Previously we wrote about the three transformative impacts of the blockchain. One of them, disintermediation, is gaining steam and seems poised to disrupt a huge swath of industries, most immediately media and entertainment. As VC investors, we’re tracking this development closely.

Content creators—artists, musicians, writers, social influencers—are the true stars and revenue drivers for media properties, but they are rarely adequately rewarded for their efforts. The relationship between creator and fans is intermediated through a third party like Instagram, which shares the revenue and exerts some artistic control. By directly rewarding creators for their work, social tokens— a type of cryptocurrency (crypto) whose value reflects fan enthusiasm—may fundamentally disrupt this long-standing model. Creators, in essence, become their own economies.

What are social tokens and how do they work?

Content creators can use the tokens they issue in two self-reinforcing ways: to build and reward their fan community and to compensate themselves for their creative work. Most frequently, fans buy tokens, but some artists, such as RAC ($RAC) give them away to loyal fans. As community members, fans receive benefits such as unique video content, access to group chats, or exclusive merchandise. Generally, different ownership levels receive different benefits.

Because only a limited number of tokens exist, rising demand increases their value. The creator can add benefits for community members, attracting yet more fans. As the tokens’ value grows, the creator can ultimately use them as a form of compensation.

Social tokens aren’t creators’ first efforts to directly monetize their work. In 1997, David Bowie issued Bowie Bonds, an asset-based bond that securitized the income from his earlier albums, paying 7.9% annual interest over the decade to 2007. Prudential Financial paid $55 million for these celebrity bonds.

In the mid-2010s, some companies and influencers issued initial coin offerings (ICOs) that raised crypto for projects. ICOs were a promising idea, but their one-off nature and dubious validity tarnished their reputation.

Social tokens are further evidence of the internet’s move from Web 1.0, which provided information more efficiently, to Web 2.0, where users create content that platforms curate, to Web 3.0, where users curate their own content. Social tokens, true products of Web 3.0, directly connect the creators and consumers of content. They differ from celebrity bonds because there’s no intermediary in the transaction, and from ICOs because they plug into existing community-building efforts around the creator, driving actual value creation.

Using social tokens

Along with musicians, athletes (Spencer Dinwiddie of the NBA) and personalities (esports’ Susie Kim) have introduced social tokens to their communities. They can be used in three ways: access; exchange; and investment.

• Access: Fans may simply buy tokens for the access they provide. The band The Man ($PTM) issued its coin in January 2021. Fans who buy 10 coins (currently priced at $5 each) get access to a fan-curated catalog of the band’s live shows, text and video chats, and other benefits. Holders of rap star Lil Yachty’s coin ($YACHTY) receive gift baskets curated by his mom.
• Exchange: The coins can be used as a medium of exchange. Instead of the “tip jar” found on some websites, intermediated by Venmo or Paypal, fans donate a token to compensate the creator.
• Investment: With the token supply limited, rising demand increases their value. Fans can redeem coins, treating them as an investment (albeit a very risky one), and creators can eventually take distributions to augment their income.

Several companies have emerged to facilitate the social token effort. Seed Club is an incubator for new social tokens. Fyooz operates a token marketplace. The Rally* project has launched social tokens for 180 creators and rewarded the equivalent of $28 million to those creators and their communities. BitClout allows users to speculate on cryptocurrency tied to the reputation of celebrities who may not even endorse the effort.

Why social tokens matter

To us, social tokens represent a new method of rewarding the creators whose content entertains, upsets, or informs us. They make the fan relationship a two-way street: stars can modulate their interaction with fans and fans can put a price on their devotion. If Bruce Springsteen distributed “BossCoin”, he’d know that Roger’s neighbor had attended all his New England concerts since 1980 and would eagerly buy enough tokens for a Zoom chat. With the blockchain, stars can identify their top fans and reward them. Similarly, with token-related feedback, creators can tailor their work to enhance connection and build community.

Risks of social tokens

But there are risks. Token value depends on a creator’s ongoing content production. Failing to deliver would be professional suicide. Both academic studies and anecdotal accounts show that influencers can suffer psychological harm from the stress of constantly providing content. Will creators burn out? Will fear of fan disapproval restrain artists from experimenting with new creative directions—would Taylor Swift have gone pop if the “TaylorCoin’s” value might’ve cratered?

Financially, the major risk is regulation. Several legal gray areas exist for something as novel as social tokens, ranging from concerns about false advertising to broad liability issues. The SEC is working on defining safe harbor provisions for tokens, which would clarify some elements of the space while possibly introducing other concerns.

Fundamentally, though, purchasers of social tokens must understand that these assets can rise or fall in value. These risks are real, but we believe they can be managed. And after centuries of starving artists, rewarding creators directly for their work is a crucial step toward supporting creativity. Social tokens allow us to put our money where our mouths are.

A version of this article originally appeared in Forbes.