Content Liquidity and Protocol Lock

As I continue delving into protocols, some thoughts on media triggered by the conversations at Broadcast with Steph, Jihad, Chase, and Dan. A big thanks to Patrick, Kairon, and Folklore for the feedback.

Listen to the discussion here:


Content producers choose a protocol to deploy their tokenized media, and, through this, shape the future of our creative industries. Creators are now “Content Liquidity Providers”, in a similar manner that capital providers deposit liquidity into decentralized finance (DeFi) protocols. By selecting the protocol for their content, creators select the capabilities and limitations of their digital assets, while empowering the underlying protocol with their assets. As a result, creators are shaping the future of media through their choice of protocol.

“You’ve heard of the golden content rule, haven’t you?

Whoever has the gold content, makes the rules.”

Jafar to Aladdin, 1992 (kind of)

Content Liquidity Wars

Content protocols are similar to DeFi protocols: they require volume to be successful. Whether monetization pathways emerge at the interface or protocol level, content protocols require creator-made tokens to be interacted with and traded. Revenue then flows from the creation of the content, but most importantly, from collections, trading, and (soon) the interaction with the content. Without tokenized media volume, protocol operations like ongoing security and new functionality are not sustainable.

We could say the underlying content, or tokenized media, serves as liquidity for the protocol. Each protocol needs to create incentives, like a marketplace, to attract suppliers (creators) which will produce supply (content liquidity in the form of NFTs and Tokens), and demand for that supply (a captive audience and community members). The protocols, in turn, provide additional content-specific features that define their quality standards: curation games and partners, social DAOs, and, in the near future, autonomous / AI moderation entities.

Like any new social media entity, it is in the best interest of the content protocol to attract prolific creators selling assets to large, insatiable audiences. After all, the higher the TCL (Total Content Locked), the higher the valuation of the protocol.

This Content is not Transferrable

Content producers in web3 have significant benefits over web2 platforms. Some top-line benefits include control over the content contract, control over the economic contact information of the audience or community they serve, and direct communication channels like email lists. As a result, content protocols cannot lock their audience or unilaterally remove or manipulate the tokenized digital assets they created.

However, ownership is a slippery term. Content may be owned by the creator and preserved in the collector’s wallet, but the contract specification is, for all practical purposes, locked to the standard and to protocol. While NFTs from many protocols are viewable across wallets (e.g. importing a token), an ERC721 can’t become an ERC1155, and an NFT launched with Zora cannot become an NFT on Manifold. At the end of the day, the contract is immutable and coupled to the protocol factory that produced it. In practice, this means that as a creator, if an interface or other software product stops supporting the protocol of your NFT, your audience on that product, or dependent on that product, will no longer be able to access it. The interface controls audience access to the protocol, and creators cannot move content from one protocol to the next without recreating the content.

This is slightly different than DeFi liquidity pools. In DeFi, liquidity providers deposit tokens in Uniswap and can transfer that liquidity into whichever DeFi protocol they would like. In content protocols, tokens are in a creator's wallet and coupled to the protocol that created them. In other words, while content visibility is portable, content liquidity is not transferable like capital liquidity. Time will tell if this framework for tokenized media will persist. For now, this is to be expected; the contract is the content. Contracts for content are standardized, immutable, and have unique offerings based on the protocol that created them.

Token Standards and Customisation

ERC721, ERC20, and ERC1155 standards provide a framework for creating protocol-specific, yet composable, Content Liquidity. They define interoperable standards regarding transfers, ownership tracking, and supply. By design, token standards allow for protocol-specific customizations, providing ample opportunity for products to innovate with functionality like allowlists, airdrops, gasless deployment, burn functions, and minting mechanics.

This duality, of technical standards and customization, means creators have to be technically savvy today. Their decisions have long-term consequences. Imagine a TikTok creator having to decide between which phone their content was viewed on, or what file format TikTok uses. As of now, onchain creators have to choose a technical standard AND a specific protocol. And yet, creators should not have to do either of these. It seems strange that creators have to specify contracts instead of use cases, and then choose protocols on additional technical details. Abstraction is on its way, although that will have new types of trade-offs to be discussed in another post.

In short, token standards unlock composability while forcing as few standards as possible, ensuring protocol builders can compete on additional functionality to attract creators to their protocol. And yet, creators should not have their distribution defined by a technical protocol choice.

