by Matt Condon & AJ Adams
<aside> 👉 TLDR;
The universal advertising business model produces overwhelmingly negative externalities for creatives & the web—successful monetization mechanisms must compete head-to-head with advertising, and traditional micropayments don't work in practice.
Using the Epoxy protocol, creatives create NFT social reaction stickers, backing them with a guaranteed reserve. This creates a micropayment economy based on the transfer of those stickers as natural reactions to creative work in social spaces & across the web.
Integration with the rest of the Ethereum NFT & DeFi ecosystems makes an Epoxy-based business model a viable alternative to advertising for online creatives and unlocks novel community-centric interactions inherent to NFTs.
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If you're reading this litepaper, you're undoubtedly aware of the negative externalities of advertising and surveillance as the primary (and default) business model on the web—it's the Internet's Original Sin. Advertising relies of the accumulation of eyeballs, creating winner-take-all wealth distributions, and encouraging outrage, clickbait, and viral content.
One of the unfortunate realizations of the last decade in social media is that negative emotions are heavily correlated with virality. Conspiracy theories, outrage, and clickbait thrive on the fear, uncertainty, and doubt inherent to the human experience. This vicious cycle perpetuates itself, with advertising as the engine for the flywheel. The primary beneficiaries of this system are the advertising giants, at the collective expense of most humans on Earth.
Traditionally, alternatives to advertising mean consumers pay a producer directly, either through one-off payments or via subscription. The obvious benefit of advertising is that the hard costs to a consumer are nonexistent: users pay with their time and attention, and alternatives to advertising must compete with this fact for efficacy.
Micropayments, specifically, are touted as a solution, especially when it comes to creative work online—simply remove advertisers from the equation and have fans sponsor, patronize, or engage their favorite creators directly. Direct-to-producer payments come in many forms, including tipping, real-time donations, and subscriptions.
Unfortunately, capital incentives have a tendency to crowd-out non-monetary incentives. On top of that, we've realized that the mental work required to send a micropayment dwarfs both the technical transaction costs of doing so, but also the monetary value of the micropayment itself. Simply, it's almost never 'worth it' to send someone smaller amounts of money online, especially in the context of rewarding or tipping creators for producing work one enjoys. The web, both 2.0 and 3.0, is littered with the failed remains of projects that've tried to make social tipping happen.
In situations where micropayments are successful, their success can be attributed to the utility of the payment, not the tipping itself. On live streaming apps like Twitch and Inke, micropayments result in recognition from the streamer or some other social effect via plugins like Streamlabs. It's this utility, and specifically the social status utility of the payment that makes the tip worth ones time and money. There's a little treat for the tipper, piggybacking on the age-old social dynamics of humans seeking status in groups.
The "buy me a coffee" button ain't got nothing on your favorite streamer saying your name while your friends are around.
Within the Sticker protocol, reaction stickers are scarce, but backed by a stablecoin. When a sticker is minted, a small amount of money—on the order of 1-25 cents—is placed in reserve, collateralizing each individual sticker. At any time, the owner of a sticker can burn it to redeem that money, placing a natural price floor (with guaranteed liquidity) on all stickers in the protocol.
Then, as stickers are used for reacting to content around the web and online social spaces (imagine real-time interactions on blogs, social networks, and live streams), money is redistributed from fans to creators, circumventing the trap of monetary incentives that traditionally plagues micropayments. The social dynamics of sticker collection, curation, and the flex of reacting with well-known stickers in a group of peers facilitates a more natural redistribution of wealth, without enabling advertising's negative-emotion-feedback-loop. Plus we get a pretty neat creator-owned economy around producing and collecting reaction stickers.
The Epoxy protocol is a cryptomedia and economic mechanism in which reaction stickers—denoted as sets within an ERC-1155 quasi-fungible token—can be created, auctioned, transferred, and destroyed with specific liquidity guarantees that support a more native micropayment economy based on a fan's natural response to creative work.