The case study: bad incentives lead to bad outcomes

The case study: bad incentives lead to bad outcomes

August 24, 2023

Bad Incentives in

Crypto economics deal with incentives, game theory and mechanism design because incentives matter. Good incentive designs lead to good mechanisms and product outcomes. Bad ones lead to the reverse. Despite the current hype about, the incentives on the app have been misdesigned and will lead to bad outcomes.

There’s lots to learn here for builders as well as speculators. We’ll explore:

  1. Why and incentives should align with your product goals.
  2. How to evaluate the incentives
  3. Learning from history for applicable lessons

The goal of this case study isn’t to dunk on the builders, rather to take a real life case study so that we can build better apps in the future. I’ll start with an overview of the product goals, narratives around and then analyze the app and product flow in light of the incentives.

A product goal evaluation is an app that lets you buy ‘keys’ in people. Buying a key gives you access to a private chat with everyone else who owns a key. Prices are determined on a curve, the more buyers the higher price per key. This is a B2C social financial app — it’s core use case at the moment is connecting, investing and speculating. Apps like this are evaluated on a few key metrics: user engagement, usually in the form of DAU and WAUs as well as financial engagement in the forms of trades made. To succeed, they need to incentivize these types of users: DAU and WAUs who are engaged in the social and financial aspects of the app.

What are the narratives around

Every good product has a strong narrative, one that engages with the community and convinces people to give the product a try, to invest or simply to tag along. A few prevalent narratives have emerged around

  1. Creator financialization and community: creators suffer from bad economics. Patreon and every other platform takes a fee, it’s hard to monetize. lets creators be valued properly (through key price), and earn rewards by engaging with their community (through fees they receive every time their key is purchased).
  2. unlocks the ability to invest early in creators and reap the rewards. Just like an early stage startup investment.
  3. Speculation is a great way to bootstrap a user base.

Analyzing product and incentives in has three stake holders with different incentives that we’ll analyze: the app developers, creators and speculators/investors. team

The app developers want to maximize DAU and WAU as well as financial engagement. More trades & more users = success. In terms of user cohorts, I assume that a classic social app experience, like snapchat or twitter, or a gaming breakdown can both work. Meaning that either large cohorts of mildly engaged DAU or WAU can succeed or tiny cohorts of highly engaged financial whales who trade incessantly, and generate the majority of fees.


Creators are interested in generating fees and building a community. Neither are mutually exclusive and in fact can come at the expense of each other, depending on the type of creator. A creator that relies on long term community building, like a writer, product builder who builds in public or artist who shares their journey benefits more from a long term community. Other creators who benefit from shorter transaction cycles, such as OnlyFan creators, could be interested in generating fees. It’s important to remember that creators generate fees only when their keys are traded. A creator doesn’t benefit at all if there’s no volume trading their shares, and their only benefit from someone holding their key is that it maintains a higher price floor, which, when shares are traded, increases the fee. Creators are thus incentivized to both generate more holders as well as more overall trading.

The key point is that once someone has bought your key, you as a creator aren’t very incentivized to maintain them — there’s no ongoing payment or subscription from them to you. Creators want more buyers than sellers, to increase the price of your key, but all things considered they’d rather a lower price, constantly traded than a high price that no one trades. Trades generate fees. Not holding. This incentives a very specific kind of creator, one who doesn’t build community or long term focus — rather a short transaction cycle. Which is why it’s no surprise to see a lot of OnlyFan creators in the 🔥 Trending tab.

The creator class on transactional and speculation driven
The creator class on transactional and speculation driven

It’s hard to overstate how badly designed the incentive mechanisms are for community building creators. Creators benefit from super fans who both offer emotional and financial support. The financial model offers neither. Patreon and other subscription based platforms have succeeded for good reason. Ben Thompson from Stratechery, a leading creator economy publication, has long stipulated that ongoing memberships pay for ongoing content creation, not access to past work.

Subscriptions incentivize ongoing investment in a community by a creator. One and done purchases do not. Transaction fees incentivize turnover, not longevity.

Key buyers

Buyers can be broken down into three distinct groups: speculators, genuine fans and investors. Speculators want to buy low and sell high. They don’t care about creators or communities. They have a short time frame. They want to profit. Investors also want to make a profit but are more long term oriented. They want to invest in a creator early on and benefit from the rising stardom of that creator. They’re not real fans per se, but will stick around for the long term — as long as the thesis holds true for them. Genuine fans are different since they have much smaller financial incentives and want to engage with the creators they like.

