DeSo | BitClout — Full Platform Review
The Story
With Bitclout (now DeSo) now having a full year under its belt, we thought it would be a good time to do a thorough recap of the past year as a cautionary tale.
New platforms, tech, and ideas come and go daily in the cryptoverse, so it’s important to remind ourselves (and our clients) not to get caught up on the hype, allow a project to mature before making an investment (even of just time and energy), and to remain focused on longevity. The last thing you want as a musician is to convince your fanbase into joining a platform or using a product that will inherently lose money. This can often be independent of your own particular success. That means even if your offering gains in value within the platform, if the platform and base currency is failing at a greater rate, then the net loss means that you and your fans lose.
One of AudioNode’s main focuses is analyzing platforms to help mitigate risks and ensure longevity. This means not only vetting the tech and security, but also digging into the tokenomics and how the platform is spending their precious (and finite) pre-mine.
BitClout launched with a bang in March 2021 with incredibly provocative tech and a wild marketing scheme. The tech was a fully custom layer 1 blockchain built specifically for scaling social (low gas fees and the ability to handle the speed and volume needed to confirm simple transactions such as “likes” and “comments” on the blockchain). The project was backed with $40M from prominent VCs in the crypto space, fueling the early belief that the project was headed straight to the moon.
The core dev team built the first internal project, BitClout, with the frontend and marketing scheme to be a Twitter-killer. With a functionality similar to Twitter, they also went after current users of the social giant by creating accounts for the top 15,000 Twitter users at genesis and placing a substantial amount of their digital currency ($CLOUT) in these account wallets as a giant carrot to come onto the platform. When the platform launched to the public, these non-claimed accounts ballooned in value, further increasing the onboarding incentives for the social elite.
BitClout’s layer 1 blockchain was also built with CreatorCoin functionality, meaning each social username account created had its own token minted on the blockchain. These CreatorCoin tokens followed a bonding curve, providing instant liquidity, and the ability for users to buy and sell each other’s coins, even before the base currency, $CLOUT, was listed on an exchange. This means at the beginning, money could be brought onto the platform but not removed until the first exchange was launched to openly trade $CLOUT.
With an initial $CLOUT price set by the platform at $200, this meant some accounts’ market cap hit seven digits. All a well-followed Twitter user had to do to receive this free bounty was to claim their account and announce them opening their BitClout via Twitter post (a classic Vampire marketing scheme).
Much of the Twitter community was in an uproar wondering if this act was even legal, prompting cease and desist letters from a number of prominent social and government figures from around the world whose social status had been leveraged to add funding to the BitClout chauffers.
It should also be noted that $230M USD was raised in coin sales before launch. Most angel investors purchased the coin around the $60–80 mark and were allowed to make trades on the platform unincumbered. Meaning their $60/coin buys were already leveraged at the $200/coin launch price, giving them a significant advantage over a regular user. This practice also encouraged these elites to convince prominent social figures to join the platform soon after launch.
BitClout’s bonding curve, which follows an exponential scarcity model, led to a bevy of insider and predatory trading, as well-informed BitClout users took advantage of new users signing onto to platform each day. With an insider circle forming around the core team and Angel investors, select users would have first-hand knowledge on when accounts would be verified on the platform, allowing them to buy into the coins at a low price and exit after the account was verified and the general public drove the coin up the exponential bonding curve. With anyone able to create an account name of their choosing (today, a massive 250,000 accounts have been claimed for only 2000 active users), the entire system revolved around the core team providing the stamp of verification. The majority of trade volume revolved around recent account verifications of prominant users.
The core team turned a blind eye to these inequities because many of these insiders were bringing prominent social figures onto the platform. A deep dive into the trade history of Jake Udell shows how this predatory trading impacted musician coins launched on the platform and netted him a high six-figure bonus in the first months of BitClout’s launch. Meanwhile, the core dev team was praising Jake’s status on the platform by “re-clouting” his posts and tagging him with kudos (as well as directly purchasing large amounts of Jake’s coin — the official sign of support from the then, anonymous, core team).
With the massive injection of $CLOUT into celebrity accounts, mixed with large profits made by early users and insider trading, the $CLOUT price dropped dramatically as soon as it was made liquid via launch on the blockchain.com exchange in June. $CLOUT plummeted by nearly 50% due to all these early profits making their way back into Bitcoin and USD. The price was then held at a $100 price floor for nearly a month before losing nearly another 50% in value. The $100 price floor was another core dev team manipulation tactic gone wrong. It is not yet known if the floor was supported by some of the $230M in pre-mine held by the core team, something the team has denied on record, but unfortunately only the folks at blockchain.com truly know this answer.
While all new platforms develop incentive programs to attract users, some prove to be more successful than others. BitClout’s incentives clearly went to a very small, elite group of non-committed users causing a large number of users who actually believed in decentralized social media to leave the platform soon after launch. Many of whom went on to publicly (and rightfully) criticize the platform as a scam.
