Third Web Micro-Economies #1 - The Props Project by YouNow
Video, mobile first, open APIs, an existing two sided market, and a 40 million strong userbase already transacting digitally. The YouNow live video platform is an ideal candidate for a monetary network based business. YouNow’s Props project aims to achieve just this.
Decentralized economies will reshape digital media.
Decentralized monetary networks work well when applied to existing producer-consumer networks.
Today digital media is a producer-consumer network with despotic intermediaries like youtube, Spotify, existing live video sites, etc.
It may be possible to build a new type of business that can compete symmetrically with these intermediaries using a monetary network.
Which businesses can adopt the micro-economic business model?
Established digital economies
Arthur: Welcome to the Third Web. A podcast about what maybe the technologies powering the next generation of human civilization. This podcast is targeted at observers of what has become known as the blockchain space. In Episode Zero, our guess Tim Swanson pointed out that blockchain has both benefited and become a victim of over promising. It might be a bit of a stretch to say that blockchain is going to change civilization, at least at this stage, but it does appear to be driving innovation and business strategy.
We're beginning to see new business models emerge based on the construction of a micro economy or internal monetary system rather than the traditional profit and loss model. These are exemplified by Kicks Can project, Steemit and the featured project on this episode, PROPS by live video service YouNow.
YouNow's project is especially interesting as they have an existing user base of over 40 million users. What is really exciting is that these new endeavors are giving us a look at what future businesses based in the value transport enabled internet may look like. This is an interesting thread to explore. So, in coming episodes, I'll be interviewing teams from SpankChain and SingularityNET to better understand how their businesses work.
So, on today's episode I'm here with Yonatan Sela of the PROPS project which is being run by the YouNow live video streaming service. Thanks for joining me Yonatan.
Yonatan Sela: Thanks for having me, Arthur, I appreciate it.
Arthur: Well to begin with, how did you become involved with YouNow. What's your personal background?
Yonatan Sela: My background is in startups and venture capital. I've been involved in three startups. The first one was to Tvinci which was an OTT platform that was a company that I joined as the first employee and member of the founding team. We were basically selling a platform for cross device delivery of video for broadcasters, pay TV operators and with the consumer in mind.
I did that for five years. Later did another startup and after some more studies, et cetera, I ended up at the Venrock where I was focused on ... It's a great VC based here in New York. I ended up focusing on two areas; digital media and blockchain technologies. As part of my time there, we invested in YouNow and I worked very closely with the team here. I fell in love with the team, fell in love with the opportunity. This was early in the days of live streaming before Meerkat, Periscope Facebook Live. I decided to go back into the trenches and join the management here at YouNow, and it's been a very exciting ride ever since. That was about three years ago.
Arthur: Can you tell us a bit about YouNow?
Yonatan Sela: Absolutely. YouNow is a live broadcasting platform. We started a few years ago, and we take pride in being the first live mobile video platform in the West to achieve traction. We have over 40 million users, and we're very excited to also be the first company to create a two sided marketplace in this context of entertainment. This two sided market, users can spend a digital currency virtual currency. It's a virtual economy for virtual goods. And creators can earn based on the amount of engagement that they create with users.
This marketplace is a thriving economy that's constantly growing at about 40% a year with a couple million dollars a month in digital goods sales. The main thing at YouNow has always been about audience participation, how can we make the audience take a bigger part in the experience and get their voice out there? We've done that through a bunch of features and through the ability to participate in a bigger way, whether it's jumping on the screen, whether it's from the audience, whether it's the ability to give gifts and support creators gain status, et cetera.
Arthur: What can you tell us about the PROPS Project? What is the PROPS Project?
Yonatan Sela: Sure. The PROPS Project is a project we've been working on for the past year. We were trying to think of, take up all of our learnings of what we learned about running this two sided marketplace. Take all of our other learnings about what works and what doesn't work with interactive video and with the type of video infrastructure and flexibility that it needs to have in order to support multiple use case and successfully build a large network in today's digital media landscape.
