Reddit and Web3 – A Case Study

in LeoFinance2 months ago

In 2022 Reddit launched an NFT collection to its community, resulting in 3 million new crypto/web3 wallets and $11 million in revenue in a few short months. Was this an overnight success? Is it here to stay or is it just fad?

As many brands are watching Web3 with interest, some sitting on the side-line just waiting for the opportunity, and some already deep in, how Reddit achieved such success, seemingly overnight is of interest to many.

So, I have taken some time to put the details of Reddits journey into Web3 together as a case study that you can refer to when needed. I hope you enjoy it. It’s an interesting story! Go grab yourself a cuppa because it's going to be a long one.

What is Reddit and who are its users?

Reddit is a social site that allows users to aggregate news. It allows for content rating and discussions. And it is a very popular site boasting 50 million daily active users. In 2021 it was the 10th most popular social media discussion sites in America and 15th in the world.

Reddit works by allowing users to submit content, often links, questions, or videos. This tends to be posted in subreddits. Subreddits are communities and threads of content focused on a topic. Other users can then vote on and comment on the submitted content. The content with the most engagement gets to the front page. This is why Reddit was once known as the Front page of the internet.

Unlike many other social platforms, a lot of control for moderation and visibility of content lies in the hands of the community moderators. Regular people that have created passionate communities. There are around 130K active communities or subreddits (to be activate the subreddit must have 5 or more posts a day)

Reddit also uses a social reputation system, Karma, to help reduce bots and spam. Karma points are earned when someone upvotes your comments and lost when your content is downvoted. Many communities use these Karam points to decide who can and cannot post within the subreddit.

Reddit users come from America, followed by the United Kingdom and Canada, then Australia.
36% of 18 to 29 US Adults use Reddit and 22% of 30 to 49 range.
They spend approximately 10 minutes a day on the platform.
In general, is it preserved that reddit users would be slightly more technical aware than then average internet user.

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Reddit dipping its toe and priming its user base for Web3

As early back as 2013 Reddit was dipping its toe into cryptocurrency by allowing gold members to purchase their subscriptions using Bitcoin. However, as an early user of this technology, merchant tools were an issue along with the volatile price and this project ceased.

Reddit use to have a Creddit system, which they reworked and rebranded to Coins. This may have been done in an attempt to test the water as Coins are a very crypto term. However, coins are also well known as in game currencies.

But these coins have nothing to do with crypto or blockchain. The purpose of these coins is to allow users reward each other for content. If you like the content someone shares, you give an upvote and if you really like and value the content you give a gift which you buy with the coins.

It has been reported that in 2021 value of 5.5 billion Reddit Coins were exchanged between users. Like other web2 apps, these coins are a revenue source for Reddit and unlike cryptocurrency, a user cannot exchange these back for cash.

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Reddit Points – moons, bricks and eth donuts

After dipping its toe into payments in Bitcoin back in 2012, in 2020, reddit began to test its own cryptocurrencies. They call these Reddit Community points. The idea is that each subreddit could issue its own community token.

These points have a great Web3 feel. They allow community members have ownership within a community. Community managers can use these to reward the community, unlock special features and to encourage better content and engagement. Users can also pay for premium services within Reddit and can convert the Points to coins.

Community Points different to Karma or Coins because Points use of blockchain. This allows users to see their Points and even exchange them on different DApps, bring it outside the control of Reddit.

To get community involvement, and buy in to community points, Reddit ran The Great Reddit Scaling Bake-Off, utilizing the skills of the Ethereum Subreddit to submit proposals on scaling solutions so points could be issued for all subreddits on mainnet. The blockchain network that Community Points live on is Arbitrum Nova. This is a scaling solution on top of the Ethereum mainnet.

Points were launched on mainnet in Aug 22. In partnership with FTX users could pay gas fess with fiat and move their points to the Arbitrum network. At the time of writing, FTX has applied for bankruptcy, and it is unclear how Reddit and the community will be affected by this. No doubt it will be a setback to what already seemed to be a long beta and slow rollout.

The is a waitlist open for subreddit owners to apply to. But currently there are still only 3 Reddit Points Cryptocurrencies. Moons issued by the Cryptocurrency subreddit, Donuts issued by the Ethereum subreddit and Bricks for the Fortnite subreddit.

