Community tokens as a business model for the consulting industry
7. November 2022
7. November 2022
Blockchains are far more than just the technology behind Bitcoin and other cryptocurrencies - the disruptive innovation has the potential to transform both our business world and social structures.
So-called community tokens enable artists, influencers, associations and communities to create their own currency with which they can monetize themselves and their brand. The blockchain-based content sharing platform Steemit, for example, is successfully using this. There, users occupy a dual role as participants and sharers. The whole thing works through a 3-token system that rewards valuable community activity and grants voting rights to token holders. The blockchain-based music streaming service Audius also makes use of this technology. The decentralized protocol connects artists directly to fans without intermediaries. With its token system, Audius incentivizes its users to share high-quality music through the platform, creates transparency about licensing, and allows artists to monetize their works directly. How football clubs create social, visionary and economic incentives for their fans with digital assets is explained in detail in another blog article on a project work of the FHNW about community tokens.
But what exactly is behind the term? Tokens are cryptographic digital assets that can have a variety of functions. Community tokens are a subcategory of tokens that give their holders access to a specific digital community and offer them exclusive rewards and various benefits. Depending on the community, token holders also receive ownership shares and voting rights. So how can these features be meaningfully integrated into business models?
As part of my master's thesis "A Blockchain-Based Incentive and Reward System to foster Community Building around a Consulting Company" at the FHNW, I addressed this very question and, using consulting companies like Qudits as an example, show what such a token model could look like and what added value it offers.
The "war for talent" is a challenge both within and outside the consulting industry. Small and medium-sized consulting firms in particular are in strong competition with the "Big 4" of the industry. The latter offer high salaries, interesting career opportunities, and additionally attract talent with their reputation. Tokens can't change the skills shortage itself, but they create attractive and novel opportunities that startups can use to create a competitive advantage that supports them in their recruiting strategy.
With a token-based community, talents do not have to be employed in order to use their knowledge, skills or network profitably for the company. They are rewarded for their work with digital assets, i.e. tokens. For example, experienced consultants could flexibly contribute to a consulting startup in addition to their main job, which is beneficial for both sides and reduces risks. Young talents (e.g. university graduates) can also benefit from this model by gaining initial experience and proving themselves in the community.
Established members could be recruited at a later stage in a shortened process if there is mutual interest. Since they are already familiar with the concepts, processes and culture of the company, turnover among these individuals tends to be lower, which also reduces associated costs.
Of course, internal employees can also benefit from this system. Tokens motivate and incentivize them to work independently in a flexible environment and to deliver high-quality results beyond their area of responsibility. This creates a modern working environment in the sense of New Work.
In my thesis, I developed a model based on literature research and expert interviews with Qudits as a consulting company and with independent IT consultants on how a decentralized and token-based community could be used profitably. I focus on a closed community that organizes itself as a DAO with fixed rules and norms of collaboration. Members work together on challenges and tasks and have the ability to directly influence the system and its development including the admission of additional members. (DAO stands for Decentralized Autonomous Organization, a blockchain-based system for self-coordination and self-governance via a set of self-executing rules provided on a decentralized blockchain).
The illustration on the left shows the collaboration in the community. The consulting company itself would be part of the community and could submit suggestions, present ideas or post tasks. Employees would also be members and could participate in the success of the company beyond their core activities through the system, for example by taking on tasks outside their specialist area and being rewarded with tokens. In addition, non-employee talents, so-called externals, could also participate in the community and thus in the company's success.
A 3-token system is envisioned as an incentive and reward system. A Platform Token forms the payment system of the community and can be used like a cryptocurrency within the community as well as traded on the open market. A Share Token distributes shares in the company and/or the community and comes with profit sharing as well as voting rights. This can only be purchased and exchanged within the community. Its purchase and sale on external cryptocurrency exchanges is therefore not possible. A Stable Token ensures the stability of the system, can be traded without restrictions and is tied to a fiat currency. In addition to the tokens, there is a reputation system that reflects the performance of the members, grants them influence in the form of voting rights, and is not tradable but strictly personal.
The community is self-organized. Every member can participate in the company and have a say in relevant decisions thanks to token- and reputation-based voting rights. This strengthens the sense of belonging and community.
Quality control is inherently built into the system, as shown above. Feedback is solicited via the community for completed tasks. In principle, all members are invited to participate with their opinion, but evaluations from people within the same work group (department) and with a higher reputation are weighted more heavily. The feedback itself is given based on pre-defined criteria with 5-star rankings as well as explanatory prose text. Feedback providers are rewarded for their participation in the form of tokens and reputation, and determine the reward for the work delivered through their rating. Poor results are not rewarded, and malicious actions result in appropriate consequences (e.g., loss of reputation, confiscation of staked (deployed) tokens, exclusion from the community, etc.). This creates a system that incentivizes all members to deliver high quality work or constructive criticism that strengthens the community and thus leads the company to success. The following illustration shows the interrelationship that is formed between a member and the community.
To reduce the risk of threats such as 51% attacks, transparency is emphasized. If a member has a high proportion of tokens, for example more than 10% of all tokens in circulation, this is made public in the system. This cannot prevent an attack per se, but the information that is public for the community enables self-regulation within the community.
There are still many open questions when it comes to introducing such a model in practice. General aspects such as the formulas for calculating compensation would have to be fleshed out with reference to the needs and culture of the consulting company. It is also important to clarify whether a closed or an open system is suitable for the specific purpose of the company and whether members should participate anonymously or under their real names.
The legal status is particularly critical. Currently, DAOs do not enjoy the same benefits as companies, for example in terms of a simplified tax procedure. The legal status could also be a barrier to entry for the members themselves, which could reduce the success of the venture. Jurisdiction also needs to be clarified, particularly in the case of international communities. The WEF has already addressed jurisdictional uncertainty in its report on the benefits and risks of DAOs, and business associations in Switzerland are also already working to provide clarity and ensure legal protection.
In summary, community tokens can form an interesting, innovative and future-oriented model for collaboration in consulting firms but also in companies in other sectors. In the consulting industry there is great interest in new and flexible forms of collaboration, as interviews in the context of the thesis have shown. I am very excited to observe the first models of this kind on the market in the next few years and to become part of them myself.
Dejan Trifunovic completed his Master of Science in Business Information Systems at the University of Applied Sciences and Arts Northwestern Switzerland (FHNW) in 2022 and worked on blockchain-based incentivization and reward systems as well as token-based community building as part of his thesis. He is currently working as an IT Business Analyst at PostFinance AG.