys prove that you own your holdings and allow you to perform on-chain transactions. You need to choose a safe wallet to keep your keys from being accessed because if they get lost or hacked, you can lose all your assets.

Although I’d suggest doing your own research for everything from exchanges to wallets and other resources, here are a few you should check out.

1. Metamask: Widely-used digital wallet for managing, transferring, and receiving ETH and ERC-20 tokens. It allows users to fully interact with Ethereum. Here is a step-by-step guide for setting up your Metamask wallet.

2. Phantom: A Solana hot wallet to store, buy, send, receive, swap tokens and collect NFTs. You can interact seamlessly with dApps on the Solana blockchain through Phantom. Learn how to set up your wallet here.

3. Glow: A new addition to the Solana ecosystem. Also, a cold wallet where you can store, send, receive, stake, and swap tokens on the Solana blockchain directly on your phone.

You can also invest in a good cold wallet, typically a USB drive device that securely stores your private keys. This has advantages over software wallets, like being unaffected by viruses or hacks, significantly improving security. Some of the hardware/cold wallets are Ledger, Trezor, and gnosisSafe.

Coincashew’s Guide: Crypto Wallet Tips 101 - Do's and Don'ts tell you how to keep your wallet secure and minimize the risk of getting your assets stolen.

Once you’ve spent a reasonable amount of time on crypto investing and understand the working of blockchain and the crypto market, you might want to try other ways of investing smartly, not only in digital money but projects and other assets.

Here are some other ways you can invest in crypto:

Be a smart investor

Smart investors don’t invest in something without knowing what they’re getting into. It’s easier to follow the crowd blindly, but taking time to find projects that align with your values and goals makes investing worthwhile. When you land on a project that matches your core beliefs, you’re setting yourself up for long-term success. That’s because:

If you support the community, it will support you.

Participate in Token Events

You can be an early backer of a project by participating in an ICO. An initial coin offering (ICO) is the launch of a new coin. The launch involves the creation of a new cryptocurrency to raise funding for a project. ICOs are like stock offerings. When an ICO is successful, everyone involved reaps substantial rewards.

You can also participate in an Initial DEX Offering or IDO—a crypto token offering run on a Decentralized Exchange (DEX). You’ll need a crypto wallet like MetaMask and some crypto to subscribe and pay fees If you want to enter an IDO. I’d suggest that you always do your own research and invest via a trusted exchange.

Also, look out for airdrops where crypto projects drop free tokens/assets to early investors and crypto communities to encourage adoption, participation and ensure the project’s success. Frequently interacting users on a new and existing platform are likely to receive an airdrop at some stage.

Disclaimer: Investing in ICOs and IDOs depends on your speculative risk tolerance and financial resources. It is best to be cautious when investing if you are interested, as the crypto market has massive volatility.

Staking

Crypto staking is where you put your cryptocurrency to work by locking it up, usually in a staking wallet, to earn rewards or interest. Staking makes the blockchain more secure and efficient. You make the cryptocurrency’s blockchain stronger and more resistant to attacks by staking some of your coins. Coinbase’s Guide What is Staking is a beginner-friendly resource to understand how it works.

Staking is hugely popular for all the right reasons. You can earn a passive income from crypto, and there are many cryptocurrencies to choose from. The current best cryptocurrency options for staking include Tezos (XTZ), Ethereum (ETH), Polkadot (DOT), Fantom (FTM), Avalanche (AVAX), Cardano (ADA), and Polygon (MATIC).

Trade NFTs

Non-fungible tokens, or NFTs, are essentially crypto-collectibles. NFTs could be games, art, and collectibles whose value comes from the experience they create and the value of the network they are built on. They are a core component of the next-generation web. NFTs have gone mainstream, with personalities like SnoopDogg, Serena Williams, Steve Aoki, and Eminem taking part.

Flipping: People usually buy an NFT, wait for the floor price to go up, and sell it. It is highly rewarding and can be profitable, but it is also very time-consuming. If you want the rewarding experience, you should do the opposite of what mainstream traders do — participate in a project you believe in.

Participating in an NFT project is not just buying, holding, and selling. It requires time and effort to bring more people to the project to benefit from its growth. To get a reward for your effort and dedication, you should be passionate about the collection/project you’re investing in.

