Summary
$RLY is an ERC20 social token. The token can be exchanged for ‘creator coins’ which in turn represent communal ownership of a particular influencer or media personality. As it stands, influencers have difficulty monetizing their fan base let alone in a way that is mutually beneficial to fans. Rally aims to fix this problem. With a creator coin, a fan can purchase the coin and see it rise in value as the influencer accrues a larger fan base. Not only does the token accrue in value, but it can also be used to signify a level of commitment/fandom, tiered access to special content, early access or be used to purchase NFT’s issued by the influencer.
The creator tokens exist on a private Ethereum sidechain managed by the Rally team. This sidechain has no transaction costs and trading happens instantaneously. The pricing of creator coins happens according to a demand curve mechanism that provides liquidity and makes pricing predictable and less susceptible to spikes. The platform to engage with the creator coins can be accessed using any token supported by Coinbase or by making use a debit card.
The Rally team consists of successful entrepreneurs and business veterans such as Kevin Chou (sold Kabam for $1 billion), his close partner Michael Li (also Kabam), Ray Chiapuzio (CEO First Foundry) and Kurt Patat (ex-Head of Entertainment and Consumer Communications at YouTube); backers that include Coinbase Ventures, a16z and Canaan (although the latter is not verified on Canaan’s website).
The current number of outstanding tokens far outweighs the total number of tokens in use. On top of that, the number of outstanding tokens will be greatly increased over the next eight years. What should be monitored very closely is the total number of tokens encapsulated in creator coins. When this number rises substantially in relation to the outstanding tokens, that’s when $RLY becomes interesting to own as an investor. Also the quality of creators should be closely monitored.
Creator coins both benefit and are hurt by the socio-economic currents that drive the price up or down. When all is well, and a creator is gaining popularity, all persons that own the creator coins are winners. This produces a vibrant environment in which all participants are incentivized to further propagate the coin and increase the issuer’s popularity. On the other hand, when a creator’s popularity takes a turn for the worse, it does not only hurt emotionally, but financially as well. This could lead to disenchantment from fans, leading to a rapid disbandment of a creator’s community. On top of that, for the coin’s creator, his/her/their popularity does not only collapse metaphorically, but very tangibly too. This is because popularity can be measured through the value accrued within a creator coin – it essentially makes popularity concrete. In sum, creator coins could potentially be an area of severe social, emotional, and economic upheaval - an environment for spectacular gains and losses. This is an important aspect to monitor as public perception is paramount for social/creator coins.
Ecosystem
Rally is part of a relatively novel ecosystem - social tokens. These are tokens that are backed by the reputation of an individual, community or brand. Examples include Friends with Benefits (private discord environment that requires tokens to enter – focused on discussing the future of web3), $WHALE (collector of NFT’s, tokens represent part ownership) and $ALEX (tokenized his person and future profits on the blockchain). What unites each of these spaces is the idea that the community or person they are part of will be more valuable in the future and thus fans have a vested interest in making that happen. Propagating popularity essentially takes on a financial component.
Although this space has yet to go through a Cryptokitties moment, it has the potential for a significant uptick in popularity. One primary reason being that creative persons are known to have far-reaching influence in popular culture. They have a means and understanding of what it takes to excel in areas of branding and how the substantial knowhow on how to increase exposure. Social coins stand to benefit from this greatly, especially in attracting persons who were never interested in digital assets beforehand. Crucially, dedicated fans could financially benefit from this increased exposure. This creates an environment in which ‘the tide makes all boats rise’. Thus, the essence of Rally’s proposal is introducing the concept of popularity to a fan-creator mutually beneficial relationship with an underlying market mechanism.
Let us exemplify this in order to come to terms with how this mechanism works. A successful issuer, let’s call her Alice, issues $ALICE. Alice, being the issuer is rewarded with 50 thousand $ALICE which she can reward to her users or keep for her personal gain to sell later[1]. The immediate effect of this issuance is that Alice is incentivized to maximize the amount of users/demand of her coins. The result hereof would be an increase in the value of $ALICE which benefits Alice financially.
Fans of Alice, especially early ones, are incentivized to buy $ALICE for the same reason. If her popularity increases, so does the value of $ALICE. It is an investment in potential popularity. These fans are also motivated to introduce Alice to their friends. Content sharing is a an almost natural instinct to us, but when coupled with a financial incentive, it becomes a force to be reckoned with. The effect of increased exposure is increased adoption and thus increased value. The result hereof is an exceptionally loyal fan base that is socio-economically incentivized to propagate.
