Why Benson Oak is Investing in Bitclout, the Web 3.0 decentralized social network

Passionware + Crypto = Bitclout

Passionware + Crypto = Bitclout

Benson Oak has dubbed Passionware as a new category of digital tools and platforms enabling anyone to run a business to earn a living and, at the same time, fulfill one’s passions. We view blockchain as the underlying technology for passionware as decentralized communities will help get the Internet closer to its promise by replicating the trust provided today by middlemen at a great cost to consumers and businesses alike.

Bitclout is the first blockchain-based, crypto-currency powered social network showing real momentum around building a community of creators, users and developers. We view this as potentially analogous to investing in a seed round of Facebook or Twitter - and therefore having 100X potential (with all the ancillary risks).

Bitclout is now our first token-based investment, as we have purchased about $1 million worth of the utility coin for both the new Benson Oak Ventures II Fund and our LPs, specifically doing so ahead of major platform developments - including a cap on the number of Bitclout in circulation (“the deflation bomb”)

We are backing what is effectively a decentralized autonomous organization (DAO) built on a protocol.  Value is derived from the open source protocol code created by the team, and a community of users, developers and creators that drives usage of the Bitclout coin, as well as potentially further investment value from buying creator coins and assisting their growth.

Read on for more and please do subscribe to our newsletter and follow me on Bitclout @RobertCohen (clean name as reward of being an early adopter!).


Logical Progression to our First Token Investment

We have been deeply involved in blockchain and crypto since our first investment in ZenGo1 in 2018 (when Bitcoin was below $10K and we doubled-down when - gulp! - it was around $5k). ZenGo and the frenetic activity of its CEO Ouriel Ohayon and team of crypto experts has been a focal point through which we have witnessed first hand the trials and tribulations as well as opportunities in the crypto market. Ouriel is also a big proponent of Bitclout and has been a source of education.

For those that have read our posts on ZenGo, Passionware2 and NFTs3 (see all links below) an investment in Bitclout is a natural progression - an opportunity to invest in a web 3.0 social network that brings together our thesis around NFTs, creators and crypto. As we outlined in our post on NFTs as the currency of passionware, the Internet has been hijacked from its original promise of directly matchmaking creators and fans.4

Enter decentralized social media.

Bitcoin as digital gold - people can transfer money to each other directly.

Ethereum as decentralized finance — people can directly lend to and borrow from each other - with digital assets as collateral - and both reap the benefits.

Bitclout as decentralized social media can be much more as it touches all aspects of the looming Web 3.0 ecosystem. Creators, consumers, developers can prosper together - and also provide investment-like rewards for contribution to the community and patronage of its creators even if via a decentralized autonomous organization. As a DAO, there are many of the normal business risks, and for many it will be a hard-to-understand beast, without team identities, a registry of shares, or corporate governance (what, we can’t replace the management?).

We see this as an inevitable part of a new world engendered by open-source code and an active community, where value accrues to digital assets directly, thus making price discovery clear and instant, and liquidity readily available. Unlike traditional social media, this is the first time the success of the protocol is 100% aligned with the success of its users.  Everyone wins and the coin structure guarantees that transparency. 

It is our job to take major risks on behalf of our investors and with 100x potential, we see asymmetrical upside. We have also been able to procure bitclout at a meaningful discount to the current token price by buying over the last few weeks as we dug in more, including immense value from select BOV venture partners.

Bitclout in Brief

For those that want to dig in more, see the Bitclout vision doc5

Bitclout is a fully decentralized on-chain social network and its code fully open sourced, bringing together multiple components —

  • Social network (encompassing similarities to Twitter, Facebook, LinkedIn, but fortunately NOT TikTok)

  • Decentralized social network protocol for developers to build on top of

  • Stock market where you can invest in people, creators and projects

The protocol is powered by the Bitclout token — a utility token required for every post, like and engagement on the platform including setting up your creator account. Each creator account has its own (social) token at inception and this token value moves based on internal metrics (activity, replies, meaningful connections, approved account etc...). It was launched publicly in March with strong backing of investors ($155M of capital) such as Sequoia Capital, Andreessen Horowitz, Chamath Palihapitiya’s Social Capital, Coinbase Ventures and more.

Bitclout owners can acquire other creator tokens that they see as up and coming content creators or artists (a.k.a businesses in the world of passionware). Moreover, they can help them through promotion and assistance — effectively acting as stakeholder because they are a stakeholder!

Combining network and viral effects, Bitclout effectively leverages the personal social media of Instagram, the social megaphone of Twitter, business networking of Linkedin, celebrity promotion of Cameo, creator-fan matching of Patreon, all wrapped up in AngelList, tying a social real world value token to personalized social accounts. This is all powered by community, open source code and no middle-man extracting rent in the form of money or advertising.

The Bitclout protocol can extend to more than social media but to a full blown creator economical system where creators can directly and simply build their own economy with their fans and take the form of any creator service.  For creators, by making fans part designers of the creative process and part owners of the creative output, they can scale that business to new users (and add exclusive features for coin holders such as content, ticketing, tipping....). . Anyone can invest in this economy that has been built, thereby further increasing the value and unleashing more innovation. This “leverage effect” is what makes the decentralized social media economy potentially much greater than that of digital gold (Bitcoin) or finance (Etherum).

The Investment Thesis

We view all of our investments through the prism of our 4 Questions Approach6 and BitClout is no different (albeit with a few twists on value-add and business model)

The market thesis behind Bitclout stems from its mass market potential —

  • Fact. Social media platforms are one of clear investment winners of the Internet era. Early investors in Facebook, Twitter, Instagram, Pinterest and now TikTok and others have made enormous returns on their early capital injections.