Participating in Web3 is time-consuming, increasing the participation cost compared to Web2, which had a high opportunity cost.

Investing in an NFT that you believe in will give you high returns on your time, energy, and money. Sometimes these projects can change your life in unexpected ways. It can be an excellent vehicle for making solid, long-term investments. Example: Early investors in Bored Ape Yacht Club have made a killing! If you had invested in BAYC early last year, you’d be a millionaire by now.

I recently came across this brilliant Twitter thread by Bee-j.eth on NFTs and their types, the NFT market, and what to look for when investing in a project:

https://twitter.com/Beej136/status/1483577811595976704?s=20

Tools to find and manage NFTs:

1. Asset Money: A platform where you can manage your NFTs and estimate their worth based on rarity, traits, and much more. Using their Estimate API, you can look at actual value based on rarity, traits, recent listing prices, and multiple other factors.

2. Rarity Tools: A website that ranks generative art and collectible NFTs by rarity. All NFTs in a collection are ranked by how rare they are. The rarity of an NFT depends on its calculated rarity score in the collection.

3. NFT Evening Calendar: A website for NFT news and latest drops with a calendar where you’ll find all the hottest upcoming projects, organized into categories and by their blockchain.

4. Nansen: A powerful tool that puts buyer data from Opensea together to break it down and make it easy to understand. It can show you the most prominent crypto and NFT buyers' recent activities and track wallet activity with their Smart Money dashboard. It’s a paid tool, with the cheapest plan being $1600 a year.

5. Compass.art: All in one analytics tool needed to track NFT trends, calendar, Spot collections before they go mainstream. You might want to check it out if you want to know a good time to buy/sell NFTs.

6. dApplist : Find more resources that can help make your web3 journey easier with a curated list of all the web3 protocols, dapps and useful tools.

Here are some people and channels you should check out for nft, crypto, and in general web3 updates.

Contributor

There’s a proverb that goes, “The World Is Your Oyster.” A creative medium, the oyster, is a potent symbol of fantasy and possibility and an abundant and prosperous future. The Web3 era is the same fertile environment for artists and creators.

Creator Economy

Blockchain has given us a new intellectual property and copyright ideas on the next-generation web and opened potentially fair platforms for creators to reach their audiences. Web3 makes you independent from any central authorities and allows you to create/gift value without intermediaries, as you want. Digital artists, especially those putting out 3D art, are having the time of their lives with NFTs. Art is being appreciated and looked at as an investment like never before.

So, if you’re an artist looking for more than just hearts and likes on your Instagram and Facebook posts, you might want to check out these NFT marketplaces:

• OpenSea

• Rarible

• Foundation

• Solanart

• SuperRare

Music NFTs are also something to look forward to in 2022. Platforms like sound.xyz are the best thing to happen to musicians, who often find it hard to navigate through the music industry contracts. Mike Shinoda, one of the biggest names in the industry who’s gotten into the game early, recently sold his NFT Mixtape ZIGGURATS. With more musicians jumping in on the web3 train, many indie, underrated artists have followed suit and already made a fortune.

DAOs changing the way we work

Since we’ve established that there’s a place for everyone in Web3, people with technical or administrative skills are more than welcome to join Decentralized Autonomous Organisations or DAOs. DAOs are self-governing, internet-native communities that incorporate contributors with a shared bank account and a purpose: creating value. If you’re a product manager, content strategist, marketer, graphic designer, programmer, or just someone serious about Web3, DAOs are for you!

Web3 rewards not only skills but curiosity.

To learn more about DAOs, how they work, and the future they promise, you might want to read my article Mapping The DAO Economy.

Join a DAO

To look for DAOs that might be on a hunt for someone with your skills, Twitter is an excellent place to start. Many DAO members tweet their job boards for everyone to apply openly. One helpful tool to find and start working with a DAO is Layer3. Layer3 allows you to decide which community you want to contribute to and recommend suitable matches. It also helps you earn crypto for your contribution.

