Today I spent a few hours diving into the whitepaper published by Tara Fung (CEO at Co:Create) and Sep Kamvar (advisor to Andreessen Horowitz, cofounder of Celo and Mosaic) on the Co:Create Protocol.
In this article I’m going to summarize the paper and dive into why this new tech is so exciting.
Let me pause for a moment to say: if you are new to the world of Web3, this post likely won’t make much sense to you. Although, it will be more accessible than the source material itself (at least that is my goal for this article).
Ready to begin?
Co:Create’s new protocol is a radical new tool for NFT projects to build a legitimate ecosystem around their community.
In some ways, this is the protocol that makes it possible to build a truly web3 native brand for the first time.
Currently, most NFT projects adopt a Web2.5 approach. By that, I mean that they use Web3 tech to create the NFT but then use a Web2 approach to building their community and governing the project.
They use decentralized technology to mint the NFTs, but then use centralized decision making about the future of the project that doesn’t involve the project’s community. This top-down leadership limits their growth to a linear path.
Exponential, Indeterminate Growth
Co:Create’s protocol allows NFT projects to benefit from something I call open-source value creation. This model allows anyone to be rewarded based on the value they bring to the community through economic (token-based) and political (governance) awards, regardless of their specific role. Whether you’re a collection holder, independent contractor, or the creator, this protocol allows a scaleable system to incentivize organic growth in the community.
Here comes a juicy metaphor.
If you know anything about growing tomatoes, then you’ll know there are two major types of tomatoes: determinate varietals and indeterminate varietals.
Determinate varietals grow in a bushy shape and cease fruiting once they flower. All their fruit ripen in a short period, usually around two weeks. Most tomato plants that you’ve seen are probably determinate varietals.
Indeterminate varietals, on the other hand, continue to fruit long after they flower. They are vining plants that continue to extend in length throughout the entire growing season. They will continue to fruit until frost kills the plants.
Co:Create’s protocol allows NFT projects to continue producing fruit for everyone involved long after the initial drop by harnessing organic, community-led value creation.
Using this protocol, NFT projects can become high-yield, long-lasting indeterminate tomato plants rather than determinate tomato plants that generate all their fruit quickly before dying.
It allows an NFT project (or series of NFT projects) to be community-driven rather than creator-led, and creates native tokens to incentivize independent contractors to add value to the community.
Major Components of the Protocol
Here are the 5 major components of the Create Protocol:
- NFT minting mechanism
- Royalty management
- Native utility and governance token
- DAO creation and governance
- DAO treasury
These different components come together under three major outputs.
You can think about it as a golden triangle that systematically leverages the power of nonfungible tokens, fungible tokens, and DAOs together for a holistic web3 ecosystem.
Each instance of the Create Protocol is the same set of smart contracts with variable parameters for specific things like royalty splits, voting thresholds, and quorum requirements.
Put plainly, they provide smart contract templates with certain fields that you can customize.
My understanding is that Co:Create generates revenue by taking a small percentage of native tokens as a fee from every project that uses the protocol. Essentially they end up having a portion of quasi-equity in every NFT project that uses the protocol, almost turning them into a sort of VC for NFT projects. I imagine they have other avenues for generating revenue too that I’m not aware of.
How You Would Use the Protocol
Here’s a step-by-step overview of how an NFT project could practically use this protocol.
- Lay the groundwork for your NFT project (design your collection, plan your rollout, generate some buzz)
- Instantiate a Create Protocol instance before launching the collection
- Determine your Create Protocol parameter settings:
- Voting and quorum thresholds for DAO governance proposals
- Token allocations (supply & distribution) to initial contributors and to the DAO treasury
- Royalty rates and royalty splits on future NFT collections
- A DAO member then proposes an NFT drop to the DAO by staking some of their native token
- If their proposal is approved, they earn a fee generated from Block Rewards
- If their proposal is denied, they lose that staked token
- When a vote passes, the drop is minted and the protocol automatically auctions off the NFTs
- Proceeds from the sale are turned into native tokens which as distributed among the creator(s), collection holders, and the DAO’s treasury according to the parameters set in the smart contract
This framework makes it so that the success of an NFT project creates success for your native token. Thus, anyone with tokens are strongly incentivized to add value to the community so they can raise the value of the tokens they own.
If you’re still following along with me here, you likely see how this makes it possible to grow a community into a vibrant web3 ecosystem.
Or, in conventional language, this protocol basically allows you to create a sustainable micro-economy and sovereign nation-state centered around an NFT collection.
These people are going to transform what “digital community” means forever.