On the open market, these tokens are not holding up well in terms of exchangeable value. The market has been in a downturn for several months now, which has had an impact and for that reason, was not really a great time to launch. It is also very hard to achieve great tokenomics with social tokens. Very few are getting it right in the general market. It will be interesting to follow how these develop during the bear market and see if more subreddits take up the opportunity to tokenize their community.

This experiment has yet to fully play out, however there are some valuable learning experiences from this so far. That is the use of language and the community involvement. Reddit have not used the words cryptocurrency or blockchain, opting for points instead. And they have stayed loyal to their community ethos by running the scaling bake off.

Reddit’s first NFTs - CryptoSnoos

In 2021 Reddit issued its first collection of NFTs. Only 4 NFTs were released. Each a version of the Reddit Mascot Snoos. To buy one of these NFTs, a user would have to win an auction on OpenSea or buy the NFT on the secondary market.

In total these 4 NFTs sold for 465 Ether. The most expensive one, Original Block sold for 175WEth in auction but only fetched 42Eth on the secondary market 9 months later. The other 3 NFTs remain with the original auction winners and have not been put up for sale on the secondary market.

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If the owner of one of these NFTs wanted to display it on their profiles on Reddit, they had to link their metamask account to their reddit account. Like Community Points, these NFTs can also be used outside of Reddit because they are blockchain based.

With only 4 NFTs released and each of them selling, for Reddit and revenue these NFTs could be considered a success. However, for Reddits large user base, NFTs with such a large price tag would not be the way forward.

For the 4 NFT holders, they each hold a unique 1 of 1 collectable, the value of which is subjective and personal to that collector.

Reddit Avatars and Collectable Avatars

In 2020 Reddit also release its customizable avatar builder. This allowed anyone to generate and customize their own avatar and use it as a unique way to show their identity on Reddit. Due to the popularity of these, Reddit began to ask themselves some questions

“what would happen if we gave creators on Reddit license to make any style Avatar they wanted? And what if we could help these creators showcase their art to the entire Reddit community and make it easy for them to earn money for their work?”

In July 2022 Reddit Collectable Avatars were release. These NFTs, or collectable avatars are on the Polygon network and are available to buy with fiat in just a few clicks, from within Reddit. No auctions or connecting wallets. However, a user did have to claim a Reddit Vault, which we will look at later in this case study.

In August 2022 Reddit gave out free Collectable Avatars (which would be considered an air drop) to many of it activate users. From here the interest surged.

For the paid digital collectables, prices started as low as $9.99, making them affordable for many. And the creators, who were handpicked members of the Reddit community makes a share of the sales price. It has already progressed that creators can now apply to Reddit to release their own collection of collectables.

As the collectables are created by community members, each Reddit collectable has its personality, and story, which has been shaped by the people who contribute to the subreddits. This makes Reddit Collectible Avatars also a social experience that users find it easier to relate to and buy into.

Owners of the Collectables are not restricted to keeping them within Reddit, as they are based on the blockchain and can be resold on the secondary market.

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The Success

This launch, even in a bear market was a great success. At the time of writing, less than 6 months from initial launch there are almost 3 million avatar holders with a total sales volume of over $11 million. That represent 6% of daily active users and shows plenty of room for growth. At the time of writing Reddit has more NFT wallets than Opensea, a dedicated NFT marketplace.

Several factors contributed to the success of this NFT launch

  1. Testing the waters – Reddit has been priming it user base since 2013, experimenting with different ways to use blockchain. It can be noted that Reddit was not afraid to fail, and it tested and continues to test more than one option for entering Web3.

  2. Building on Community - The ethos on Reddit has always been about community moderation, allowing people to feel ownerships and involvement. In line with the Web3 creator economy, Reddit sourced artists from the community and is very much making this an artist’s marketplace. This is an important factor for buy in and creating a social experience.

  3. The language used - Reddit did not refer to NFT’s, or Cryptocurrency or wallets or any of the buzz words that goes along with the industry. A simple change in the choice of language used can have a massive impact.

  4. The User Experience (UX and UI) – Claiming or buying a collectable avatar was seamless and done in a few clicks. Users were promoted to set up a Vault which would hold the avatar and no blockchain transactions were signed by the user when claiming the avatar. No fees were needed in the vaults of the users to claim the NFT’s and premium NFTs were purchases with FIAT. This removed a lot of the friction associated with buying an NFT and setting up a self-hosted wallet. This was a very different experience to the experience of buying a CryptoSnoos in auction on Opensea and then linking a wallet to Reddit.