Here’s a great Twitter thread by Langford.dev with all the websites for landing Web3 jobs:

https://twitter.com/langford_dev/status/1483564237624692738?s=20

Twitter is brimming with Web3 educators like Gaby Goldberg, who actively contribute to the Web3 space and provide unique opportunities to newcomers. Gaby's Web3 Job Board is a well-compiled list of Web3 jobs, regularly updated by Gaby herself. I’d recommend you bookmark it and also spread the word!

The web has always been a place where individual contributions mattered. The decentralized web will invite the creator economy into a new collective consciousness. Here is where we build new things, paving the path to an equitable future. It's where we take back control without losing the core values that make us human. It is creative, independent, curious, and believes rewarding curiosity pays forward in unexpected ways. So, be proudly curious in the Web3 community!

Builder

Web3 is an ecosystem – not a product.

Web3 is a digital fabric for new user experiences and decentralized applications and organizations built on blockchain. When it comes to the future of how we work, play, and communicate, decentralized applications (dApps) are the way forward. As more use cases become mainstream, such as decentralized cloud storage and data management, the more relevant building in Web3 will be. The UI/UX designers, crypto-anarchists, illustrators, or software engineers building these dApps are the architects of the new web built in front of our eyes.

To put your ideas for Web3 to work and develop dApps, here’s a list of educational websites and communities to learn Web3 development:

1. Buildspace: Provides free, online, cohort-based courses on building decentralized blockchain applications. When you complete a course with them, you are given alumni permission, which will provide you with access to various career-building channels, including job postings from companies that hire web3 developers.

2. Web3 University: An online educational platform providing resources and tutorials across the blockchain development ecosystem. This is the right place for you to learn about minting NFTs, writing smart contracts, and building fully-functional end-to-end dApps.

3. Developer DAO: A DAO focused on onboarding, educating, and supporting Web3 developers. It also aims to foster and build Web3 tools and public goods. The membership is closed as of now, but you can follow them on Twitter to keep an eye out for membership announcements.

4. Alchemy: Alchemy combines the most powerful developer tools in blockchain with helpful resources, a talented community, and support to provide you with a one-stop-shop for all your blockchain development needs.

5. useWeb3: Explore the latest resources, tutorials, challenges, tools, and courses to learn Web3 development. You can also browse their job board to land a job at some leading companies that work on core, open-source infrastructure, products, tools, frameworks, DAOs, etc.

6. Learnweb3DAO : A good roadmap for each milestone curated with content to make life easier for learners. After completing each milestone, the learner gets an NFT which can be used as a resume to show proof of knowledge.

For an elaborative and categorized resource list, Complete Web3.0 And Solidity Development Roadmap 2022 by Vittorio Rivabella is something you should bookmark.

Web3 Starter Pack

The Web3 ecosystem is vast: from dApps to decentralized identity to wallets and security tokens. In the sea of tools, it can be difficult to separate useful ones from white noise. Here is a notion doc of all the tools you’d need to get started.

Ending Thoughts

It’s still early days in web3, but it is a fast-growing side of the internet with huge technological and economical advantages, allowing for dispute mediation, prediction markets, and human coordination in general. It will make our current economy look ignorant and will most definitely change the future of work and play. It is time for you to get involved with Web3 and help ensure that the new internet is designed equitably. You do not want to be the kid in college who stayed home while everyone else went to the keg party!

https://twitter.com/oliverjumpertz/status/1485967704968339464?s=20

There will be hurdles to overcome, the market will climb and dip, and not everything will go according to plan, but I hope that I’ve shown you the promise and potential of Web3. so wagmi (we are going to make it).

If you’re an early-stage web3 builder or would like to venture out to the web3 ecosystem, our creative-capital studio spacekayak would be more than happy to assist and come along with you on your web3 journey!

If you’re looking for a more in-depth discussion on Web3, check out these resources:

• Balaji’s Content Archive

• Why Decentralization Matters

• I’m Quitting Web2 (And So Should You)

A special thanks to Cathy Guo, Aditya Mohanty, Suhas Motwani, and Daksh Miglani for their contribution and for making this article possible. Crafted with Anchal Chauhan, and Arundhati Thakur from spacekayak. Support us by minting the NFT. WAGMI

DAOs have become the linchpin of Web3 world

In the last 5 years, Decentralized Autonomous Organizations or DAOs have generated highly valued cryptocurrencies on Ethereum and made headlines globally. Whether it is the infamous The DAO that was hacked and robbed of $60 million of ether, ConstitutionDAO that tried to buy the Constitution, or Klima DAO that is working to solve critical problems of the carbon markets, you must have come across the term once if you go online every day.