The use case of these $ALICE are not purely financial and emotional. There are further market drives. Notably, Alice could create tiered mechanisms in which $ALICE owners can participate. Examples include a Discord chat, a pre-stream Twitch channel, early-bird tickets to a show, meet-and-greet, or the purchase of NFT’s. What this creates is another layer of demand for the tokens, potentially further driving up the price and providing underlying semi-tangible value.
In sum, what we have here is an ecosystem of aligned incentives. Every participant is a ‘winner’, especially early adopters. The result of this is the potential for an exceptionally vibrant community that has a socio-economic incentivize to propagate.
Taking the opposing view, when everything is positive, everyone is a winner. But introducing popularity to financial investment is a potentially flammable proposal. More specifically, imagine for a second being an investor in the Jackson-coin, or another star hit with a scandal. From the perspective of the star that has not issued a coin, the downfall in popularity is less tangible, instead it is more a feeling, a perception. Very real, but open to interpretation. Take an added market mechanism, a coin could become a gauge in popularity that is tangible. A fall from grace could therefore become extra painful, both economically and socially.
From the perspective of the fan, seeing the value of any investment to which you have exposure is a painful event. Couple that with the fall-from-grace of someone you have in high regard, and it becomes evident that downward spirals are components that need to be seriously considered. A few downfall examples could serve as a beacon for potential future coin issuers who may chose a non-market driven incentive mechanism as opposed to $RLY. (Imagine a coin that has a stable price for example.)
Also, from the perspective of the investors in popularity, it already hurts when your favorite stock loses value, but being a long-time dedicated fan could turn into a very painful experience. Feelings are important; contrary to what some professional investors might think, a lot of people invest with their emotions. Buy when it feels good, sell when it feels bad. A space in which a lot of people are hurt, might be one that is avoided.
Arguably, a content creator could decide to sell his or her coins in bulk, choosing money over fame, further adding to the hurt a fan may experience. Thankfully, the team at Rally has identified this caveat and has introduced a mechanism that curbs a content creator’s ability to sell based on market activity.
Another malign/bear case for these social coins are the platforms that function as gatekeepers. Similar to Facebook and the likes, creators can be deplatformed. If this kind of behavior finds itself to Rally (which hosts a private blockchain), it could be exceptionally damaging to the platform, those deplatformed, and the reputation of the digital assets community as a whole. As many of us know, the blockchain space is widely considered to be an open and free one, deplatforming is the antithesis to this zeitgeist. If this kind of behavior is considered or executed, it may be a good time to visit other opportunities in the social coin space. Further note: there is also a ‘remove Rally registry members’ vote that requires 66% to pass. This demonstrates that cancel culture may also originate from $RLY token holders.
In conclusion, the social coin space has all the potential to be a wholesome, vibrant space where the incentives of all participants align. When all going well, all is exceptionally well. Contrastingly, when matters take a turn for the worse, it can turn real dark real quick. Paradoxically, this could make the space all the more exciting to invest in. People are generally drawn to emotion and wealth. A space that combines the two could be very valuable. Essentially the jury is not out on this space yet, close monitoring of the space is warranted.
In depth analysis of Rally
$RLY, as introduced, is a ERC-20 social coin aimed at monetizing content creators’ fame. According to Business Insider the content creator & influencer market is poised to grow to $15 billion in 2022. What a social coin allows an issuer to do is to create a micro-environment of value that is branded, customizable and representative.
As described in the summary, a person, group, or community may issue a coin which their fans or users can exchange for $RLY or fiat; this essentially creates a market for fame. As we have become used to in crypto, markets work by matching buyers with sellers and vice versa. You can imagine, for most of the social coins, the buy and sell volume would be incredibly low (read low liquidity), which leads to high volatility or slippage when a sizeable purchase or sales occurs. The solution implemented by Rally is the use of Token Bonding Curves (TBC).
