One of the established social media's first crypto experiments ended in major controversy when Reddit suddenly announced that it was discontinuing crypto tokens for its hashing program known as community points.
"Part of the reason we're ending Community Points is so we can scale a variety of products that accomplish what the Community Points program is trying to accomplish," said Tim Rathschmidt, Reddit's director of consumer and product communications.
“One example of this is the new Contributor Program that is actively rolling out and will allow eligible users to earn cash based on the karma and gold they earn from qualifying contributions.”
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He also claimed there were regulation and scaling issues, but those community points, like the Moons token for r/cryptocurrency, were on Ethereum's second layer Arbitrum, which has plenty of capacity.
“I personally don't see regulatory issues,” Jesse Powell, founder of Kraken, an exchange that lists Moons, said of the regulation. “It shouldn't be Reddit destroying the value of assets without offering anything in return.”
Moon tokens were distributed for free based on the amount of karma (comments and upvotes on posts) a user earned in a given month.
Now that production has been discontinued, its price has dropped by 85%. It fell 10% in the 20 minutes before the announcement. R/cryptocurrency mods confirmed insider trading occurred.
At least one moderator was sold before the announcement was made public. “He will resign,” said a mod who goes by the pseudonym SgtslaughterTV.
“We learned that Reddit was discontinuing RCPs [community points] 1 hour before this sticky announcement was made,” SgtslaughterTV said.
There have been accusations that Reddit admins were sold out before the announcement, as were employees, but there is no evidence or confirmation.
A number of transactions have been highlighted that sold prior to the announcement, in particular 0x213339e8ba27fe13e359cf76fc4bdce4e53b817de5aaf82cea4495091bdd9ffd sold 1,095,584.770585613985755354 moons
0x4bd1ff1db5333a8aa71cf267379b7d22dbd2082e439896c18ab74ffe4f5e28c4 sold 248,207.652045228324237369 moons
0x1406bc4af0f6b91a9f5a0def2180e2b5b6fd01b8ce739bfd6f490e731f60bbff sold 257,360 moons
0x930a82eebd2e1b71a191107a9ab961c7da6572fcd202c065b3258b2665e4f8d9 sold 100,000 moons.
Some on r/cryptocurrency are now discussing trying to continue in the style of r/ethtrader, where Donut was the first to introduce this type of crypto mix.
Donuts is a hybrid system with smart contract and all crypto features started by Carl Larson, an eth developer and former top mod of r/ethtrader.
Reddit only provided a CSV (excel spreadsheet) file of the hash accumulated over the month, and the donuts were then distributed outside of Reddit without their involvement. “Reddit can continue to provide the csv file, and if not, we can collect our own hash,” one ethtrader said.
These donuts, or moons, then allowed the user to purchase a special membership that featured the Reddit nickname and allowed gif posts. This is over now.
It also allowed the top banner in the subreddit to be purchased as a featured ad. “We can charge a flat fee for the banner or upload it manually,” Ethtrader said.
So in theory Donut could still go on, but they're also down 50%. While Moons is a more centralized system in that it also handles Reddit's token distribution, it's not clear whether they can continue without building a brand new system.
Moons' market cap was $35 million before the crash, and Donuts' market cap was $2 million. There were 200,000 addresses and 5,800 donut holders holding the moons.
The only other subscriber with a similar system was r/FortNiteBR, which has 3 million subscribers. The Bricks token belonging to this infrastructure fell 50 percent from its market value of $ 11 million. Arbitrum has 156,000 addresses as its owner.
blockbuster
This is the biggest draw in crypto to date by number of users, although it is small in monetary terms. But there is a silver lining.
This was the first attempt by established social media to fend off possible crypto competition via web3 by integrating any potential innovations.
There have been talks since 2018 about how web3 could potentially open up Big Tech monopolies by centralizing data ownership.
To fend off such attempts, Reddit tried to integrate some of the crypto experiments carried out in this space in 2020.
The halting of this experiment, in a way, shows that established social media organizations are not actually adapting. They can try, but since Reddit isn't natively web3, integration of web3 elements is cumbersome and doesn't come with some of the benefits of web3, such as decentralization.
So this is great news for startups focusing on web3. One of the most important questions venture capitalists will ask them is: What happens if Reddit, Facebook, Big Tech copy you and crush you?
Now they have a potentially satisfying answer by explaining what happens when Reddit tries to do this. It didn't work because there's nothing in it for Reddit, or so they think because Reddit doesn't know how to use the token model and/or the token size is too small for Reddit.
Once it grows large enough, the bulky way will be lower. And so the new replaces the old. Very, very slowly, to a tipping point.
So this is a very bad decision on Reddit's part from a strategic perspective. Community scores earned them some goodwill and quelled the desire to experiment and try to take down Conde Nast.
They are now returning to the out-of-touch, conservative – highly risk-averse – established legacy media that are highly prone to censorship. Turning gray and dusty.
Fortunately, in a way, because now we, venture capitalists, kryptonians, and the public can peer into modern Reddit, where the September effect has yet to take effect.
In this transitional period, when it comes to social media, despair is an emotion combined with the assumption that things will always be this way.
This is a sign of once-in-a-lifetime opportunities because despair is followed by disbelief and hope. Disbelief that Web3 could work and anyone could take them on, until ChatGPT came along and said it all: ah, that's how you deal with Google search, at least in part.
Web3 is a far cry from having an awe-inspiring moment on ChatGPT, who knows, but at least we now have some confirmation that the way is clear, because Big Tech isn't going to run out of crypto and if it tries - or if it does - it's going to toss it up.