DAO is just a chatroom with a shared bank account, as Cooper Turley, a DAO investor and builder calls it. There is some truth in this statement but it barely does justice to what a DAO could achieve.

There are over 100 active DAOs in the world, and the top 20 alone are managing over $14B worth of digital assets as of writing this article. These numbers are enough to prove how running a DAO is serious business. Looking at this astounding growth and the promise of better work culture, forget about DAOs merely posing a threat to LLCs, they are on their way to becoming the new LLCs!

DAOs gained explosive momentum this year because of a burgeoning DAO ecosystem and emerged as a "new" blockchain concept to some. But they have been around and thriving for a while — what are they, and how do they contribute to the crypto space?

How Hierarchy stole the "H" from Happy: A short story

We'll get to what DAOs are in a bit but let's start with a little story, shall we?

Once upon a time, in the land of corporate dinosaurs and pre-historic management structures, there were two basic organizational forms - Hierarchy and Network.

At first, hierarchy appeared to be the perfect structure for getting things done. People had titles and a boss. As organizations grew, however, this structure started to break down: people couldn't effectively manage people they didn't talk to, decision-making was slow because it passed through so many hands, and importantly it isolated everyone: everyone apart from those at the top, of course.

People were unhappy with the workplace and being locked into a company. Traditional organizations had many problems: hierarchy, internal politics, unbalanced rewards, unfair/lack of feedback, historical precedents, etc. They were forced to adapt to the traditional working model. They wondered how much better it would be if there was no hierarchy at all with the complete decentralization of work. It was probably one of these people who worked on making it into a reality and thus, a DAO was born and birthed into existence.

What is a DAO and how is it different from a traditional company?

A DAO is a self-governing, internet-native community. Entirely what a traditional company isn't. The community incorporates contributors with a shared bank account and a purpose: the creation of value through a set of rules enforced on a blockchain.

This set of rules, created by a DAO's elected members, governs the open-source blockchain protocol and acts automatically without the need for intermediaries. This is what we call a "Social Contract", which is an important piece of code unique to a DAO, but not the only characteristic that distinguishes it from other companies.

Ownerless Ownership

DAOs are not owned by a handful of founders and investors, rather the people who create value in them. Ownership, power, and control are spread across the community and each person has influence regardless of their "experience". They are flipping the idea of a single person or an entity "owning" an organization on its head.

This radical notion of an "Ownerless Ownership" works because everyone is a stakeholder and no one is the supreme holder of funds or a decision-maker. Everyone who works towards the growth and fulfillment of the shared mission of a DAO gets to be in an equal position.

Transparency

All the actions and funding in the DAO are viewable by anyone since they're on the blockchain, making DAOs more transparent than traditional companies. This transparency significantly decreases the risk of corruption within the organization.

The decentralized structure allows for control of information to be taken away from the corporations that own the majority of said information. This open-source nature of information means that many people can help contribute to a project without permission from an outside source.

This transparent operational framework is the most important aspect of a DAO which also puts it at the center stage of the web3 revolution.

Autonomy

Since DAOs are decentralized and are not owned by a person or entity, they are also not governed the traditional way.

The governance and rules of each DAO are coded in the smart contracts on the blockchain and cannot be changed unless voted upon by the DAO’s members.

DAOs are democratizing the ecosystem by giving decision-making power to all its members on equal footing. Each and every decision within the DAO is proposed, discussed, voted on, and documented publicly, further adding to its transparency.

Efficiency

When people who have a shared purpose and a great passion for it come to work together, they ensure the best and efficient results.

Hierarchical structures can get in the way. Speed, effectiveness, and engagement can suffer when you have too many layers to navigate. And most importantly, it isolates everyone but those at the top. The blockchain network makes DAOs truly borderless which powers global collaboration. Since there are social contracts in place, all decisions and changes to the network get implemented automatically which is not possible in LLCs because of the hierarchy.

Anonymity

DAOs do not require or force you to keep your identity public.

