As it prepares for its token sale in September, Civil is following in the footsteps of other blockchain ventures by doing something that seems counterintuitive: making it more difficult for people to obtain its tokens. The goal, Civil’s founders say, is ensuring the long-term stability of its ecosystem.

Prospective purchasers of the CVL token must pass an online quiz covering cryptocurrency terms and token use, a quiz so difficult the cofounder of one of the newsrooms that launched on the Civil platform failed. That’s the case even though Civil is attempting to build a blockchain-powered ecosystem for online news that doesn’t require its users to understand, much less spend, cryptocurrency, as cofounder Matt Coolidge told ThirtyK in March.

The best projects are building a base of active users. Projects that don’t take these steps will die out. 

After a brief period in which tokens were often distributed for free to any interested party (and many with no interest), there’s a growing recognition token-based ecosystems require active users, not passive investors, and developers are finding ways to make sure the people who buy their tokens actually intend to participate.

“A token only has sustainable value if people are using it,” Esteban Castaño, cofounder and CEO of TRM Labs, tells ThirtyK. “The best projects are taking steps to build a base of active users. As the ecosystem matures, projects that don’t take these steps will flounder and die out.”

Getting Smart

Civil, like other ventures conducting sales through the Token Foundry platform, is requiring prospective buyers to take a quiz, partly to ensure they are compliant with know-your-customer and anti-money-laundering regulations (known collectively as KYC/AML). But beyond regulatory concerns, its ecosystem hinges on token holders actively using their tokens to vote on whether news providers using the platform are following ethical practices.

“We can’t simply rely on the fact that anybody who already has [ether (ETH)] perfectly overlaps with those who actively want to help promote a new model to incentivize quality journalism,” Coolidge writes. “Buying CVL is a signal that you do care about that, and that you intend to participate in the system.” Because Civil is built on the Ethereum blockchain, purchasers will need to use ether to acquire CVL tokens.

New approaches are helping identify users who are likely to be active participants. One that’s gotten significant attention in the past month is “smartdrops,” a term coined in an oft-cited post whose lead writer is entrepreneur David A. Johnston. The concept both builds on and rejects the airdrop distribution model. Instead of giving away tokens to all comers as a marketing tool, smartdrops draw from user data within a project’s blockchain to identify and reward active participants, much like a frequent flyer or loyalty program.

For example, smart contract verification company Quantstamp discontinued airdrops in favor of what it calls “Proof of Caring,” in which users were rewarded with tokens based on such factors as participation in software development, community involvement and a history of purchasing and holding tokens or other proof-of-stake (PoS) criteria. Other ventures have required users to sign up for their Telegram channel or respond to surveys to qualify for tokens.

Now, technology providers are working to help blockchain projects find active users. TRM Labs has developed its own smartdrop platform that automates the process of identifying active users based on specific criteria and rejecting fraudulent sign-ups, according to Castaño. TRM’s approach combines on- and off-chain criteria, including personal interests, occupations and country.

Such approaches will be critical, according to Johnston. “We foresee that the majority of future [distributed app] and protocol ‘marketing’ budgets will involve smartdrops and expect smartdrop service providers to become the Google Analytics of the blockchain technology industry,” he writes.

Benefits Beyond 

Even passive token investors are expected to benefit from active communities in the longer run. A larger, involved user base translates into more buyers and sellers, greater liquidity and more stable prices, Castaño says.

Nor should incentives that promote active participation end with the token sale, according to Castaño. “One common misconception about smartdrops is that [they] should only happen once,” he tells ThirtyK. “One effective strategy for incentivizing usage is to reward users throughout their entire user journey,” such as by providing tokens at set milestones for continued participation in the ecosystem.

Some ecosystems with active participants, though, still face the opposite challenge. Civil, which requires its participating newsrooms to stake its token and anticipates an audience of novice crypto users eager to support journalism by participating in its voting mechanisms, postponed its token sale in order to give participants more time to prepare. It is hosting webinars to help them understand how to buy ether and register for its token sale. “It’s like the Genius Bar for blockchain,” cofounder and CEO Matthew Iles wrote in a post.

Mark Toner
Mark Toner is a Washington, D.C., writer and editor. He has covered business, technology, media, education, and healthcare for a wide range of trade and industry publications.