Issue #41: POAPs and Transferability
Last week I wrote about Web3 reputation and using NFTs to represent micro-credentials. This week, I want to dive a bit deeper into examples and mechanics - what NFT credentials look like and how they work.
I mentioned the Shadowy Supercoder NFT in the last issue, but Web3 users are earning credentials for everything from attending events to participating in protocol governance.
Tokenized credentials also have a different value proposition than other types of NFTs. Their value is relative to the identity that earned it. Interestingly, the vast majority of tokenized credentials today are transferable, so in theory, you could sell it to anyone. Sort of self-defeating, but there are good reasons for it.
All that and more in today’s issue.
Let’s zoom in…
If 90% of life is just showing up, you can count on the Web3 community to track just how often you show up.
The most popular form of micro-credentialing in Web3 right now tracks your attendance at events. POAPs, an acronym for proof-of-attendance protocol, are NFTs distributed to the wallet addresses of attendees at conferences, community calls, hackathons and other in-person and virtual events.
POAP-like tokens started as a novelty for the NFT community. I remember the NFT.NYC and Consensus events experimenting with tokenized tickets in 2019. As NFTs have grown in popularity, demand for NFTs memorializing “you were there” have grown as well.
The demand for POAPs has exploded in recent months and this trend will continue as more dapps and DAOs introduce tokenized reputations systems. Being able to prove “you were there” has valuable social signal.
What it doesn’t do though is answer the question, what did you do while you were there?
Participation, especially value-added participation, is the real signal. Below are examples of NFT credentials for theGraph, an indexing protocol for querying decentralized networks like Ethereum and IPFS. Different contributors earn different credentials. This form of reputation is richer and more nuanced.
One of the questions that always comes up about tokenized credentials is whether or not they should be transferable. Cryptocurrencies and NFTs are transferrable, but there is something inherently different about a credential. Crypto and NFTs are property. They can be bought, sold and transferred without impacting the value. In fact, the value of property is simply what someone else is willing to pay for it. You actually need it to change hands for price discovery.
Credentials on the other hand are issued to a specific person, and have the most value relative to the person that earned it. My license to practice law in California has enormous value to me. It has zero value to anyone else as a law degree.
In order to maintain any value, it would seem tokenized credentials should stay with the person that earned it and be non-transferable Is that even possible?
It is. In 2018, ERC 1238 was proposed, a standard for non transferrable tokens (aka “badges”). Oddly, there aren’t many implementations of the ERC 1238 standard. Non-transferable tokens haven’t really caught on.
The POAP (proof of attendance protocol) you receive for joining a project’s community call, the trophy you receive for completing a quest on Rabbithole, even the ShadowySuperCoder NFT you received for deploying a smart contract on Ethereum are ordinary NFTs, transferable to anyone.
Another great example of transferable credentials is Wyre’s KYC token initiative announced in 2018. The idea was, if you completed the KYC process on Wyre or another regulated platform, you could opt in to receive a KYC token. The KYC token would allow you to compliantly trade on decentralized exchanges that don’t collect identifying information from users.
From the jump, I loved the idea, but I was skeptical of the mechanics. The big problem, again, was transferability. What’s the point of issuing a KYC token to someone if they can transfer it to someone else?
There were other issues with Wyre’s KYC token that made it challenging to implement at scale, but this isn’t an issue on compliance. I’m still a big fan of this idea, and hope another team tries it.
But it begs the question…why aren’t we seeing more non-transferable NFT credentials?
“Anon” is social media speak for an anonymous account maintained under a pseudonym. It’s increasingly common for people to maintain one Twitter profile using their real name and photo, and a second profile under a pseudonym (anonymous) and avatar.
In September, Snoop Dogg famously unveiled he was the celebrity behind the NFT-focused @CozomoMedici Twitter account. Now there are doubts about whether Snoop is actually Cozomo, but the point is, people like having online aliases.
Lbh, Cozomo is too good of a writer to be Snoop :)
The main argument (and a good one) in favor of transferable credentials is people wanting to have a second or third online persona without sacrificing the reputation they’ve established with their primary persona.
I have multiple wallet addresses (aka financial personas) simply for security reasons. It is best practice to divide your digital asset portfolio across multiple wallets. If I lose access or get hacked, the other wallets are hopefully unaffected. Would it be convenient to transfer NFT credentials back and forth between by wallets as necessary? Yes, it would.
Another reason is privacy. I may publish Mirror articles under my real name using one wallet address, and yield farm in large dollar amounts with another wallet address. It is completely reasonable to want to keep my financial transactions separate from my writing.
As my parting thoughts in last week’s issue discussed, privacy will be a defining issue for Web3, politically and socially.
On-chain vs. Off-chain activity
Credentials are only valuable to the extent they are trusted. This is why an HR department will call your alma mater to verify your degree, or a previous employer to verify your position and performance.
On-chain activity - voting on a governance proposal, deploying a smart contract, or paying off a loan on Compound - is easy to verify because the blockchain maintains a historical record of your addresses’ activity.
Off-chain activity is different.
Some of the most impactful actions we take from a reputation-building standpoint are done off-chain. Getting an advanced degree or license to practice in a particular field is a physical activity. Bringing that credential into Web3 can be valuable, but it’s more difficult.
First, unless the issuer is crypto-native, they probably aren’t issuing tokenized credentials.
Second, you have to trust the issuer.
In the advanced degree example, the person verifying the NFT degree either needs to contact the school to confirm, or confirm that the NFT was sent to the individual from the school’s verified wallet address.
This is one of the many reasons why physical assets are hard to tokenize on a blockchain. Creating the token is easy. The hard part is binding the on-chain token with the off-chain asset.
I want to leave you with something fun…
Token airdrops are a popular way for new projects to financially incentivize users. What about credential airdrops? The idea is - a new project airdrops tokenized credentials to wallet addresses that hold comparable credentials in other communities or applications. I’ve also been referring to this concept as “vampire reputation”. Overly dramatic, but it’s catchy.
I wonder if a new decentralized application could grab marketshare overnight by airdropping equivalent reputation and tokens to all the super users on a competing application?
Thanks for reading,
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