A DAO is designed to allow investors to send money from anywhere in the world. Members can be more flexible and experimental with their funding decisions and investments since they remain anonymous on the network.

DAO is a complex topic, with lots of moving parts. However, at the end of the day, they are simply businesses run by teams of diverse individuals rather than a single leader. The rules and functions that govern a team may change over time, but the spirit in which this organization operates will always be the same. A DAO provides its members with a unique opportunity that simply isn’t available elsewhere in the marketplace: complete freedom.

What is a more passion-driven economy than a digital, decentralized space for like-minded people to come and work together for a shared vision? DAOs are fun and intriguing and there is more than just one way of perceiving them:

https://twitter.com/divine_economy/status/1453480931487006728?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1453480931487006728%7Ctwgr%5E%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fwww.readthegeneralist.com%2Fbriefing%2Fdao

A DAO for every purpose

The DAOs that are currently active can be divided into two categories as put forward by The Generalist: technically-oriented and socially oriented.

Technically-oriented DAOs focus more on building in the crypto space and keeping their governance on-chain.

Socially-oriented DAOs primarily aim at bringing like-minded people together and creating a community for them to easily interact and brainstorm. Governance is likely off-chain, or non-existent.

Building a Protocol

A set of rules is crucial to a DAO and Protocol DAOs exist to help you build one by providing a framework to issue a token that is owned and operated by the community.

Protocol DAOs introduced transferable ERC20 tokens with a secondary market value. These tokens are used to govern protocols. Token holders have the authority to propose ideas, vote on, and implement changes to the network.

Projects commonly vote on token distribution which opens the doors to liquidity mining, yield farming, fair launches, and more.

1. MakerDAO: MakerDAO describes itself as a DAO developing technology for borrowing, savings, and a stable cryptocurrency on the Ethereum blockchain. It has created a protocol allowing anyone with ETH and a MetaMask wallet to lend themselves money in the form of a stablecoin called DAI.

2. Sushi: Sushi allows you to swap, earn, stack yields, lend, borrow, leverage all on their decentralized, community-driven platform. SUSHI is an Ethereum token that powers SushiSwap.

3. Uniswap: Uniswap allows users to “swap” tokens based on pairs, facilitating trading. UNI, its native token, works as a governance token for the platform.

Bringing People Together

Social capital is often overlooked or undervalued in a world intensively focused on financial capital. Social DAOs are bridging the gap by prioritizing social capital.

Their goal is to create a powerful community of people with mutual interests along with the usual benefits of DAO like shared ownership and authority. Social DAOs aim to create digitally native tribes and are a challenge to the traditional social community setup.

1. Friends with Benefits: FWB describes itself as the ultimate cultural membership powered by a community of their favorite Web3 artists, operators, and thinkers bound together by shared values and shared incentives ($FWB).

2. Seed Club: Seed Club is a community with people in the social token, creator economy, and crypto spaces. A few times a year it brings the most promising social token projects together in small cohorts for the community to work on together.

3. CabinDAO: Probably the most interesting and unique DAO on the list. CabinDAO is the community for you if you want to meet other online creators, entrepreneurs, remote workers, and digital nomads. They offer a residency program, funded and operated by CabinDAO. This residency program brings together a cohort of four creators for a one-month stay at their cabins.

Aggregating Capital

While Protocol DAOs bring new tokens into the world, we need to have DAOs that focus primarily on investing in them. Unlike the Social DAOs, these Investment DAOs are mostly about financial returns.

The goal of these DAOs is to allow members to pool capital and invest in projects at their earliest stages. Decision-making is democratic with LPs voting on suitable opportunities, unlike traditional venture firms.

1. The LAO: The LAO is a global group of Ethereum enthusiasts and experts supporting the work of Ethereum builders. Their aim is to "enable people from around the globe to support projects that they love using the power of capitalism as an incentive."

2. Neptune: Neptune aims to invest in various liquidity opportunities in the decentralized finance (DeFi) ecosystem and beyond. Neptune members pool together capital and then democratically vote on investment strategies.

3. MetaCartel: MetaCartel is an ecosystem of creators and operators building decentralized applications. The DAO is helping early teams get to the next level with grant funding and operational support.

Providing Grants to Projects

Grant DAOs seek to advance the broader ecosystem, support promising projects, and open pathways to new web3 contributors through grants.