  5. The Price Point – With NFTs selling for as little as $10, this is automatically more scalable than then CryptSnoos experiment as the price is within reach of much of the Reddit user base.

  6. Familiar interface - Reddit did not launch a new product, rather an extension of the existing customizable avatars and the UI users were accustomed to.

The full success of this launch has yet to been seen. Its less then 6 months at the time of writing and the crypto market is going though turbulent times. NFT projects can have a buzz for some time and then fizzle off into nothing, or they can grow in strength. This is yet to be seen for Reddits collectable avatars.

The Vault

We can’t look at Reddit as a case study for entering Web3 without exploring its Vault.

First attempts at selling NFTs, the user experience was complicated in that users needed to connect their wallets to Reddit if they wanted to display the NFT in their profile.

Also taking into consideration the Reddit Points, it became clear to Reddit that interaction with the blockchain must be as simple as possible, and an internal wallet would make things more seamless and user friendly.

The Vault was the answer. But it was communicated in two ways to two different communities.

The Vault was introduced to the beta Point holders as a digital wallet. These users would have a basic understanding of cryptocurrency terms as they have been using the beta for some time. Eagerly awaiting mainnet.

“The Vault is an embedded digital wallet in the Reddit app and the home for Community Points.”

However, for the Collectable avatars, when you went to the avatar shop a vault was just needed to store the Collectable. Users then seeking out further information later when the heard rumors of profits being made on the secondary market. Many surprised it turned out to be a crypto/web3 wallet. This made the claiming experience simple and easy to use. Easy enough that there are now 3 million new wallets.

“A Vault is your digital wallet on Reddit. It helps redditors store and manage their blockchain-based digital goods, such as Collectible Avatars, on Reddit.”

The Vault is made up of a public and private key. However, on setting up the vault to buy a collectable or claim a free one, a user only needs to set a password. There is no mention of a public and private key. Users are however advised to back up the recovery phrase, but their documentation considers this for more advanced blockchain users.

Another impressive feature of the vault is the lack of traditional cryptocurrency wallet features. When you buy an NFT there is no signing transactions and transaction numbers are not displayed. The mint happens after the purchase. There is an option to view the transaction on the explorer further down in the small print. But it’s not like a typical crypto wallet. When you enter the Vault via the reddit app, it is set up to display Community Points and Collectable Avatars.

There is no mention of monetary value or adding tokens or any of the standard crypto wallet jargon. The language used does not point to cryptocurrency and blockchain.

The Vault is now bringing together Community Points and the Collectable avatars all in one place for the users, yet on different blockchain solutions. For users that stay within Reddit, this make absolutely no difference what technology is used. And for the users that want to use the Points or collectables elsewhere, there are free to move them back and forth across chains.

Conclusion

Reddit’s success on entering Web3 was down to years of hard work and testing. It was not an overnight success. Each step took them closer to community buy in by removing barriers and making it as easy as possible for platform users to relate and engage. However, the journey and story does not end here. As it has been short while since the NFTs have launched, we cannot yet tell how long into the future Reddit will be able to ride this wave or to see if this just ended up a fad.

Will Reddit Points be the next hot thing? After all they are also not long on mainnet and its also yet to be seen how many subreddits will sign up for this. This is still a story unfolding but it does seem like Reddit are building for a future in Web3, what exactly that will look like, who knows.

If you enjoyed this case study, you might also like some of my other content
4 Step Evaluation Framework for Blockchain and Cryptocurrency Projects

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I have used reddit now and then for specific communities, but it's not somewhere I visit regularly, so I was not up to date on this stuff. It's interesting that they minimise mention of blockchain as it seems a lot of people are suspicious of that term. I have found people on Mastodon to be fairly anti-crypto in general. That may be something holding Hive back. Events like the FTX collapse don't help, but that is more about bad management than bad technology.

reddit is largely owned by a big media company, so I wonder how centralised their blockchain will be. Companies like to keep control.

Interesting article.

They are not using their own blockchain, they are using L2 solutions

Well that could be a good thing as developing this stuff is hard. It also means people are free to do what they want with the tokens. Thanks for clarifying.

Its the way we want brands to go, using public blockchains

I found it very interesting and informative. Thank you very much.


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