The PROPS Project specifically is an ecosystem for media application, and specifically for video applications. The idea here is to create a decentralized economy that runs on a token called PROPS seed that community and ecosystem with the YouNow community that has a bunch of users and thousands of creators who are already interacting in this context. And on the one hand spending on digital currency, on the other hand earning in digital currency. Basically, make that system run on a token, open it up for developers to be able to create multiple use cases on top of it, and effectively reshape the way digital media works.
Arthur: What I'd really like to talk about is this idea of creating an economy rather than having this, I guess despotic business model. When we think of traditional business, say, when we think of YouTube, YouTube sets the rules. The community provides the content, but YouTube takes the cream. It's kind of like the relationship between a king and peasants. That's the state of online communities today. It seems completely demented, it's not okay at all.
What is interesting is PROPS superficially seems very similar to the Kicks Can project but I've actually had the opportunity to do a lot more research into PROPS when I interviewed Tim Livingston a while ago. But I didn't do quite as much research into that project at the time. I don't have to be too biased in your favor, in the favor of the PROPS Project. But what I'm really really interested in is which businesses can adopt this model of building an economy through which they can profit, rather than adopting a traditional business model.
Yonatan Sela: I think two sided marketplace are ideal candidates for tokenization. The second thing I think is established digital economy. We're mobile video guys, we're product guys. We take very, very seriously the importance of creating an experience in which you don't need to reinvent the wheel for users in terms of the behavior that they needed to take.
In our case, and this is number two around what's a good fit for a business to be running this model. I think the first businesses we'll see succeeding in this type of model or among the first businesses we'll see are those in which the users are already transacting in a digital context, in a digital to digital environment. So, not necessarily ordering a pizza with a digital token, but rather interacting in an economy where both sides of the market are good and happy, and in fact, want to earn in the token. And there's very little change to the user behavior that they're exercising.
It's unlike adding a foreign type of behavior of spending and earning into an existing setup. But rather taking a setup in which that behavior is already established, and interfering with it as little as possible in terms of the user experience in order to allow the users to not experience the inconvenience that is often associated with some hardcore project in logic. That have a significant the merit but sometimes the user experience inhibits them from really hitting mass market adoption.
Arthur: We've seen other kind of micro economy deployments similar to what you've just described PROPS to be with obviously, Kick. Let's talk Bitcoin was one of the first to really kick it off in using crypto currencies. Steemit was another one that's been phenomenally successful. These monetary approaches certainly in the case of, let's look back on the Steemit, have been phenomenally successful.
Actually, if you look back there's a lot of mining companies around the world and even tracking companies notably in Britain used company script. Where rather than actually using cash to pay their employees, they would actually issue notes, essentially redeemable for currency on departure from the company, and these really strange kind of ways that people have managed the monetary supply to either support or control the community. Of course, we see that in traditional currency.
What's really interesting is that we're seeing these kind of techniques now being applied in these micro settings, right? These very small ... I shouldn't say very small, but these smaller communities and smaller use cases. I'm wondering what makes PROPS unique and different from some of these, in particular, these other crypto deployments of these tokens?
Yonatan Sela: Yeah, absolutely. That's a great question. We have tons of respect for all of these projects. They've all been innovators on their own right. I think there's a couple of fundamental differences. I'll touch on I think, two types of projects here. There's one type of projects like Steem that are hardcore projects within blockchain space. They take a social context with some of the similar overarching concepts that I've described, and apply them for the blockchain community.
So, both Steem, let's talk Bitcoin, great product. They mostly revolve around the blockchain community and are used mostly by blockchain. People and the type of user interface that you see there is great and working for some stuff, but it's not on par with what you see on Facebook or Snapchat or this type of mainstream products with the extreme ease of use and a target audience that is different in mind.
One of the big differences for us is that we come with our 40 million users and our approach as product people building products for the mainstream, for people who have never heard of cryptocurrency before or at least never used it in most cases. And we're building a product that is directed for them. There's a lot of implications on the product side for that. For example, our choice to use a two currency model, our choice to use a mobile first product. Our choice to use a video based product, which is the second big difference that I wanted to mention. There's no other video focused project out there.