Communities donate funds and determine how to allocate this capital to various contributors in the DAO in form of governance proposals.

1. Uniswap Grants: The goal of UGP is to ensure sustainable growth for the passionate ecosystem that has made efforts for growing the protocol. UGP has awarded $1.4M dollars to 38 grantees working on tooling, usability, security review, documentation, community efforts, and education.

2. Compound: The Compound Grants Program aims to provide grants to projects, ideas, and events that benefit Compound and its ecosystem. The community allocated 5,000 COMP for funding grants. The program ran from March 12 to September 12 in 2021.

3. Audius: The AUDIO Grants Committee, a community-led program offers $AUDIO token grants for initiatives that grow the Audius ecosystem. They have offered grants of up to 2500 $AUDIO for remix contests, recurring live streams, API development, and more, with a total of 16,425 $AUDIO distributed to the community till September.

Talent Allocation

A community with a surplus of talent needs to direct the creative energy towards the right idea. Service DAOs pull this human capital together and put it to use in certain projects.

Service DAOs are essentially crypto-native talent agencies. They create decentralized working groups for individuals to work for the open internet on projects they vote to work on.

These DAOs create funnels to contract web3 mercenaries. Efforts are often rewarded with ERC20 tokens - providing ownership over the value created for a network.

1. RaidGuild: RaidGuild refers to itself as “the premier design and dev agency of the Web3 ecosystem.” By sharing resources, branding, and collaboration tools, the DAO aims to create positive-sum value for the Ethereum ecosystem.

2. DAOhaus: DAOhaus is the community of contributors working together directly to design, build, and communicate the actual product. It is a hub from which each working group requests its budget.

3. Yam DAO: YAM DAO describes itself as "a launchpad for DeFi projects supported by a community governed treasury." They're currently developing multiple projects including Umbrella (Smart Contract Insurance), Degenerative.finance (Synthetics), and Yam DAO Set (Set Protocol DAO Investment fund).

Producing Content

The Media DAOs produce public content, often collaboratively, and the rewards are shared across the group, keeping governance autonomous.

Media DAOs break down the process in which a writer, streamer, and reader engage with the content they put out into the world.

1. Forefront: Equal parts curator, influencer, and creator, Forefront aims to be the content and community hub of the booming social token space. Forefront describes itself as the pioneer in exploring & building at the forefront of the Web3 playground.

2. Bankless: The Bankless DAO is a decentralized community with a mission of driving adoption and awareness of Bankless money systems through the creation and propagation of Bankless media, culture, and education.

3. DarkStar: Dark Star aims to "be a constructive lens to think about where crypto is going." The DAO members currently write about understanding crypto and its expanse on Mirror.

Accumulating Assets/Collectibles

There are DAOs that unite contributors around certain assets, or collectibles, mostly NFTs. These entities are called the Collector DAOs.

Collector DAOs also act as curators for certain projects, mostly seeking to curate NFTs having long-term value.

1. SquiggleDAO: SquiggleDAO is a DAO foundry for on-chain generative art. This DAO exists to support and collect generative art.

2. MeebitsDAO: The aim of MeebitsDAO is to create a vehicle for funding innovative projects that will develop the ecosystem around Meebits.

3. PleasrDAO: PleasrDAO describes its mission "to collect digital art that represents and funds important ideas, movements, and causes that have been memorialized on-chain as NFTs."

How To DAO?

Starting a DAO is like minting an NFT, it is easier said than done. Although the procedure is fairly handy and there are plenty of tools that help you build one, you do need to have some technical pre-requisites.

To get a general idea of how to bootstrap a DAO, Jess Sloss’ tweet outlining the whole process is a good place to start with.

Dropping a cool art collection and sharing it with cool people, gating a discord channel, and airdropping tokens sound fun until you actually sit down to execute them.

A DAO needs a well-built structure to function smoothly. There are four phases a DAO initially goes through that help in getting that structure right and ensure a hassle-free launch.

1. Laying a Strong Foundation

If you want to take a stab at creating your own DAO, there is one thing you must have: a crypto wallet. Get the wallet ready and look for people who share your vision for the DAO you're aiming to build.