Many of the prominent social figures who joined BitClout in the early weeks have been inactive since early trading volume netted them large profits through a trading fee mechanism called “Founders Rewards”. This user-set purchase trading fee is typically set around 10%, providing solid cash flow for users with high trading volumes. Many social accounts remain verified on BitClout and continue collecting these Founders Rewards, even if the account has been completely inactive for nearly a year. This is the kind of incentive that negatively impacts a platform, allowing users to reap rewards without adding value. Yes, it could be argued that by leaving their account on the platform these prominant social figures are still adding value, as we’ve seen the DeSo founder use these dormant accounts in marketing tactics.
BitClout’s inability to develop a successful scheme to prevent a massive loss in value upon exchange listing, compounded with legal claims, insider trading circles, the early token lock-up, and a failure for the core team to handle this bevy of PR issues due to a desire to remain anonymous, quickly pinned BitClout as just another crypto scam project. The most unfortunate part of BitClout’s story is that, by design, the tech was by no means a scam. But a gun is also not deadly if it’s never pointed at anybody. The fact most of the failures stemmed from a team too busy shipping product to put out major fires in their backyard, represents a chink in the armor for the new model of hands-off pre-mine venture capital. If the team didn’t have their fingerprints all over each of these issues, they could have claimed this was just a product of the wild West of decentralization which will naturally sort itself out over time. IF.
The poorly handled first six months of $CLOUT led to a rebranding to $DeSo (decentralized social) ahead of the Coinbase listing. The rebrand didn’t seem to tip the scales as trading volume and platform adoption has, in large, been unchanged over the past year as the $DeSo coin price continues to drop. Blockchain analysis still shows roughly the same 2000 users have been utilizing the platform over the past year and daily token trade volume struggles to reach $500k each day on the exchanges at the time of this story.
The final item of note for DeSo was the release of their $50M fund, the DeSo Foundation’s “Octane Fund”. Platforms live and die by their incubator/venture/grant programs because decentralized, open-source projects rely completely on the network effect. The effort and attention with which funds are distributed are often telling on the future success of the platform.
The first mistake of the DeSo Fund was to shut down BitClout and immediately announce a $1M venture with Diamond App before the Octane Fund was even open for submissions. DiamondApp was a rebranded version of BitClout built by a personal friend of the core dev team to remove the stained BitClout branding ahead of the Coinbase listing. Typically decentralized platforms utilize the active community to help distribute project funding, but clearly the core dev team decided to independently make the first major move with this pool of “community” funds.
While the Octane Fund has fueled some reputable projects like CloutFeed (BitClout for mobile), PolyGram (DeSo NFT platform), and a grip of other social-forward projects, a number of projects were well-funded with teams of sub-par developers (but personal connects to the core dev team) or are even dead projects (CloutGate) which helped BitClout expand at launch (clearly a pay-back to personal connections for their early efforts). Rather than entrusting the community with project funds, the DeSo core team continues to build the main projects which drive new consumer interest (DAODAO being the latest). The team also narrates which projects deserve a seat at the table based on the ability to sell the overall ecosystem to new users versus the viability of the project and team. AudioNode was contacted multiple times to change our business model from a web3 Patreon for musicians (with a Robinhood UI) to a generic music streaming app built on DeSo just so the protocol could check that box with press and marketing outreach materials.
Witnessing the inner circle dealings and hyper centralization bleed into the critical topic of foundation funds, shows that DeSo hasn’t learned much from their past failures and may be heading down the path of requiring another rebrand to survive.
Editorial Note: AudioNode worked on the DeSo platform since launch for eight months as an independent project and was a top community project since the official launch in June 2021. In February of 2022, AudioNode removed itself from the platform due to the continued red flags and the inability for the core team to appropriately react to internal and external platform feedback. This has allowed for such in-depth analysis. Feel free to contact us for more detailed information, additional research was purposely excluded to keep this blog post to a readable size.
TheNode
The $DeSo coin price didn’t experience any of the 2021 crypto bull runs and has been on a steady decline since launch. The only two spikes in trading were created by the platform’s first large volume algo trades (followed by internal platform hype and retail buys) in September 2021 and an incredibly short-lived Coinbase listing bump. The overall decline since launch has been led mostly by a lack of platform adoption and investors liquidating as their lock-up periods’ end, coupled with early platform abusers liquidating profits as soon as the coin hit open exchanges. $DeSo clearly has a mountain to climb in order to turn the tide on their depreciating coin price.
There is a small possibility that when the coin finally finds the bottom, user adoption will again be possible. This will also require enough time passing for prior mistakes to be scrubbed from the internet as the positive reviews begin to outweigh the negative review of DeSo’s freshman year. This, of course, takes time.
Our personal belief is that by the time all of these possibilities align, another competitor in the Decentralized Social space will emerge with comparable tech, a team that can handle navigating negative press, a more equitable reward program for early users, a foundation that takes greater care with the distribution of funds, and most importantly, a team who builds and entrusts the community to make these most important decisions. DeSo has built the example, it would just take another talented team of developers and fundraisers to learn from it.
$DeSo from May 2021 to March 2022:
$DeSo from May 2021 to March 2022:
