OpenFi: Basic Attention Token (BAT)
The Basic Attention Token (BAT) seeks to solve the inefficiencies of the existing digital ad industry. By applying cryptoeconomic incentives to directly connect the major players in the digital advertising supply chain, BAT empowers user ownership and control of their data while improving returns for both advertisers and publishers.
Disclaimer: The following piece is simply a summary of my opinions and should not be construed as investment advice or regulatory analysis.
O: Opportunity - How large is the Total Addressable Market? Does the project disrupt an existing market, or does it create a new market?
Score: 4/5
People are now glued to their devices more than ever, devoting more and more of their attention to screens and digital media consumption. Based on a recent report by E-Marketer, digital advertising spending in the US accounted for more than 50% of total media ad spending in 2019, and that share is expected to increase year-over-year (YoY) to almost 75% in 2024.
Digital advertising spend grew 14.9% YoY in 2020 to reach $152 billion in the US. While lower than the growth from 2019, we should expect an uptick this year. Globally, digital advertising spend topped $300 billion in 2020 and is projected to reach $500 billion by 2024. The market is dominated by middlemen such as ad exchanges, user tracking firms, and data management platforms that all take a cut of profits. Publishers have lost upwards of 66% of revenues over the past decade. Oftentimes, user privacy is violated in the process.
Brave, an open-source web browser with an emphasis on privacy, released the Basic Attention Token (BAT) to disrupt the digital advertising industry. BAT connects advertisers, publishers, and users directly. Advertisers pay publishers for their ad inventory and users for their attention. This seeks to eliminate many inefficiencies in the current attention marketplace while giving control to users to decide if they’d like to see ads at all (and getting paid for it).
Outside of digital advertising, Brave also seeks to break the mold of traditional technology business models. Tech giants like Google and Facebook offer services for “free” but instead collect valuable user data to sell to the highest bidder. I’m happy to see new privacy-focused alternatives like Brave offer users products that give them more control over how their data is being used.
P: Product - How innovative and differentiated is the product? Is there product-market fit? How easy is it to use the product (i.e. good user interface and experience)?
Score: 4/5
There really aren't any competitors that offer the same product-market fit as Brave and BAT. On many browser rankings lists, Brave is often highlighted as the top browser based on privacy features and adoption. It's easy to see why. With fewer data-consuming ads and trackers, Brave is up to 3x faster and uses less battery life than its competitors. Users can import their existing settings from other browsers and easily set up a crypto wallet to start earning BAT rewards.
I don’t see top competitors like Google implementing their own blockchain rewards systems any time soon, so Brave has a solid lead from that perspective. Any new players will need to develop and gain traction for their own browser ecosystem, which is also a tough ask. Brave has seen solid adoption primarily by positioning the product as a more efficient, privacy-focused alternative. By leveraging decentralized technologies like IPFS and cryptocurrency payments, Brave helps users retain their freedom online and ultimately empowers all participants in the ecosystem.
E: Experience - Does the team have any previous experience building software and technology? Is the team well-versed in blockchain? What previous experience does the team have to ensure success?
Score: 4/5
The team at Brave is headed by CEO/President Brendan Eich and CTO/Co-Founder Brian Bondy. Prior to Brave, Brendan and Brian both worked at Mozilla where Brendan was most recently CEO. Both men have extensive engineering experience at various tech companies. The rest of the team is rounded out by professionals with backgrounds in finance, technology, media, and advertising. Overall, the team seems to have the right experience to develop and scale Brave. They're still hiring and expanding, so it'll be great to see what they have planned in their future roadmap.
To date, Brave has raised $42 million from top VCs like Abstract Ventures, Founders Fund, and Digital Finance Group.
N: Network Effects - Will more people in the network benefit when others join? Are there high switching costs and stickiness in using the platform?
Score: 4.5/5
The combination of Brave and BAT occupies a unique niche in today's digital advertising landscape. The two products go hand in hand - more users translate into more transactions in BAT.