At the moment incentivizes only the first group: speculators. For genuine fans the experience is worse on every metric than the industry status quo. Patreon and Discord already offer far better user experiences. There’s nothing better about the experience that makes it worthwhile for fans to show up. The one major caveat is that fans will show up where the creators they like are. In, we’ve already established that the creators who fit are short term, transactional creators.

Investors have nothing to find on the platform. Despite the very catchy line that “imagine if you’d invested in Taylor Swift early on after she played in some club”, this only holds true if the platform is built for long term investing, holding and supporting of an artist. simply isn’t. Beyond the transactional nature of the relationship, which doesn’t incentivize long term community building on the platform, there’s also no connection between the creator’s upside and a key holders’.

Speculation is where the platform shines, and where it nails incentives. Financialization of ‘creators’, or speculating on them, tends itself to social influencers. Three main drivers for this are: people easily recognize them on the platform and can easier ‘asses’ the value in buying a key. Influencers can push their audience to buy their key and they’re incentivized to do so because it drives up volume of trading — something they’re rewarded with immediately in the form of fees.

Speculation also leads to quick dopamine hits, often something that genuine longterm fandom and investing doesn’t. There’s nothing quite like getting an immediate dopamine hit in the form of receiving trading fees on your keys or making a quick profitable trade. And this dopamine hit just incentivizes you to take this action again — but this isn’t long term community building. It’s all short term.

All that sweet sweet ETH fees
All that sweet sweet ETH fees

Summarizing incentives, speculation is the main activity being incentivized, both as a creator and a ‘collector’. The other main activity are transactional creators such as OnlyFans creators.

Lessons shows we haven’t learned

Two main lessons we clearly haven’t learned in the last cycle are apparent in the narratives driving to public awareness and in the discourse around it.

The first is that different users have very different motivations. As I explained in ‘Are tokens good for bootstrapping’:

Humans don’t do things purely for monetary reasons. When they do, it’s usually about a financial activity — like maximizing income. Paying someone to exercise involves all kinds of motivations: self worth and ego, external appearance, upcoming events. Money isn’t a primary motivator. Because money isn’t the primary motivator, to make it matter becomes a question of making money become the primary motivator — which can be very expensive.

Different people have different motivations. For some, exercise is a powerful motivation. For others, money is. Tokens work on the financial level really well, but don’t work on any of the other ones. This doesn’t mean that if you ask people to put a price on motivating to do an action, they couldn’t. They probably could, it’s that these are completely different problem areas. In economic terms, they’re non substitutable incentivizes financial speculation driven users, not long term socially oriented ones. We know where this ends: in churning users. As there’s no real usage by actual creators, fans or long term investors, even the speculators get tired and drop off at some point. Once it begins it’s impossible to reverse, as speculators bail ship as fast as they entered.


The second lesson we haven’t learned is to learn from ‘history’. Even writing ‘history’ is ironic as the mistakes and the crypto twitter influencers are making about it played out no more than two years ago. Last cycle we saw the rise of identical attempts. Bitclout let users speculate on twitter influencers. Social tokens let you buy in early into a creator or community. All failed not because of bad UI, but because being a content creator who builds a community with financial value is really really hard. Mixing up the user base and incentives is often a deathblow. Creators have to engage, provide value etc to justify their ‘financial valuation’. Most creators don’t want to do this because it’s time consuming and so drop out — leaving their token holders disappointed.

What we need to learn from has done a wonderful job showing how a B2C app can be built and onboard native crypto users. Built on Base, an Ethereum L2, the transaction fees are non existent. They nailed the speculative incentive design and showed how to build a good user experience for wallet onboarding and transaction abstraction. All very valuable learnings.

However we need to internalize the lessons of the past cycle and differentiate financial users from actual users. We need to build products with the right incentive mechanisms and we need to stop believe easy narratives with no tangible backing on the ground.

I design tokenomics for crypto protocols (all still in launch phase) and am putting everything I’m learning into a super in depth course on Tokenomics. If you’re interested in my free email course on tokenomics, sign up here!


Designing Tokenomics by Yosh Zlotogorski