Issue 600 Lifetime Membership | Matters' Experiment with On-chain Advertising: Tokenization of Ad Space, 80% Revenue Returned to Creators
#600
GM,
This is the Blocktrend's 600th issue. Thanks to all the members who have subscribed and supported Blocktrend! Without your support, Blocktrend wouldn't have made it this far. However, unlike the tears of emotion shed during our 500th issue, my feelings at this moment are more uneasy and uncertain. The main reason is related to the current market's bloated nature. Although the price of BTC continues to hover near new highs, the builders seem to be collectively late to the party. Looking around, the community is filled with a gambling culture of meme coin speculation or token airdrops used as scorekeeping games.
It feels like wanting to quietly study but seeing classmates making noise and mischief, making one wonder if they're too serious or if they should temporarily leave. That's the main source of my unease. I believe the builders may be late, but they won't be absent. Therefore, unlike the "Lifetime Subscription Plan" launched in issues 400 and 500, this is to commemorate this special moment. The "Lifetime Subscription Plan" for the 600th issue also holds another layer of meaning, reflecting optimism about the long-term development of blockchain and navigating through chaotic times together with Blocktrend.
Simply complete a payment of $600 worth of cryptocurrency via Coinbase Commerce by next Tuesday (4/16) before the release of issue 601, and I will manually upgrade you to a lifetime member of Blocktrend. In addition to no longer needing to pay subscription fees in the future, I will also create an NFT symbolizing lifetime membership for Blocktrend's 600th issue to be gifted to participants. I invite you to join us.
Here's another public funding news to share. Gitcoin regularly holds the Gitcoin Citizen Retro event, aiming to recognize individuals who have contributed to Gitcoin's development during a certain period, rewarding them with GTC tokens retroactively. Recently, I participated as an individual and was fortunate enough to be recognized by Gitcoin, once again selected as a Gitcoin Citizen. Apart from the honor, the benefit is being eligible for matched funding from the event.
For this Gitcoin Citizen Retro, Gitcoin has allocated 40,000 GTC tokens to the funding pool, to be distributed by the public (those with a Gitcoin Passport score > 15) through micro-donations (> $1) to decide how much funding each recipient will receive. Surprisingly, there has been significant participation in micro-donations for this Gitcoin Citizens Retro. Even before I publicly mentioned it, over 100 donations had already been made, marking an unprecedented level of engagement compared to previous Gitcoin activities.
Recently, there have been quite a few public funding opportunities, and I've been applying for them as long as I qualify. I'll notify everyone if any applications are successful. If you're willing to participate, please remember to adopt the principle of consistent small contributions; donating just $1 can have matching benefits. All funding is now being conducted on Ethereum Layer 2, specifically Arbitrum, with significantly reduced fees and entry barriers compared to before. At least we won't encounter the strange situation of transaction fees being more expensive than the donation amount. Now, let's get to the main topic.
In recent times, the cryptocurrency sphere has lacked clear direction, but with effort, it's still possible to find some promising on-chain applications that aren't receiving much attention from the current market but are worthy of anticipation. The on-chain advertising mechanism discussed in this article is a representative example.
On-chain Advertising Mechanism
The media industry is one of the most digitized sectors, and many innovations often start from within media. However, people have yet to figure out a successful formula for integrating media with blockchain. Matters is one of the most active participants in this field.
Founded in 2018, Matters is a Chinese-language writing platform that was among the earliest to attempt integrating content with blockchain. I have been a long-time user. After 6 years of iterations, Matters currently boasts two major selling points:
Storing content on IPFS to prevent articles from disappearing.1
Enabling cryptocurrency micro-tipping, allowing publicly shared articles to generate income.
Despite Matters having established a considerable reader and creator base, the overall community atmosphere is still lacking in vibrancy. This indicates that solely offering permanent content storage and the ability to earn small amounts of cryptocurrency is not sufficient to attract people. Recently, Matters has undergone a series of bold reforms. Not only did they announce a move from Polygon to the OP chain, but they also introduced an "on-chain advertising" mechanism, highlighting that 80% of advertising revenue will be donated to creators in hopes of bringing a new outlook:
Matters has introduced a brand-new on-chain advertising donation mechanism. Starting today, you can see advertisements on the homepage under the "Billboard" section. 80% of the USDT revenue generated from these advertisements will be distributed to Matters users via a donation system, benefiting eligible users.
Seeing this, creators are most concerned about whether Matters is also "selling out." Advertisements can harm the reading experience, which neither readers nor creators appreciate. However, as a media operator, I feel that Matters has been operating almost "hand-to-mouth" for the past 6 years with no clear source of income, which is unsustainable.
With the introduction of advertisements, Matters must strike a balance between revenue generation and reader experience. Last week, Matters distributed its first share of ad revenue, and many people only realized the advertising mechanism was active after they were unexpectedly rewarded with money!?
Harberger tax
This is a positive start. Matters' choice of advertising placement is not overly intrusive; it's located in the top right corner of the homepage and does not detract from the reading experience. Advertisements also provide additional income for creators, and the barrier to entry is extremely low. Even if users are unaware of the advertising mechanism, as long as they know how to connect a wallet, they can start earning money.
However, if Matters simply embeds ads on the platform and shares profits in cryptocurrency, I certainly wouldn't write about it and waste everyone's attention. The essence of the design of this on-chain advertising lies in the beautifully crafted donation mechanism for advertising revenue:
The core spirit of this donation mechanism is to harness the power of the community to collectively discover and support good content. When someone tips your article with USDT, it signifies community recognition of its quality, enabling the sharing of advertising revenue.