In addition to users, Brave has also been successful in signing up publishers and advertisers. To date, there are over 1 million content creators working on the platform across all major social media channels like YouTube, Twitter, and Twitch. Brave has launched with over 400 major brands like Verizon, Nexo, and eToro to bolster its ad network.
Anyone who signs up as a user or advertiser automatically provides positive feedback loops to the entire system. On the flip side, one must use the Brave browser to participate in the BAT ecosystem. This can limit adoption if people are more likely to maintain the status quo and use whatever browser they’re used to or is installed on their computers. However, if users do make the switch and like their experience, switching costs will be higher if they choose to receive BAT rewards.
F: Fundamentals: Do the underlying unit economics make sense within the current network? How quickly are users growing? How much value has been transacted or locked up?
Score: 4/5
I won't get into the weeds here too much on metrics but I want to cover major participants in this ecosystem: users, advertisers, publishers, and content creators.
Users earn BAT rewards through the normal course of just browsing different sites. Depending on the site or publication, users can interact in a number of ways. For premium content that is usually behind paywalls, users can supply BAT to either pay for their own subscription or donate to their friends. Comments on certain sites can be backed by BAT to give more credibility. Eventually, BAT will be used to run a digital economy allowing users to buy any number of goods and services directly within the Brave browser.
Advertisers supply BAT to run their campaigns. Within the Brave platform itself, they're able to view the effectiveness of their ads. All data is collected and written onto the ledger, which allows the platform to be transparent and scalable.
Publishers are rewarded for the attention or interactions from users garnered by their content. Performance metrics can be customized between advertisers and publishers to best suit specific campaigns. Users can also tip publishers directly to further incentivize quality content.
Independent content creators can be verified on the platform to earn revenue through subscriptions, tips, and referrals. With over 1 million creators signed up so far, Brave essentially operates like a Patreon but for the whole web. For content creators less familiar with crypto, Brave automatically converts any BAT to currencies of their choice.
To date, the Brave browser has over 25 million monthly active users. BAT has accumulated a market cap of $1.7 billion and over $380 million in total transaction volume.
By enabling advertisers to interact directly with publishers/content creators and users on its platform, advertisers are able to use their budgets more effectively. Users who sign up to view ads are more likely to engage with those ads. In the most recently released metrics, ad revenue on Brave grew 28x over the past 16 months. The average click-through rate at 9% was also well above the industry average of just 2%.
Metrics for user adoption of BAT compared to adoption for Brave aren't readily available today. However, I believe it would be a stretch to say that most Brave users are also crypto users. While BAT serves as a medium of exchange on the platform, I suspect most of its users do not readily participate in this new digital ecosystem.
As an ERC-20 token, BAT operates on the Ethereum network. Currently, users pay a fixed amount in ETH gas fees depending on network congestion to interact with the on-chain smart contracts, no matter the transaction amount. This will be an issue, especially for smaller content creators and users looking to spend or withdraw incremental amounts. While off-chain and layer 2 scaling solutions are possible, a migration to a highly scalable layer 1 chain would be the ideal solution for BAT's use case. Users would benefit from lower gas fees, improved security, and a better user experience interacting directly on-chain with a base level protocol.
I: Incentives - Are there proper cryptoeconomic incentives in place for network stakeholders and users to support blitzscaling?
Score: 3/5
With ecosystems like Brave and BAT, the cryptoeconomic incentives are embedded throughout the platform. Users earn rewards by offering their "attention." Because these users are “primed” to see ads, they are more willing to engage with them in the network of publishers and content creators. As a result, advertisers generate higher returns on their marketing spend. It's a solid blueprint for a new digital advertising economy.
Since BAT rewards can only be earned within the Brave browser, there are large barriers to getting users to convert from other browsers, such as Google Chrome. There is also a steep learning curve to understanding how BAT, or crypto in general, works. User adoption will be key. The browser already sets itself apart by offering a privacy-centric solution for end users. If Brave can make the experience of earning and using BAT as simple as something like travel rewards programs, mainstream adoption is only a matter of time.