The Magic of Kin
The flow of incentives powering a new model for digital economies. (Plus: Why the Telegram ICO fears are FUD)
A primer for the uninitiated:
Kin is a new cryptocurrency, created as a token on the Ethereum blockchain through a token distribution event held in September 2017. It was created by Kik Interactive, the developers of the Kik app for smartphones. Kik is a top 10 messenger app with over 15 million monthly users. Kik Interactive is a billion-dollar company with over 200 employees, and headquartered in Waterloo, Ontario, with offices in Toronto, New York, and Tel Aviv. Given the intended audience for this article, I won’t be explaining cryptocurrencies in detail. Rather, I’ll be explaining what sets Kin apart from the others.
Kin is designed, as Kik puts it, “to facilitate a digital sharing economy of equal opportunity.”
In layman’s terms, this means that Kin will serve as the currency for a new digital economy of apps and services. It will create and grow this economy by incentivizing its adoption as a form of payment not only for services provided within the Kik app, but throughout a wide range of digital apps and services. By leveraging decentralized software (the blockchain), Kin can ensure that these incentives, which I’ll be exploring in detail below, are distributed fairly and freely. The idea is that anybody can provide a service to others and be fairly compensated for their work.
Kin will first be made available in the Kik app, initially supported by a few key digital service partners and brands. These initial partners, to be announced this quarter, will allow Kik to test and iterate on Kin software in a controlled environment, developing case studies to court further partnerships in the future. Upon the release of the Kin SDK at the end of the quarter, any developer will be able to implement Kin support into their own apps. A standalone Kin wallet app will accompany the SDK shortly thereafter, allowing users to manage their Kin and discover opportunities to earn and spend Kin independently.
Okay, but haven’t I heard this all before? What makes Kin unique?
The magic of Kin is that developers of other apps and services will be incentivized to implement Kin through the Kin Rewards Engine (pdf). Sixty percent of Kin’s total supply has been set aside to power this engine for many years to come. The engine will operate automatically, having been programmed directly into the KIN token. How does it work? Once every day, services that transact with KIN will earn a portion of the daily reward payout based on how much value they provided to Kin users on that day.
The Rewards Engine (KRE) is what truly sets Kin apart from other cryptocurrencies. It rewards contribution and participation in the economy, rather than rewarding people simply for being rich. Other cryptocurrencies reward whoever can afford the most powerful mining machines or whoever owns a large number of coins. Instead, Kin will reward the people who help drive demand and grow the value of the Kin economy.
This economic model has never been attempted before, not even in the crypto space. Most cryptocurrencies depend on achieving adoption and growth simply by delivering great technology and generating hype. Instead, the Kin model will create growth via incentivized participation. It will also result in widespread, mainstream adoption by offering other mainstream companies explicit rewards for finally bringing cryptocurrency into their products.
As more providers bring value to the economy, more consumers join the economy, and consumer spending increases. This is perhaps the most important metric of economic growth.
Allow me to sketch out the flow of incentives through a couple examples:
- Supercell, a mobile gaming company, is looking for a way to get more players to buy their in-game currency, Gems. Their data tells them that if all of their customers paid for Gems with KIN, they could single-handedly generate 25% of the Kin economy’s total daily transaction volume, meaning they would collect (roughly) 25% of the KRE payout every day. It’s a no-brainer, so they take Kin’s drag-and-drop SDK and add it to their app.
- They realize that in order to maximize their revenue, they need to maximize their payout from the KRE. They need to drive as many KIN purchases as possible. So, they offer Gems at a 15% discount to players who buy with KIN instead of dollars.
- Players who didn’t know about Kin before will seek it out, in order to buy cheaper Gems. They’ll download Kinit to manage their balance, and be exposed to new earn/spend opportunities that they didn’t know about. They’ll participate in other services to earn KIN so they can buy more Gems.
- The Kin economy grows. The service and the client were both incentivized to participate.
Or, consider another scenario:
- Fiverr, a freelance marketplace, learns that if their freelancers accept KIN as payment, they could collectively generate 10% of the Kin economy’s total daily transaction volume, meaning they would collect (roughly) 10% of the KRE payout every day.
- Fiverr decides they’ll give their freelancers the option of accepting KIN as payment, and just like Supercell, they’re going to want to drive as much Kin transaction volume as possible to increase their KRE payout. So, they offer freelancers a % cut of their daily KRE reward, paid in KIN.
- The freelancers see this as an opportunity to earn extra money on top of what they’re already making, so they too want all of their customers to pay with KIN instead of dollars. They offer a 5% discount on their service for people paying with KIN.
- Fiverr customers who didn’t know about Kin will seek it out to save money on the Fiverr services their small business depends on. They’ll download Kinit to manage their balance, and find new earn/spend opportunities that they didn’t know about. They’ll participate in other services to earn KIN so their Fiverr services will become even more affordable.
- The freelancers now have the option of keeping the KIN they earned and watching it grow, or cashing out to dollars on an exchange. They will download Kinit to manage their balance, and find new earn/spend opportunities that they didn’t know about. They’ll find ways that they can spend their hard-earned KIN and save money by not using dollars.
- The Kin economy grows. The service, the freelancer, AND the client were each incentivized to participate.
With incentives like these and major apps supporting it even before launch, Kin will quickly become the most widely used cryptocurrency by mass market users (people who would not otherwise be aware of what cryptocurrency is). When the full launch hits the Kik app in 2018, Kin immediately becomes a core feature for 15 million+ active users.
But… isn’t Telegram’s TON ICO going to kill Kin?
That’s very unlikely. Although both Telegram and Kik are chat apps with millions of monthly users, who are holding ICOs within a year of one another, their blockchain products are very different. They have entirely different technological goals. The two apps also serve very different demographics. The following is based on details presented in the recently leaked TON whitepaper. No official announcement has been made yet by Telegram.
- TON is creating its own blockchain and development platform from scratch, aiming to compete with the likes of Ethereum or Stellar. By contrast, KIN is a utility token designed with a simple and unique premise: to create a fair economy of digital goods and services.
- TON does not feature anything analogous to Kin’s Rewards Engine to incentivize platform adoption.
- On the contrary, TON has proposed a custom Proof of Stake (PoS) algorithm. PoS consensus models tend to incentivize holding coins rather than spending them, which I think most economists would agree is not a great way to grow an economy.
- Telegram’s install base is larger at the moment, but it remains to be seen whether their demographic is quite as attractive to mainstream apps and brands as Kik’s millennial demographic.
- TON ICO investors are buying IOUs. The coins will not actually exist until the end of 2018, and we have no idea how many of the features promised in TON’s whitepaper will be production-ready for the block genesis. Kin, however will be a complete product by the end of Q3.
- Some prominent analysts (bias note: Pantera Capital invested in the Kin TDE) have expressed skepticism towards TON’s technical claims.
Thank you for reading.