Make your "call to adventure" solid and clear. Frame out collective goals and determine your DAO's set of rules with your peers. Establishing why your DAO exists, what it will do, and how it will work early on is the key to a strong foundation. You can build your community on top of it with little to no chances of it collapsing.

2. Establish Ownership

Once you have laid out your intentions for the DAO and gathered a group of individuals as excited about it as yourself, you need to distribute ownership. Ownership is usually tokenized and there are many ways DAOs can distribute ownership to their members.

Some DAOs do an “airdrop,” where tokens are distributed to members based on their contributions and actions within the community. Another approach is via “bounties” where a DAO issues bounties to members to complete tasks and achieve their goals. Members are rewarded with ownership by earning bounties that are denominated in a DAO’s native token. Some DAOs open up the purchase of tokens via decentralized exchanges, like Uniswap.

Well-distributed ownership is what helps in the further growth and evolution of a DAO.

3. Setup Governance

Establishing a governance structure is the most important phase of the DAO setup process.

This is the part where you decide how to make decisions as a group once your DAO is up and running. The most common method of decision-making in these organizations is called “Token Weighted Voting.”

A token holder is a voter and one token represents exactly one vote. Members put their proposals on tools like Snapshot and get voted on according to what the other members' preferences are. The outcome is then executed automatically through smart contracts.

There are similar decision-making structures in place in other DAOs with slight adjustments according to their priorities. These governance structures often evolve over time.

4. Set incentives and Rewards

A DAO grows as members put in collective efforts towards a collective goal and incentives drive that effort. A win for every individual member is a win for the community which is why incentivizing and rewarding their efforts is a must.

DAOs usually start off by giving out native governance tokens to early members and contributors. These tokens do not have any immediate market value, but they represent the shared ownership of DAO’s collective value. Some DAOs also reward contributors with ranks and titles and widely circulated currencies like USDC or ETH.

DAOs once conceptualized and materialized, have endless possibilities of improving lives and rewarding innovation like never before. We have just started to scratch the surface, but it is extremely exciting what could follow and new endeavors that can be started.

DAO It Yourself

Knowing what it takes to build a DAO is the first step to building a DAO, really. Since you're already one step in, you should get familiar with the most used and important DAO tools in the space right now.

DAO tools, built on web3, allow you to manage assets, make governance easier by providing a user-friendly voting platform, reward contributors, look up other DAOs, and more.

Here is one DAO tool per category that helps your community soar in different ways:

DAOstack - Open-source software stack designed to build and support a DAO. Gnosis Safe - Multisig wallet used to manage a DAO's digital assets on Ethereum. Proof of Humanity - A social identity verification system for humans on Ethereum. Snapshot - Off-chain voting tool based on the IPFS decentralized storage system, used by DAOs to poll their user bases. Discord - Channels commonly used to share ideas and discuss governance proposals. CollabLand- Bots provide token-gated access and tips to community channels/chat groups on Discord or telegram. Coordinape - Scales communities with tools to reward contributors, incentivize participation and manage resources. SourceCred - A tool for communities to measure and reward value creation. Mirror - A publishing platform that allows financing creative projects through tokenized crowdfunds. Tally - Empowers governance through real-time research and analysis, governance tooling, and educational content

Organizations of the Future — DAO-2.0

DAOs of today are crypto-oriented in their missions and purposes. They share a treasury, and all the decision-making revolves around how to invest or spend those funds. The space is self-referential for now, but not limited to only using crypto to govern crypto. DAOs can be used to create almost any kind of organization, from organizations that are more effectively run by the AI (rather than humans) and those whose governance is more directly controlled by its members. The rise of DAOs could lead to a future where much of the global economy does not rely on nation-states for law enforcement or property rights.

As of now, we can be confident in saying that DAOs have the potential to supersede the LLC model for building midsized companies in the future. But well-established large corporate entities will not be able to fully transition into a DAO, albeit adopt some of the features to have a more democratized management structure.

A DAO prides itself on being more transparent and autonomous than traditional organizations. This effective model has the potential to replace many other business models beyond cryptocurrency and investing. According to a lecture presented at Stanford's BioE60 Beyond Bitcoin course, there are a few ways in which the current DAO mechanism can be implemented in other sectors.