Protocol Lock: Limited Interoperability

As of the moment, additional protocol functionality introduces limitations in interoperability and potential distribution. Custom functions mean onchain content is coupled to the protocol and interfaces which support that protocol specification. In other words, the creator’s content is locked, and their distribution is somewhat pre-determined: “This content can only be interacted with on the interfaces supporting the protocol.” For example, an NFT created on a new protocol or a custom contract may not be visible in a popular wallet without manual import, or even product-specific engineering intervention. Advanced custom NFTs, even following the standard, may only be viewable and interactive in custom, protocol-owned, software. This is OK, although hopefully only a temporary trade-off.

As protocols amass creators and Content Liquidity, they nurture a compelling value proposition for interfaces to build upon. However, exclusive interface support for a particular protocol may limit compatibility in the long run. Protocols can become increasingly unique, forcing interfaces to decide how to spend their resources. It is not unreasonable to think we will have monolithic media experiences with advanced content interaction capabilities - like custom DeFi ecosystems that already exist today.

The increased customization, or expansion beyond standards, can eventually restrict content flexibility and hinder its adoption across multiple interfaces. Moreover, protocols with the largest distribution opportunity, in other words, with the largest interface support, develop the power to charge additional fees. If you don’t use the popular protocol, your content will not be available on specific popular social media.

New Models for Creator Control

To address the limitations imposed by Protocol Lock, it is crucial to explore alternative models. Could it be possible to create a basic protocol that is a public good? Is it possible to create multi-protocol digital assets? What about standardized token interactions to promote interoperability and enhance flexibility? How can we incentivize decreasing fees instead of “stacking fees”?

Overall, competition among protocols should be encouraged, putting pressure on fees and enabling interface fee competition, rather than creating monopolies at the protocol layer. This, although a simple concept, will probably be harder to execute. Everything tends towards centralization and protocols are no exception. A call for new token interaction standards, for example, would enable new protocols to be instantly interoperable with the most common interfaces. However, standards are hard to gain consensus on and deliver outsize earnings to protocols that lobby most effectively.

As another option, we could explore the possibility of creator-specific micro-protocols. As Kairon, media resident at RADAR, mentioned as feedback to this essay: “My ideal protocol would allow me to decentralize distribution while keeping the core piece in one place and pointing to my wallet, rather than having to pick from several publishing protocols for extremely negligible differences.” This would enable full ownership but at the expense of growing flexibility and protocol scale benefits. For example, it might forgo automatic discovery in block explorers.

Finally, we could create software that can easily swap content on one protocol with mirrored content in another. In other words, we can develop creator-centric middleware that preserves the audience experience even when protocols are changed. This path, which aligns well with the rise of fragmented community-specific software, can result in more user-centric and creator-empowered experiences within the new media ecosystem. After all, we don’t constantly choose service providers when we’re building a Shopify website, Shopify does that work instead. The trade-off here is potentially a new layer of dependency: a platform.

In Summary

Our decisions of deploying content on a specific protocol directly impact the dynamics of the underlying ecosystem. When we choose a protocol, we are choosing a future shaped by that protocol. We should not be naive. By understanding the reach of our current token standards, being aware of Protocol Lock incentives, and considering alternative models, we can work towards an open and creator-centric token landscape and support frontline cultural producers.

Addendum: Today’s Protocol Selection Questions for Creators

What are the different protocol options to create digital content today?

  • Do they follow agreed token standards?

  • Is the protocol targeted to creators, collectors, or speculators? How does this align with my project and audience?

What interfaces are they interoperable with?

  • Are they interoperable with the interface which your community engages with?

  • Will the content be viewable on the interface? How?

  • Will the content be interactive on the interface? How?

What fees will collectors and traders end up paying? (Protocol + Interface)

  • Protocol Fees: This could be a flat price per mint or % of the price.

  • Interface Fees: Often “stacked” on top of the protocol

  • How do these fees compare to the value provided to yourself and the audience?

  • Does the protocol intend to change fees in the future?

  • Who has control over the protocol and fees? Is it a single person, a multi-sig, or a DAO?

What is the protocol’s published philosophy? Do they act in alignment with that philosophy?

  • Are they open-source?

  • Do other interfaces actively support them?

  • Or do they have a single monolithic interface?

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