A TBC works as follows: “to buy tokens, you send ether to the buy function which calculates the average price of the token in ether terms and issues you with the correct amount. The sell function works in reverse: first you provide the bonding contract with permission to take the amount of tokens you want to sell (ERC20.approve() ) and then you trigger the function to take those tokens from you. The contract will calculate the current average selling price and will send you the correct amount of ether.” On top of that, “[t]he actual price per token increases as the number of tokens issued increase.” (source). In other words, the market maker/taker system is replaced by a predetermining algorithm. The major upside of TBC is increased (synthetic) liquidity and more predictability regarding price. On top of that, given its an algorithm, it can be adjusted according to the requirements from users/issuers. Another departure from the standard maker/taker system is the fact that as the price increases, more tokens are issued. The effect of this is that price increases more gradually towards the end of the curve and parabolic highs and consequent crashes are (potentially) curbed.
Another tool at the disposal of a coin creator is that he/she/they can issue non-fungible tokens (NFT’s). These NFT’s have three encapsulated mechanisms that provide underlying value. First, the creator must deposit a set amount of creator coins in order to mint an NFT. This enforces scarcity and intrinsic value. Second, the NFT can encapsulate benefits. For example, the NFT owner could receive special chat recognition or the right to chat with the content creator prior to a stream. Finally, fans have the tendency to hold on to collectibles, to curb this tendency, a content creator can enable the “always for sale” function to an NFT prior to its creation. The pricing mechanism will be determined by the TBC algorithm, but without the extra issuance mechanism. The effect hereof is that some NFT’s will belong to the most hardcore group of fans that are willing to fence the largest sum of money.
In my opinion, the TBC pricing algorithm is a perfectly suitable solution to the liquidity issue. The concept is not unique to Rally, DeFi platforms such as DODO also use similar algorithms. The TBC method however is far from a proven concept to the digital asset space, so it stands to reason that it has not withstood the test of time. This means that smarter people than I may find ways to game this system and extract value from it. If this were to occur, Rally would unquestionably suffer.
As I described earlier, the TBC algorithm is also incorporated in the NFT continuous sale mechanism. I believe this concept, combined with the underlying value incorporated in the NFT, coupled with the ability to add extra benefits to the NFT’s, are exceptionally interesting mechanisms to make creator NFT’s more popular compared to bland NFT’s. I do believe that some fans will not be happy with the fact that their prized possessions are always on sale. This will make it less interesting for early fans to buy NFT’s as an investment. On top of that, it may lead to disenchantment for fans that are less wealthy. They might feel as if they are left out of the fan experience. Creators will unquestionably trial and error with these mechanisms and find one that works best.
Regarding the Rally protocol: as it stands, Rally is relatively centralized, as in it is a service designed and implemented by the company’s owners. Rally’s goal however is to become increasingly more decentralized. In short, the steps towards decentralization:
- Launch network & build community
- Give admin control to the Creator Community (includes TBC shape and size, taxation, etc.)
- Let the community run the network (allow users to define completely new building blocks)
This is an exceptionally ambitious plan, of which I am skeptical. Simply because encoding all the above logic in such a way that the blockchain code is updateable based on a voting system will not be without its difficulties. I admire their ambition in this regard, but I think the three steps mentioned above will take a sizeable amount of time to realize, if realization is possible at all.
Another noteworthy aspect of Rally is the fact that $RLY operates on a private Ethereum sidechain. The significance hereof is that it allows for a fee-less environment that offers less friction than a traditional blockchain, this a boon to novel blockchain users. Crucially, Rally must provide complete transparency regarding the private chain. As it stands, information regarding this private chain is unavailable thus data metrics is unattainable. This places a significant amount of trust, that is normally attributed to the blockchain protocol, in the hosts of the $RLY private chain.
The aim of the Rally team is to operate this Ethereum private chain until it is ready to operate as an interoperable layer 2 solution as opposed to standalone environment. The team has yet to provide a detailed roadmap as to how they wish to achieve this interoperability. For blockchain purists, $RLY may this not be interesting to own from an ideological point of view. For ‘regular’ investors, they will have to make their peace with the fact that this is not a decentralized but a centralized blockchain.
Tokenomics
From an investor’s perspective tokenomics may in fact be one of the strongest and at the same time weakest components of Rally. In short, this has to do with the fact that the price of $RLY relies on the demand for creator coins. Given that creator coin owners and creators are both economically and socially incentivized to propagate the creator coins, these incentives could be a major driver for the price of $RLY.
