Tokenization of memberships or subscriptions is a concept that can bring new value to both the creators and companies who issue memberships and the customers who purchase the membership. While tokenization of memberships is a novel idea not yet mature, tokenization is already changing the creative space with digital art NFT’s. This article will look at two examples to see how tokenizing memberships or subscriptions could be used in the future.
What is Tokenization?
Tokenization is the process of representing ownership of unique assets on the blockchain. Because non-cryptocurrency assets like a car or a membership cannot normally interact with a blockchain, these assets are being represented by non-fungible tokens (NFTs), a type of cryptocurrency token that interacts with the blockchain in their stead. As well as proving ownership, NFTs can be used to represent rights to an asset, like a lease, which grants rights to property, or a membership that grants rights to services. While the most apparent benefit of tokenization is the security inherent to the blockchain, tokenization can also create new opportunities for added value.
Example 1 Creator Membership
Our first example will help to explain how a tokenized membership could function. Our second example will offer specific insight into where this type of asset could potentially be valuable for a service-based business.
Let’s assume a creator has one million subscribers on YouTube. They decide to issue 100,000 membership tokens to their existing subscribers. The tokens give users exclusive access to the creator’s new content. If a new user wants to access the new content, they will need to buy a membership. Because there are only 100,000 memberships, a new user will need to buy an existing membership from another user.
You may have noticed that while there were 1 million subscribers in this example, only 100,000 memberships were issued. In this example, there is likely to be more demand for memberships than memberships available. Where demand is greater than supply, memberships can sell for more than their cost, netting a profit for the membership holders.
But how does this benefit creators? Membership token holders may be required to pay a monthly fee creating recurring and predictable income. There is also a second source of revenue for the creator on the resale market with significant upside potential. When a membership is sold between users, the creator can receive a royalty fee from that transaction. In contrast, a creator could also generate income from a paid subscription model. Moving from free to paid content is often a difficult proposition for content creators. NFTs offer a way to transfer value to users, incentivising participation in a paid content model.
What if the token holder cannot pay the monthly fee?
The membership can be revoked, and the token is sent back to the creator.
What if the creator stops posting content for their members?
The token holder must be able to send the NFT back to the creator. If this is not implemented, then the token has no value as you can easily be scammed.
Example 2 Service Membership
Our second example has a similar revenue model to our first. This example will look specifically at memberships that offer significant value-added services. Where these memberships are finite and valuable, we will explore this type of membership as a potential investment vehicle and as a means for a company to raise capital.
Let’s take a business and call it “Stocksky.” They offer trading analysis of the stock market for $35 a month. Stocksky decides they want to raise capital from current members in order to invest in new service offerings for members. Stocksky anticipates that the new value-added services would allow them to market a premium tier membership for $150 a month.
Stocksky decides to tokenize 1000 memberships, and each sells each one for $500. The benefit for members of having the tokenized membership is they will receive the premium tier service at the reduced price of only $50. In exchange for this reduced fee, Stocksky will raise $500,000 in upfront capital to fund their new service offerings.
If Stocksky successfully creates their new service offerings, this membership will save users $100 monthly in fees, $1,200 annually, creating tangible future value. The user who bought the membership for just $500 will be able to sell it on the open market for potentially thousands of dollars. This potential for return on investment can make the token appealing to an outside investor, even if they realise no value from the $50 monthly fee in the interim.
Tokenized membership is a new and unexplored way that creators and businesses may be able to use to add value for customers and subscribers. This concept reflects a new way of thinking about the value of a membership and rewards early supporters who help creators and businesses get off the ground with upfront costs. Early supports can end up yielding a return on investment in the future as memberships become more valuable.
Digital Art isn’t the only place NFTs are making waves. checkout our other NFT posts to learn more.