  • Market Thesis. There will be a decentralized alternative to social media platforms - for all the reasons highlighted above — and further outlined in our NFT blog and the Bitclout vision document.

  • Market Winner - Conditional Fact. If the market thesis holds, the returns to the winner will be immense and in the context of a decentralized platform, by definition those returns will be rewarded via tokens, not equity. This adds some layer of risk but also the benefit of liquidity. We are comfortable investing a small portion of our fund in tokens as see the focus on equity vs. tokens as a legacy of the past (a.k.a. a “mindset issue.”)

  • Brand Winner - Investment Thesis. Bitclout has the early (very early) start to be the winner, due to its VC backers, capital, technology, and very engaged community. More on this below.

Why Can Bitclout be the “Winner”.

  • Head Start. They are first to launch a decentralized social network backed with A-list of investors and already generating significant engagement on platform with big names joining, showing real momentum around innovation of the platform itself. As more products are built on top, removing frictions points - on / off ramp, exchange listings, fiat onramps, and better product experiences - creators will likely move to the platform and leverage the early opportunities. The  community - although still limited to 100-200k members is extremely engaged and seemingly committed, a strong seed for the future

    The platform is also screaming for simplified wallet support - perhaps ZenGo will have something to say about this soon!?!....

  • Significant Project and Developer Activity. Bitclout recently announced they released all of their code open source on Github. This accelerates the already engaged community of developers and projects building apps and tools on the platform. 100s of apps have been built and the network effect of engaged community and more and more projects will inexorably generate viral loops.

  • Organic Marketing - Bitclout is displaying real momentum in terms of the community on the platform where people lead the marketing not peformance marketing dollars.

    All social platforms lend themselves to word of mouth marketing and this is amplified in a decentralized social network since the users (creators) are both self-interested investors and owners of the platform. Bitcoin reached a +$1T marketcap with no marketing budget, except for the builders and believers that saw the potential and wanted it to succeed. Bitclout is the same, only has more network effects and financial incentives that don't require you to understand deep complex crypto technicals. Creators are incentivized to create valuable content, so they can accrue social token value. It also makes sense for them to bring their followers from other platforms here and themselves make investments in early creators. The are many virtuous cycles existing in the base product and many more to be discovered.

Business Model

There is no traditional model or future operational cash flow (except from the creator investment case). Bitcout is a utility token that enables developers and creators to create “investable” personas and projects on top of the platform.  For Bitclout token, it is the utility that will drive the adoption and a view that the token will increase in value due to usage in an asset whose supply is constrained and convex.

The token is deflationary - this means there's a limited supply (becoming fixed as of today through so called deflation bomb) and each action on the platform requires Bitclout (including setting up a profile). If the token increases in value, it will be due to usage and demand for such usage (analogous to Ethereum).  There is also extra benefit to using Bitclout uplift to invest in creator coins -this “leverage effect” is what makes the decentralized social media economy potentially much greater than that of digital gold (Bitcoin) or finance (Etherum).  Finally, now there is no future dilution as with typical stock purchase. 

The other element of the business model and part of the overall opportunity stems from companies and creators building on top of the platform, which adds a twist to our traditional value-added approach.

Our Value-Add

We do not know the founders (yes its in the lengthy risk section of our investment recommendation) so there is no traditional value-add. In this case, we turn the question around - how we can leverage more value from deepening our expertise and network related to Bitclout, eg "value-add for us"

As the platform shows growth in adoption, there will be further opportunities to identify big potential creators early on, adding value FOR THEM via the platform.  Ouriel and ZenGo are prime examples of creators we could invest in.

ZenGo is up 300x on the platform and they take 5% founder rewards which is to be reinvested fully into creators and the community - this in turn also makes them more popular and growing their value and exposure.

We could very well envision a Bitclout creator fund where we can leverage case by case specific token investments further down the line, combining our thesis around crypto, passionware and NFTs, with the ability to “add value” to such projects and investments.


Conclusion

We are backing what is effectively a decentralized autonomous organization (DAO), where the protocol created by the team, and community drives the value. Its effectively a social experiment of web 3.0 with all the entailing technical, security, usage and custodial risks that are numerous in scope (there is definitely a path to this being a zero as with any start-up but with highly unusual asymmetrical upside potential).

We look at this as a binary bet of mass adoption unlocking value that cannot yet be fully fathomed by traditional forms of investing. As there is not an open market, the estimated valued is over $1B. If one assumes the value of a winning social network is over $100B, there is a 100x potential. The potential is the culmination of a foundation for the creator economy, NFTs and social tokens - on an open platform accessible to the creativity and ingenuity of developers spawning countless new use cases and products.

As outlined in our previous blogs and herein, we firmly believe this is the next evolution of the Web and blockchain and decentralized platforms will play a crucial role. It means thinking “out of the box” when it comes to investment forms and skate to where we believe the puck is going, therefore taking risk when deemed appropriate, especially when the potential returns are asymmetrical.

Follow me on bitclout at @Robert Cohen

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Disclaimer - all token related comments are meant to demonstrate the utility value of the token in the ecosystem as a whole and not meant for making a direct or indirect comment on price with an expectation of profit.  As noted above, this is a utility token and it is the utility that will drive the adoption and the value accrual and capture of the token within the ecosystem

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Instead it is dominated by middle-men taking large fees for matching creators to users and/or inserting ads between us — while taking most of the revenue. The Internet has perhaps been the greatest innovation of our lifetime but large swaths of it unfortunately resemble a centrally planned system plagued by power-based mafia economics.