Paradoxically, the amount of $RLY currently in circulation is incredibly low. The total supply is 15 billion, as it stands, roughly 61 million is in circulation, meaning that less than 1% of the total token supply is available to the market. What this means is that early investors will most likely not benefit from holding on to this token for an extended period of time. Instead, with the substantial dilution of the outstanding tokens, they are incentivized to invest in creator coins instead.
This dilution of outstanding tokens will continue for the next 8 years, at a substantial rate.
As is evident from the above chart, the token dilution is substantial.
In essence, the tokenomics of this project are both tremendous and terrible. From an investing perspective, they are terrible in the sense that they will be diluted like crazy. On the other hand, Rally aligns economic and social incentives through their creator coins. This incentive structure could drive the adoption of this digital asset forward at considerable speed. This dualism between vastly diluting tokens and socio-economic adoption incentives underlines the importance in monitoring the adoption metric for the project from an investment point of view. Either way, for those looking to provide pool liquidity for $RLY may in fact be quite happy with both sides of this dualism as both sides involve substantial trading volume to come to fruition.
Team & investors
The Rally team is under leadership of Kevin Chou. Kevin established Kabam, a company that sells mobile games to over 500 million customers. Kevin successfully sold the company in 2016 for 700-800 million dollars. He is currently the CEO of both Rally and Forte. The Forte Platform aims to introduce blockchain to games by capitalizing on emerging community economies. These are communities that operate within a digital environment like a video game. Examples include farming particular items in exchange for in game or real-life currencies. Kevin’s past achievements and current scale of ambition demonstrates a person willing and able to lead a new initiative such as Rally. On top of that, Rally and Forte encapsulate a grander vision of gaming, one that involves an economic dimension. To an investor in Rally, Kevin’s involvement is paramount. If Kevin were to leave, this project would lose significant merit.
Ray Chiapuzio is the head of engineering at Rally. Ray spent four years at Walt Disney as a lead software engineer and director of software engineering. After Disney, Ray established First Foundry, which is the company that designed and created the smart contracts and associated dev-ops infrastructure powering Rally. First Foundry also has Forte as a client. According to Zoominfo the company has $5 million in revenue.
Amit Ranade is responsible for developing the $RLY Network Token. Amit worked with Kevin at Kabam (role not specified other than ‘president’) before going his own way and establishing GoLantern. This company failed and Amit got back together with Kevin to help him build up Rally. Amit has fundamentals in computer science and worked as has experience as a software developer & engineer for four years at two small companies.
Michael Li is co-founder and close partner to Kevin. Michael has an eclectic past but has achieved major success at as president for Kabam China, a role he had for eight years. He also owns the Gen.G e-sports team. Michael has a BSc in Computer Science and Engineering.
Mahesh Vellanki helped co-found Forte and is currently the head of growth at Rally. Mahesh has 8 years of experience in the VC world, has a large following on LinkedIn (high quality tech industry posts) and in 2016 named in the Forbes 30 Under 30 VC list.
Kurt Patat is the most recent recruit to Rally and looks to be the only person from outside of Kevin’s sphere of influence. Kurt has extensive experience which includes director at AOL, head of communication at Viacom, and finally spent a year at YouTube as global head of consumer and entertainment communications. It is unclear why Kurt left or was fired.
Taking the team as a whole it is evident that (which the exception of Kurt) this group is squad with history. Each has gone their separate way at some point, but seem to have reunited under the banner of Rally and Forte. Each core member has a tangible relationship to the gamer space which is meaningful when building for gamers and tech savvy influencers. With the exception of Amit, most seem to have run or currently run successful businesses. Fortunately, I could not find any negative articles or experiences regarding any of the persons or their businesses.
Where I have some doubts however is in the fact that none of the team’s members seem to have experience with blockchain technology or blockchain businesses directly. Fortunately, First Foundry, Ray’s business has ample experience with blockchain that includes close cooperation with Ripple to launch blockchain based gaming (no tangible project to be found through this co-op). One of First Foundry’s most notable customers is Hi-Rez Studios, the makers behind the free-to-play game Smite. This game appears to be transitioning to a blockchain based ownership concept in the near future which underlines that there is confidence in Forte’s blockchain capacity from a third party.
In essence, the team appears strong in many categories including building successful businesses, experience in the gaming industry, venture capital and community building. The Rally team also has connections to the wider gaming industry through Forte and First Foundry. This underlines the fact that these guys are serious about launching Rally successfully. A quick cash grab appears to be off the table.
The team appear to be a little lackluster regarding blockchain and given their lofty ambitions to make Rally completely decentralized and function with the Ethereum main net, this goal I cast in doubt. I am highly skeptical of Rally’s ability to de-privatize their blockchain and deliver on the promise of full decentralization. What should be noted however is that the Rally team may not directly be capable doing so, their close relationship to First Foundry could be very meaningful in regard to compensating for the lack of blockchain knowhow.
The partners and investors of Rally are noteworthy. It includes names such as Coinbase Ventures which added $RLY to their custody service, a16z which is making a major move in the monetization of gaming space, Canaan, Kenetic and 1confirmation. Notable individuals include Balaji Srinivasan a serial entrepreneur and angel investor, Fred Ehrsam co-founder of Coinbase and Paradigm and Twitch co-founder Kevin Lin.
Each of these investors have significant networks and spheres of influence. On top of that Coinbase has incorporated $RLY into its wallet solution fully. This is of major importance in terms of adoption. Now I could not find any information regarding the size of each company or individual’s exposure to $RLY or Rally. What should be noted is that seed investors do own a significant chunk of the 15 billion $RLY tokens (15.3%) so it stands to reason that exposure is sizeable.
Competitive market
Major competitor: Roll. Roll also focusses on social tokens but with a different line of approach. More specifically, Roll’s business model is to allow a person to issue a personalized ERC-20 token. The creation of the personalized token is free, Roll takes a 12% of the 10 million tokens issued (always 10 million). The social token issued can then be traded on open markets such as Uniswap. The influencer receives an initial supply of 2 million tokens to do with as he/she/they please. A vesting period of roughly 3 years exists for the remainder of the tokens.
Rally has significant competitive advantages over Roll. Roll does not have a native token, Roll doesn’t have the quality of backers, it doesn’t have the same socio-economic incentive mechanisms, it doesn’t have a team at the level of Rally nor does the roll app seem to be taking off.
No other serious competitors appear to be active in the social token space. In conclusion, the space appears to be uncompetitive for Rally.
Metrics:
Unfortunately, due to the fact that $RLY operates on a private blockchain, essentially no metrics are available. What this means is that it is not possible to compare Rally’s numbers to Roll’s for example.
However, there are a few metrics we could have a look at regarding $RLY that will give us some idea of use/adoption. First are the number of tokens in circulation, 61 million. Next, the Uniswap exchange has roughly 16 million tokens in liquidity pools. 32 million are found in Balancer liquidity pools. In other words, roughly 48 million of the 61 million is put up for liquidity on decentralized exchanges, that is 78% of the circulating supply. Compare that to Ethereum (115 million available, 21 million on exchanges = 18%) or Bitcoin (15m active coins available, 2.2m on exchanges = 14-15%) which obviously are not the best comparisons as they do not fall into the same category, but one needs something to compare to make a point. This point being that not many of the $RLY tokens in use. Instead, they are being hoarded/attributed to trading and providing returns in liquidity pools.
Another interesting metric that when gathered over time could be significant, is the total amount of value locked in creator coins. The best way to do this would be to monitor the $RLY conversion through an API, but for now I achieved this goal by simply adding together the $RLY backing of the creator coins. As it stands, that comes down to roughly 691,700 $RLY. Compare this number to the amount available on exchanges and it underlines the fact this token has yet to generate much traction.
In sum, of the 61 million available tokens, roughly 48 million are available on exchanges. Only 737 thousand are actually minted for creator tokens. What this means is that the token is yet to see large adoption. Coupled with the fact that Rally aims to put 15 billion of these tokens on the market, it is difficult to see a scenario (unless significant adoption) in which we will see a sizeable price increase in the future.
Investment thesis
Should you invest or not? Well, the tokenomics, team, socio-economics, incentives and backers are tremendous, but the amount of available $RLY tokens and the yet insignificant adoption underline the fact that buying into $RLY right now might be too early. Investors are probably best to keep a close eye on this project and monitor its rate of adoption. If the creator coins economy takes off substantially, $RLY could be a worthwhile investment.
[1] Actual amount as per Rally, this was previously mentioned on their wiki page but has since been removed? Replacement mechanism found here, demonstrates work-in-progress area. In turn this underlines the necessity to continuously monitor this project as base tokenomics are changing.
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