Profit Sharing Tokens: A new incentivization mechanism for an open web
TL;DR: SmartWeave enables developers to monetize their apps and profit from their real world usage with a new tool — profit sharing tokens. Profit sharing tokens are a fundamentally new way of incentivizing founders to build web services. Rather than app developers having to sell access to users’ attention and data, PSTs allow developers to earn a stream of ‘micro-dividends’ for as long as their app is used. Once an application has been built and launched, app developers can sell tokens that capture part of their future profits.
The Incentives of the Web
When we first started discussing the open source web a year ago, we outlined a vision for a new incentive structure for the web enabled by Arweave’s storage endowment. In essence, we noted that unlike the Web 2.0 world, on the permaweb the financial burden associated with increased usage of an app does not rest with its developers. This new model is closer to the economics of server, desktop, and mobile applications — where the user pays for their own resource consumption. Subsequently, this enabled developers to build web services based around open source development models for the first time.
Since the open source web initiative launched, around 250 apps have been built on the network, and a community of thousands of developers has formed around the permaweb. Together, they have built the start of a flourishing ecosystem of interoperable and open web services. Owing to the recent launch of SmartWeave, we are excited to add a new component to the incentives of this ecosystem.
What are profit sharing tokens, and how do they work?
Profit sharing tokens (PSTs) work like this: when a developer builds an application, they can add a mechanism that sends small tips (in the form of Arweave tokens) whenever the user interacts with the app in a way that generates a transaction on the Arweave network. Let’s imagine a fictional permaweb blogging app called SmartBlog that uses a PST. SmartBlog was created collaboratively by two developers at a hackathon, so they would like an equal share of any tips that users of SmartBlog generate. With their SmartWeave PST configured so that each developer holds 50% of the associated token, each developer will receive half of the tips. While this is a simple system, its effects are profound. Once launched, permaweb apps are truly permanent and cannot be changed. This means that the owners of the app’s PST are guaranteed to be sent a small profit whenever a user interacts with the application at any time in the future, without further maintenance, costs, or administrative overhead.
The effect of deploying a PST for the developer of an open source web app is twofold. Firstly, without the developer performing any further actions, they will receive rewards for their work for as long as others find their web application valuable enough to use. Secondly, the developers can monetize the future tips generated by their permaweb app. That is, instead of waiting for profits to accrue slowly over time, the developers can instead sell a portion of their app’s PST at any time post-launch. This allows the developers to access some of the financial benefits of their development efforts sooner, while simultaneously providing an opportunity for others to access the profits of an already live, functional and decentralised application.
Purchasing PSTs also offers unique and attractive properties not found in traditional equity or token-based investment models. Given that once a permaweb app is launched it cannot be altered, PST buyers can know exactly what they are getting for their money. This eliminates the risk that the app’s original developers will remove or change desirable features, that the app could go offline, or that new bugs could be introduced. With permaweb apps, what you see is what you get — forever. Further, as opposed to any investment in the equity space, these PST investments are zero-trust. That is, a purchaser of a PST for an already-operational permaweb app does not need to trust the team behind the application. This is because they are buying a piece of a business model and micro-dividend issuance mechanism that is truly immutable.
Let’s consider a real-world example: Weve. Weve is a Weavemail client, built by Anish Agnihotri in a recent hackathon. Anish’s elegant Weavemail client is now a permanent, revenue-generating app. Weve is a valuable application in the Arweave ecosystem, substantially improving upon previous clients of the Weavemail protocol. As long as people find Weve useful and continue interacting with it, the holders of its PST will accrue tips. Anish now has the ability to monetize the future tips of his open source web application at any time by selling some of the app’s PSTs. PST buyers can later sell their purchased PSTs to others should they wish. This essentially represents a liquid market for an immutable business model.
The regulatory position of PSTs in most countries is not trivial to determine. This means that you must gain legal advice before issuing, selling, or buying PSTs.
We hope that over time the regulatory environment in which tokens like these exist will become clearer. However, at the present time it is important to exercise caution and take every effort to ensure compliance with the relevant regulations.
The incentives in the traditional web ecosystem are overdue for a fundamental shake up. We believe that PSTs and the open source web are likely to form a major component of a new incentive system: allowing developers to monetise their creations, without sacrificing their commitment to optimizing user experience. The first PST is already live, associated with the Weve app.
The world we get is a result of the incentives that we enforce. The incentives of the Web 1.0 and Web 2.0 worlds pushed us to build services that commoditised user behaviour, attention, and data to the detriment of privacy and user experience. With Web 3.0, we have the chance to fix these faulty incentives and build a network of services that put user experience first, while also fairly rewarding developers and infrastructure providers.
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