Tokenization just went postmodern.
So-called DeFi community members are tokenizing themselves on the Ethereum blockchain. These tokens, minted with the name of the individual who created them, are being pitched as stakes in the brands or “digital communities” of their tokenizers. When they’re not promising a dividend from the tokenizer’s salary, these tokens can be redeemed for services, like, well, talking to the tokenizer, accessing their content, or renting out their professional time.
Instead of just charging cash for these services (or ETH or BTC)—or taking out a loan, for that matter, if they need the money quick—these intrepid tokenizers are launching “personal token” sales for what one of them calls “a utility-driven tool for [his] digital community.”
The stunt is reminiscent of the worst behavior that fueled the 2017 ICO boom, David Hoffman, the COO of the RealT tokenized real estate platform, told me over a phone call. Except this “self-aggrandizing” token sale model is even worse because people are buying a token that has even more dubious utility and assurances than the so-called utility tokens that flooded the Ethereum ecosystem in 2017.
“These tokens are backed by the reputation of a single individual. It’s the exact opposite of what the whole cryptocurrency industry is about; in which trust is purposely removed. The value of these tokens is collateralized by trust in the individual.”
Indeed, take developer and content creator Kerman Kohli’s KERMAN token, for example, which can be exchanged to access his Telegram group, subscriptions to his DeFi newsletter, his professional time or a retweet on his Twitter timeline. The utility basically revolves around being able to pay Kohli to talk to him (or, more bizarrely, to vote on his major life decisions, like purchasing a car). Alex Masmej’s own eponymous token also grants spenders access to his time and (non-binding) voting over his life decisions.
For Kohli, at least, the other selling point (besides buying the privilege to speak with its creator) is creating artificial scarcity: Kohli said he will burn tokens used to purchase his time, and he also plans to buy back circulating tokens with 5% of the revenue from his newsletter.
In his blog post, Kohl asserts his belief that his token “is not a security or investment contract and [is] purely the redemption of [his] time.”
Masmej was bolder in his blog post. A stake in ALEX, Masmej pledges in the announcement, gets you “15% of all income I make for the next 3 years … capped at $100,000, distributed quarterly, in DAI (or equivalent stablecoin).”
He describes the personal token aptly as “a blend between a small Income Sharing Agreement and a human IPO.”
Perhaps too aptly, Hoffman thinks. Masmej’s promises (explicitly) and Kohli’s claims (implicitly) smack of investment lingo. As he put it, “this is literally a textbook illegal securities offering,” one that offers its buyers “no regulatory safeguards, investor protections or recourse of any kind.”
“When you use Bitcoin or Ethereum,” he continued, “you rely on the blockchain’s assurances; when you buy a security, you rely on the assurance of the U.S.’s regulatory system. But with personal tokens, the settlement assurances you have are based on trust so it’s the exact opposite of real cryptocurrencies—the whole entire system is based on trust in the tokenizer.”
Rolling Out “Social Money”
Even if these tokens may pose a securities risk, that hasn’t stopped one DeFi platform from hosting them.
Roll, a DeFi platform that allows its users to launch “a digital community offering,” according to a Roll representative, doesn’t believe that these tokens represent an investment contract or security of any kind; rather, they are a crowdfunding mechanism that allows token buyers to access content from the tokenizers in tiers like Patreon. In essence, Roll told me, it’s a platform for self-monetization.
“The economics of the web are bending towards content creators,” they said over direct messages, adding that their platform’s mission is to give these creators a place to tokenize their time as “social money” and use this “user-generated currency” to build their communities.
“User-generated currency is the next $100B+ opportunity and the future of the market will be integrated deeply with the social web, hence the name social money” they expounded. (Emphasis theirs).
Both tokenizers have launched their self-proclaimed experiments on the DeFi startup, and Roll has purchased a stake in both tokens. The Roll representative told me that they’re “the top liquidity provider for $ALEX on Uniswap … and [are] doing the same for $KERMAN.”
In his just-launched token sale, Kohli is selling 1,500,000 KERMAN with the hopes of raising $30,000 at $0.02 a token (this ICO supply exists among a larger 3.2 million circulating supply which exists among a much larger 10 million outstanding supply). Alex hit his target of $20,000 during his own token sale in early April, selling 1 million tokens to “30 shareholders” for $0.02 a pop (his circulating supply, roughly 4.2 million, also exist amidst an outstanding supply of 10 million).
Kohli and Masmej did not immediately respond to requests for comment; this post will be updated to include their comments if they respond after publication.
Self-tokenization is a relatively new concept. In one of its first iterations, Spankchain founder Ameen Soleimani launched a token that people can redeem for retweets from the prolific Ethereum developer (an obvious precursor to one of the proposed utilities of KERMAN). However, Hoffman highlighted that Soliemani’s token is different because it demonstrates clear utility, makes no other guarantees, and—most importantly—is not being solicited as an investment.
Even Spencer Dinwiddie’s plan to tokenize his contract—likely a source of inspiration for others—is a different case. Not only is Dinwiddie planning on selling the tokens as a Regulation D securities offering to accredited investors, but it would actually pay dividends to its holders (and if it didn’t, securities law would step in).
Returning to his core problem with the personal token model, Hoffman re-emphasized that the assurances and utility that come with Soleimani and Dinwiddie’s tokens don’t exist for KERMAN and ALEX holders.
“How risky this investment is, is completely defined by Kerman. In his Disclaimer, he says “this is a highly risky investment, and that you could lose all your money”, which is a terrible thing to say, because with ‘personal tokens’ the issuer is in complete control over exactly how risky the investment actually is. It’s largely up to them as to whether there are risks or not.”