You might have misunderstood $JESSE, this is an attempt to generate income for the Base chain.

Author: Auditless Research

Compiled by: Deep Tide TechFlow

Content Coins may be the only way to excite creators about Rollups. But be aware, the house always wins.

Crypto Twitter's reaction to the launch of $JESSE is not friendly:

(The tweet above is actually one of the more rational and down-to-earth criticisms I've seen.)

Others pointed out some issues:

Timing is not ideal: The launch coincided perfectly with David Phelps' article, in which he complained that Base is too focused on creator tokens.

Extraction Issue: Some believe that $JESSE has extracted a large amount of transaction fees from sales;

Purchase issue: Due to $JESSE using the Zora x Doppler bond curve auction mechanism, it unexpectedly attracted buyers.

But I do not agree with these concerns.

The timing issue is indeed a bit unfortunate, but I suspect Jesse had already planned the launch date and chose his own birthday as this special node.

The issue of extraction is also untenable. During his birthday live stream, he was able to reinvest the fees into other creators on Base. He also claimed that he does not intend to sell these tokens.

In the end, Doppler and 11AM had quite a good discussion about the issue of rush purchases:

We will delve deeper into the pros and cons of different auction mechanisms in next week's content, but Austin's research on auction mechanisms far exceeds those who complain about sniping on X (formerly Twitter).

If it wasn't done out of malice, then why would Jesse do this?

The real reason for promoting creator tokens

Most of the revenue for Rollups comes from transaction fees.

As of now, Base has earned more revenue from meme token trading than any other activity. The issuance of new tokens and the resulting speculative trading volume are important factors driving trading fees.

Source: Allium

It is likely that Base has spent more than ever on its core team, funding, activities, proprietary applications (such as Base App), and support for its founders. However, these expenditures have not significantly increased Base's contribution to Coinbase's financial statements as a Rollup.

Creator tokens and content tokens are a very clever solution to this problem:

Their issuance even surpasses that of meme tokens (token issuance is the main battleground for Rollup);

They can stimulate trading and speculative activities;

They are built by converting attention into on-chain fees, and anything that can trigger viral spread can almost bind a content token.

Compared to meme tokens, they do not even require any underlying economic activity, community support, or commitment.

Although users view the surge in gas fees as a negative, from the perspective of Rollup, creating excessive demand for block space is actually a sign of success.

No other form of monetization for creators can achieve the same effect:

Payment: The transaction volume for any form of payment (such as donations) is insufficient, especially the portion paid to creators, which is even scarcer.

Rewards: Base indeed utilizes a reward mechanism to support the ecosystem of Base App, but these rewards have a negligible impact on revenue.

Advertisement: On-chain advertising is almost non-existent, so it cannot contribute to sorter fees.

Are creator tokens really good?

We have already understood why creator tokens are a key area of Base, but are they really the best mechanism for users and creators?

Source: Zora Docs

The logic of the flywheel effect for creator tokens is very simple:

If you publish content, a Content Coin will be generated, and you will own 1% of its supply.

Each content token can only be purchased with your Creator Coin. If you issue a Creator Coin, you will hold 50% of its supply (gradually unlocked).

The demand for content tokens will naturally drive the demand for creator tokens. This mechanism encourages you to create high-quality content while benefiting from holding creator tokens and transaction fees.

In a way, the behavior of content tokens is similar to Patreon membership subscriptions. If you spend $1000 to purchase a content token, your opportunity cost is the potential returns you could have gained by investing that $1000 in other markets. The foregone returns are essentially like paying a subscription fee to a creator. In return, the creator may reward you for holding these tokens. These rewards can be tiered like Patreon, or distributed proportionally or randomly (similar to a lottery).

However, creators cannot directly receive subscription fees unless they sell their own creator tokens. Therefore, even if your costs are paid in the form of revenue subscriptions, not all costs will effectively transfer to the creators you support, unless they “cash out and run” (i.e., “rug”). Jesse also pointed out this issue:

In addition, Content Coins also have attributes similar to fan collectibles. As an artist's popularity increases, the rewards they can offer to “subscribers” will become more valuable. Therefore, Content Coins carry a certain speculative component. Even if you don't care about supporting the artist or obtaining rewards, you might still purchase Content Coins simply to speculate on the potential future value of the rewards they may bring (whether material or immaterial). This is similar to buying a first edition CD from your favorite artist, which you might resell at a higher price in the future.

However, this characteristic of creator tokens also brings significant drawbacks: they have essentially become a financial instrument, and their market may attract institutional participants who possess more advanced tools than ordinary fans.

Just as true fans need vision, patience, and investment to identify, preserve, and invest in classic CDs or merchandise, the market for content tokens also requires genuine fans to support it. On the other hand, a savvy trader can profit from content tokens simply by taking advantage of buyouts or other speculative means.

When exiting the “membership”, you need to achieve this by selling tokens, which will incur slippage. Ironically, the lower the liquidity of the creator token, or the greater your contribution to the creator, the higher the slippage you will face. Content tokens somewhat punish the most generous sponsors.

The house always wins.

My core issue with the creator token model is that it attempts to combine sponsorship and curation to maximize trading volume, but it may bring out the worst aspects of both.

True sponsors have to face issues such as price volatility, antagonistic market participants, trading taxes, and so on.

Curators lack a clear guarantee of future rewards, as creator tokens are not explicitly tied to the creator's equity or other value streams. Curators are essentially speculating on the potential demand for unknown future rewards.

This model tends to front-load the income of creators, which may lead to high transaction fees during the initial price discovery phase, but the sustainability of trading volume in the long term is uncertain (the performance of $JESSE will become an observation point). This mechanism does not truly achieve incentive alignment between creators and token holders.

The final result is that the profits extracted from the underlying blockchain and trading venue (in this case, Uniswap) far exceed those of a simple membership model payment solution.

You could argue that the curation market does provide an additional function, but the two (sponsorship and curation) cannot be clearly separated.

As a comparison, we can study Craig Mod's model. He built his own membership system, focusing on keeping the setup as streamlined as possible, and he succeeded.

He can proudly say that no one has lost their hard-earned money because they supported him.

What attracts me to Craig's model is its focus on the creation itself (like books), rather than the content or the individual creator.

I personally believe that an interactive-centric creator economy is inferior to a model centered around real value exchange. Content should merely be a means of discovery and a way of public creation, rather than the core product. To some extent, it can provide a free foundational layer for users to experience.

I also believe that these issues can be resolved, and there is no doubt that the Zora and Base teams are working hard on this.

At least, creator tokens represent a whole new attempt at monetizing creators. Even if it ultimately fails to become the optimal solution, it is still worth a try.