A Novel Framework for Reputation-Based Systems - a16z crypto

Social capital shouldn’t be bought—but that doesn’t mean it can’t generate liquidity

Even if nobody trades their community service NFTs publicly, the possibility of private sale reduces the signaling value. And in a fully liquid market for such tokens, the signaling value washes out completely.

At a high level, this design promotes a feedback loop whereby users derive points from high-quality contributions on the platform such as contributing content, moderating, or winning gameplay. And then, when the users with points receive coins, they can be traded as a currency.

Thus, establishing reputational capital requires fully (or at least mostly) non-transferable tokens. The question, then, is how to translate reputation into liquidity.

What’s important is that points must credibly link their holders to the source (or driver) of reputation.

Reputation tokens on digital platforms typically serve two purposes: * To identify and reward the users who have contributed value to the platform—a form of signaling, which those users can parlay into public reputation. * To provide a form of compensation that enables contributors to liquefy some of the value they have created into an exchangeable... See more

The key is that contributors receive a non-tradable token that spins off tradable tokens.