We're starting with video, and our DNA's in video and the infrastructure that would provide for anyone in the community to use is a video infrastructure of many too many videos. So, that's the second big difference. But these two are in that realm. The third the difference I think when you look at companies like Kick which come from a completely different direction. Kick like us are a consumer mobile product that has gained great traction. They have a large community.
The fundamental difference there is that although ... Again, I do want to mention TED has been fantastic. Kick is a sister company at Union Square Ventures, and we love their projects and what they've done. TED has even advised us on a couple of issues as we were undergoing our process. So, it's very poor for me to mention that. But the products are very different.
If you listen closely and I listen to the great episode that you had with TED by the way. You hear TED's vision. That's about creating a digital economy with digital services in which people transacting Kin, which is the cryptocurrency. That is a slightly different case than what we have here. While they had some Kick points for a while, which was a good experiment that they had back in the day, On YouNow, there is an established use case of people paying actual money, and there's actually a more of a two sided marketplace rather than more of a messaging app. In this two sided marketplace you see users on the one hand spending and creators on the other hand earning.
There's already a service that happens right there and then without integrating any external service. Without selling any external product. There's a service right there and then at the core of what is done on this network. That that marketplace is today as I said, grossing at a couple of million dollars a month.
The idea that you can take an existing marketplace and simply replace the infrastructure, the underlying infrastructure of crypto and let the users to continue to interact the same way they did while leveraging all the advantages I mentioned around opening the app, enabling them to take their earnings across different apps in the ecosystem. Enabling developers to expand use case and earn in the app and enabling them to enjoy the growth of the network, that's the fundamental difference. No need to re-educate users for the most part but rather leverage an existing behavior.
If I'm not mistaken, this is definitely one of the first times that we've seen an existing marketplace of this type, of a virtual economy being tokenized that way.
Arthur: So, how is the monetary system structured? You mentioned that it was a two token system. I'm wondering how these tokens distributed, and what are the proportions in which you have distributed those tokens? How many are you holding on to, and how many are going to what members of the community, and then how many are being sold to just the open market?
Yonatan Sela: We have 20% of the tokens being sold in the open market, and we have 50% of the tokens sitting with the foundation whose primary job is to take those tokens and distribute them proportionately, equitably, transparently and algorithmically to the contributors of the network. The way that is done is by effectively measuring the engagement and the watch time that is generated in this network. Measuring the contribution to the network that each member of the network is providing every single day, and rewarding them accordingly.
That's where we're happy that eventually the majority of tokens will end up in the hands of the contributors to the network rather than just in the hands of investors. I think that that goes back to the what we started from.
Now, the way the economy works is that creating a straight up economy that strips away any sort of aid for the users to easily get used to the economy we think is not the perfect fit for mainstream users today. We are building a product that will take PROPS in the hands of millions of users and thousands of influencers, who themselves have millions of followers or hundreds of thousands of followers from day one. Now, in order to do that, we have to create a product that speaks their language. That has the type of user experience that is on par with what you see out there in digital media today.
That product required to do a few things. We don't think that having ... We all know that crypto currencies are sometimes hard to set up, their price fluctuates, and they are harder to do in mobile, et cetera, et cetera. In order to solve for that, what we've done is created a two currency model, which is a model we're familiar with from the current YouNow map.
So, on the one hand, you have a game currency a non-cryptocurrency. That currency is earned by users just by taking all these actions of logging in, inviting friends et cetera. And it can also be purchased by users for fiat currency. So, you can put some US dollars in and get a bunch of those non crypto gameplay currency, and put them in your hand.
Everything you do in this system, you can do using these coins. These coins are used to give out likes, to give out bigger gifts, to help push creators up the trending charts and giving them more surfacing to their content, or whether you're a media company that wants to create greater surfacing for its content. You're able to push that content using that. So, all those functionalities are effectively forms of engagement.
What we do is that every day we collect all of the coins given to someone. Whether they came from free source, or from a paid source. It's just a measure of all the engagement. We take all of the watch time generated by that user or by that media company that's broadcasting its content, and we aggregate them. At the end of the day, we allocate and we take all of the revenue that came in through in app purchases. And we take all of the rewards that came in for that day from the foundation based on the activity, and we allocate those rewards back in PROPS, in the cryptocurrency out to the users.
What this enables us to do is to create a system in which the users don't see fluctuation in price. In which a user that is just starting out doesn't need to buy cryptocurrency in order to engage, doesn't need to know anything about cryptocurrency in order to start engaging. But on the back end of that, all the super users, the creators, the developers who are earning in PROPS are slowly and gradually become users of those PROPS. Those PROPS are used, and they can hold them in order to have status in the system, in order to have access to premium features, in order to have access to content. In order to have uploading capabilities for content.
Using this type of system, we're able to create the system in which you have a smooth experience for users on the one hand, but enjoying all the benefits of a cryptocurrency on the other hand. Over time, what we'll see is that more and more people will get slowly custom into the crypt, and basically introduce them into the crypto economy as they progress, as they start engaging more with the system. As they start seeing the users that have the cryptocurrency, having the status, the access, the influence, et cetera. Over time, that we will see adoption of the cryptocurrency by anyone who regularly uses the product.
Arthur: This sounds like it's going to take a huge number of transactions. But I see that you're netting out toward the end of the day. Even so if you're netting out at the end of the day all of the interactions and all of the value into a single distribution, you said that you had several million monthly users. Just to take a number of 3 million monthly users, say at the end of the day, you have 100000 allocations to distribute on the public Ethereum blockchain, which is where PROPS is being built, as I understand it. That's a huge number of transactions for that blockchain. That seems like it would be hard for the infrastructure to support.
Yonatan Sela: Yeah, and I'd love to talk more about that. So, today, we have 60000 transactions a day. We don't want to put all of that stress on the Ethereum network right on day one. In fact, this is a big driver, additional driver behind going for the two currency model. The idea is that even that context we ... We expect this platform to reach a much larger number of people, and have much greater number of transactions. In the old system, only the creators could earn. That's a very small percentage of the users. On this system, everybody can earn.
So, the number of transactions will go tremendously even for the same size of network and certainly in the scenario of a growth of the network. But having said that, at the end of the day indeed we are summarizing the transactions and sending the PROPS accordingly, settling it. That's used in a couple of popular architectures to overcome this problem. The idea is that you use those ... There's two things to remember there. One, we use that in the form of pool. We don't push the transaction every day, we enable the user to claim the tokens when they want to put them in their wallet. So, those tokens end up in the hand of the user. The transaction happens as soon as the user pulls them in.
So, that's one thing to remember. The second thing is that not everybody that uses a social network contributes to an extent that warrants receiving a bunch of PROPS every day, right? Some people create a lot of content, a lot of engagement, they receive a lot of likes, and a lot of watch time, et cetera. Those type of users are the ones who will have the option to claim their tokens at the end of the day.
A user just pops in, checks things out and gives a couple likes and goes out is a great user and we love having them. But they may not necessarily earn for their activities that day. Because this is not a case where we just airdrop money everywhere carelessly. What we do here is we algorithmically see what is the contribution that that user had for the network that day, and compensate them based on that. For that reason, we see not all users will receive a transaction every day, and even those who are eligible to earn PROPS will basically pull it at the time where they want to place the PROPS in their wallet, which will also not happen every day for those users, even though they will have that ability if they are daily users.
Arthur: How often do people withdraw their current earnings? Currently, you just use-
Yonatan Sela: Currently it's a different thing. Currently, they withdraw earnings once a month. On this system, we expect people to withdraw earnings more often. I guess withdraw earnings is not the most accurate concept. They will claim their PROPS and want their PROPS in their wallets. But they may not necessarily turn them into fiat or take them out of the system. In fact, the system is designed to have status associated with PROPS, access to features, uploading their power, et cetera, et cetera. Therefore, our belief based on everything we know about how our users behave today is that the vast majority of the tokens that creators and developers earn will actually allow these people will be hoarders.
These people care a lot about status and a lot about what they can do on the system. That's why many of them will continue to hold the tokens, which provide a very strong basis of ongoing demand for the token. Because imagine that all the funds that go in are used to get tokens, creating demand for the tokens. But on the back end of that, a lot of the people earning them will continue to hold significant chunks of it.
Some people will be able to sell them in the market. Everybody will be able to, but some people will end up selling within the market, and provide good liquidity because it's going to be thousands and thousands of people that receive them every day. So, we think we will see a healthy mix there of a lot of people holding and people selling portions of their earnings for liquidity.
Arthur: This all sounds great and the PROPS project sounds really well considered and thought out, but I'm just thinking, 60000 trends that's a lot. The Ethereum network doesn't have much capacity. It can't really do the stated ... I know what it's up to now, maybe less than 20 transactions a second as far as I'm aware, but those are bare minimum transactions.
As soon as you start adding in ... Those are value transactions. So, as soon as you start adding in interactions with smart contracts, and obviously this is the moving of a balance from one address to another in the smart contract. So, that's going to involve a data payload and quite quickly the transaction throughput of the network is reduced. I'm wondering if this is going to be too much of a strain, and it's truncated and batched payment processing for? I don't know that there's an answer to that.
Yonatan Sela: Yeah. I just want to clarify again, the 60000 number is an equivalent of the number of transactions happening off chain on YouNow today. Those transactions will continue to happen in the game currency off chain exactly for these considerations and other considerations I mentioned earlier. But the amount of transactions we'll actually see on chain is going to be smaller. That's why we created this architecture.
So, I don't see this as a problem in the early days. I think that if you fast forward this a couple years down the line, then the Ethereum community as a whole will have ... I think that Ethereum will be able to support a larger number of transactions that it can today. Otherwise, we have a bigger problem than just what happens to PROPS. I think that the short answer is that short term much less than 60000 transactions on chain, and most of the interactions happening off chain. And long term, yes, we will need to ensure that the number of transactions that we want to have as the network grows is supported by the system.
There are ways for us to artificially reduce that number. For example, you can decide that the on chain transactions sending the reward PROPS to the users are limited in time and they only happen periodically every X number of days. That is a brute way to reduce the number of transactions significantly. We will take those measures if that is necessary. I think in the short term, the architecture of the two currencies it takes care of that.
Arthur: This has been an absolute pleasure Yonatan. I really look forward to seeing how all this plays out. Where can people find out more about the PROPS project, about YouNow, and what are you guys planning in the future?
Yonatan Sela: There's a lot of information on our website at propsproject.com, and you can download our white paper there. There's a bunch of videos where we present the project with a lot of visuals and a live demonstration. I think one of the exciting things about this project for the community, and we've been receiving a lot of fantastic feedback from people on our, in our Telegram group and on Twitter. There's a lot of excitement about the fact that this is going to be one of the first token sales in which the tokens will be available immediately right after the sale for use in the product.
So, everybody that participates in the token distribution event will receive the tokens and they will have early access to Rise. RISE is the first app on the PROPS ecosystem that runs entirely on PROPS, like they describe it and using the video infrastructure that I mentioned earlier. I think that is pretty cool, and we see a lot of people wanting to buy just to have the ability to have a token that can finally use for its utility right away.
That's one thing. We're going to have a token distribution event around the end of November. We are starting registration for that these days. In order to register, you just got to either be on our mailing list or on our Telegram group before November 1. So, by end of this month you got to jump on that Telegram or email and I think it's a lot of fun. There's a lot of people excited about answering questions and clarifying anything about this project.
Arthur: Fantastic. Hey, it's been an absolute pleasure. Let's touch base in a couple months to see how all of this has panned out.
Yonatan Sela: We would absolutely love to. Thank you so much Arthur, this has been a real pleasure.
Arthur: Nice. Take it easy on [inaudible 00:30:24]
Yonatan Sela: Thanks. Bye bye.
Arthur: Thank you Yonatan and big thanks to Breakmaster Cylinder for the tunes. Visit thirdwhip.net for more episodes and content, and subscribe on iTunes or your favorite podcast manager.