Matters hopes to empower creators with more income through decentralized technology and donation rules. We are transforming the traditional logic of advertising traffic into NFTs, conducting advertising revenue, transactions, and bidding behaviors on-chain, thus ensuring transparency and fairness while enabling creators to earn more income. Part of this revenue is distributed to Matters users, creating a win-win situation for the community.
For advertisers to place ads on the Matters homepage, they must first obtain NFTs representing ad space through on-chain auctions with Matters. 20% of the advertising fees go directly to Matters as operational income, while the remaining 80% enters a donation pool where the community collectively decides how it should be distributed.
This raises two questions: how are ad spaces priced, and how is the donation pool allocated? Matters' design draws on two concepts mentioned in the book "Radical Markets" — the "Harberger Tax" determines ad space pricing, and "Quadratic Funding" determines how advertising revenue is distributed.
The Harberger Tax, as described in the book, is a form of mutual self-assessment tax. Blocktrend has previously explained that2 it "uses auction mechanisms to promote asset liquidity, ensuring optimal resource utilization":
The specific practice of mutual self-assessment tax allows individuals to self-assess the value of their assets but requires them to pay a certain percentage of tax annually. Once someone is willing to purchase at the assessed price, the asset holder cannot refuse. ... If the estimated value is too high, a higher tax must be paid, which is essentially a tax based on valuation. Conversely, if the estimated value is lower than the actual reasonable value, others can purchase it at the assessed value, which is akin to expropriation based on valuation.
Taxation based on valuation and expropriation based on valuation are the two foundations of mutual self-assessment tax. Although Matters has not yet provided detailed explanations, applying mutual self-assessment tax to Matters' advertising spaces means that each advertiser must propose a valuation for the ad space. For example, PX Mart estimates $100,000, while Carrefour estimates $80,000. The highest bidder wins the Matters ad space, but Matters does not charge PX Mart $100,000 for advertising; instead, it collects a proportion of this amount as tax —— expropriate based on valuation.
For PX Mart, if the valuation is too high, more tax must be paid to Matters. Conversely, if the valuation is too low, it could be purchased by someone else at any time at the assessed value. Therefore, participants naturally establish a price closest to market conditions through the tug of war between taxation based on valuation and expropriation based on valuation. This promotes the optimal utilization of assets and prevents hoarding.
However, on-chain advertising is currently in the experimental stage, and advertising space is not yet open to public bidding. For now, you can only contact the Matters team to have them select who can advertise. This means the mechanism is only partially implemented.
For creators who receive payments, who wins the ad space is not as important as simply receiving payment. What concerns creators most is how the 80% advertising revenue is distributed.
Quadratic Funding
The design of economic incentives not only reflects the platform's values but also determines the future direction of content. If a platform solely measures content based on page views, it essentially tells creators to focus on attracting attention at all costs, ultimately leading to a flood of clickbait content and lowering the overall quality of the community.
Matters employs the same Quadratic Funding3 method as Gitcoin, where content that receives contributions from more people in smaller amounts receives more matching funds from a funding pool. According to Matters' description:
This mechanism aims to highlight collective decision-making within the community, so we adopt the principle of "quadratic funding" for matching funds. The amount contributed is not limited; the key is the number of genuine contributors. The more people vote (contribute) to an author, the higher the author's allocation weight (matching funds). The advantage of quadratic funding is that it allows small contributions to have a significant impact, ensuring fair distribution. Of course, we have also designed preventive measures to address issues of unfair distribution caused by fake accounts or spamming.
Originally, advertising and quadratic funding were two separate concepts, but Matters has elegantly combined the two. Ad spaces act as Matters' own "self-generating mechanism," enabling the platform to reward creators without relying solely on donations from patrons. Moreover, in Matters' view, "excellent content" is defined as articles that receive contributions from more readers in smaller amounts. This economic incentive informs creators that they must find ways to enhance content quality and earn reader recognition.
Ideally, creators strive to produce more content that can attract small contributions from readers in order to compete for advertising revenue sharing. Matters attracts higher-quality readers with good content, and advertisers are willing to pay higher prices to purchase ad space to capture the attention of these readers. With more advertising fees, more creators are attracted to join, creating a positive cycle.
As a creator, I naturally hope that the on-chain advertising mechanism of Matters will continue to improve. However, as Matters' "tax" revenue increases, it is bound to encounter new challenges. Just like how Gitcoin's public funding is paired with Gitcoin Passport scores4 and financial flow analysis to prevent robots from flooding votes with small amounts of money. Currently, Matters is temporarily relying on "preventive measures" to address this issue, where small amounts of money are not scrutinized. But as tax revenue increases, the preventive methods must become more transparent.
Actually, the most challenging aspect is not the technology, but how Matters communicates this on-chain advertising mechanism to advertisers. It's not difficult for individuals to hold cryptocurrencies, but it might be a different story for companies when it comes to paying advertising fees in cryptocurrencies. The accountants might be the first to oppose this idea. Matters pays creators in USDT, but how many advertisers will carefully research how to hold and pay in USDT just to advertise on Matters?
Moreover, while mutual self-assessment tax can maximize Matters' ad revenue, it may have drawbacks for advertisers. For example, consider the current online streaming platform advertiser CATCHPLAY. Their advertised promotion runs from April 5th to April 30th. However, under the self-assessment tax mechanism, this ad could potentially be interrupted halfway if another company decides to "expropriate based on valuation."
Matters faces a delicate balancing act in safeguarding the interests of advertisers while maintaining market competitiveness. Despite many challenges at hand, I greatly appreciate Matters' proactive trial-and-error spirit. Amidst the chaos of the market, they remain optimistic and explore new possibilities for blockchain applications.
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