Platform Governance

Imagine your favorite social media, food delivery, or transport apps being user-owned! The idea here is to DAOify traditional web2 companies like Facebook, Amazon, or Uber.

For example, the current Uber model requires all users to agree to their terms. Since Uber owns the platform, it takes a cut from both drivers and passengers.

Re-imagine Uber as an application created by a community of users who will use it. Both drivers and users co-govern the way it works and evolves. The application is co-owned by them and not by a single person or company. Everybody earns their fair share without an intermediary taking a hefty cut and most importantly, your data is secure.

Big companies can either switch to a more DAO-native model in the future or end up being the odd ones out in a crowd of DAO-governed companies that-

• Incentivize and reward early users to be evangelists for further growth and expansion

• Give decision-making rights to the community and balance competing interests

• Lets both the employees and users have a stake in the platform where both benefit if it manages to succeed

Grassroot Movements

A shared purpose and coordination are what drive a DAO, making them essentially coordination tools. Hence, the DAO model applies well to not just companies but movements.

Most movements die down because of disorganization, insufficient funds, or lack of civic engagement. People organizing a protest or a boycott can benefit from a DAO model for better organization and results as:

• DAOs can help communities fund and self-organize global grassroots movements

• Most uprisings stem from a feeling of powerlessness and DAOs can give power to the community that actively engages in these movements for a better future

Startups and Small Businesses

DAOs rely on co-op governance which is made more effective via web 3.0. The working crowd of today is already leaning towards this idea and it wouldn't be a surprise if new startups adopt the DAO model and reject the traditional one.

There are numerous ways in which DAOs influence the startup world:

• Similar to a VC fund, people pool their resources together and fund a project they believe in. With a DAO, crowdfunding comes with the extra benefit of full transparency.

• There is a lower administrative overhead when setting up your company. You can build your infrastructure, incentivize on-chain and keep track of every little transaction easily.

The growing recognition

DAOs are growing in popularity and will continue treading the same path as web3 gains more momentum. NFTs have taken over the internet as some amazing NFT collections have caught the attention of big names in the tech and music industry and even sportswear giant Adidas. This massive NFT explosion has fueled interest in DAOs as more people come together to pool funds to invest in these digital assets.

Prominent names are entering the web3 space with a revolutionary idea and creating a DAO for the execution like Kimbal Musk's philanthropic DAO that will address food inequality. We’ll soon start to see more such organizations forming as DAOs to have better governance and come up with exciting solutions for creating value. This is only the beginning for DAOs, which means that more interesting use cases for this model are yet to be discovered and that alone should get you excited for the future of DAO and the future of work.

Participate in the paradigm shift

DAOs are perhaps one of the most exciting thing at the intersection of economics x culture x technology. DAOs represent a fascinating new way in which we can organize together, creating an entirely new model for humanity to push forward. The new DAO paradigm represents a massive shift in how we think of organizations and how they operate. We’re on the cusp of a major change in how our systems work, and it’s going to be fascinating to watch things develop over the coming years.

I believe that the next wave of business is not about a single company or industry, but about building economies – which I see as a series of interactions between different entities. These future economies will be powered by the collaborative work of many individuals, companies, and organizations, who will each gain from their participation.

In the future, you will no longer work for a company. You will enter into contracts with various DAOs, and these organizations will become your new employers, clients, partners, etc. A boatload of opportunities will arise as the technology lowers barriers involved in traditional business structures, with countless opportunities for individuals to bootstrap their career, get economical freedom and finally do something they absolutely love.

Leaving you with some insightful resources that might take you down the DAO rabbit hole, but trust me, it's a nice one.

• Resource List – DAO Creation & Design by Jay Bowles

• Everything you need to know about DAOs in Foundation.app

• The Future is DAO: A Primer on DAOs and Their Explosive Growth by Brian Fakhoury

• Stanford's BioE60 Beyond Bitcoin course Lecture presented by Ron Boger and Ori Shimony

• DAOs: Absorbing the Internet in The Generalist

• DAO Landscape by Coopahtroopa

• Organization Legos: The State of DAO Tooling by Nichanan Kesonpat

           WAGMI frens 🌈 paulfinneyx.eth 🪄 @paulfinneyx