Takeaways

  • Brave is a standout among crypto projects from the ICO era, when considering the adoption it has managed to drive.
  • The MAU numbers are still low, when compared to other browser products.
  • BAT, the native protocol asset, only finds utility as a payment token, which dampens Braves adoptability.
  • While the adoption numbers are encouraging, more users do not necessarily translate into more ad spend, as Brave's core value proposition is - quite literally - ad-blocking.
  • The ads shown on Brave Rewards are mostly of poor quality and still very crypto specific. Better quality ads and better payouts to users (currently $0.5 pcm) will improve adoption.


Brave is one of the breakout crypto-friendly products to come out of the 2017 ICO boom. The browser is a privacy-first product, offshoot of Mozilla Firefox and fork of Chromium, powered by a cryptoeconomic layer in the back end. Instead of a traditional advertising model, Brave shares 70% of the ad revenue generated, with users, in the form of Basic Attention Tokens (BAT). Whether a user is exposed to ads or not, is up to the their discretion.

In this short post, we make a case for how Brave’s token economy design might hamper the value accrual potential of the BAT token over the long term, by deteriorating user experience for merchants.

Adoption

Recently, the browser surpassed 8M MAU, a YoY growth rate of 166%. While the absolute figures pale compared to Chrome's 3B users, they are certainly outstanding in a crypto context. If the assumption that internet users across the world will increasingly keep becoming privacy sensitive holds true, then a window of opportunity opens up for Brave. On the browser end, Brave is faster than Chrome, while its integration with Duckduckgo on the search engine layer, boosts its privacy preserving value proposition.

Whether or not Brave is an attractive investable opportunity through BAT, largely depends on BAT's token economics. BAT is the native network token that is primarily used as a payment token, in the exchange for attention between advertisers and users. While an ad-blocking browser by default, in Brave users are presented with the option to share their data with advertisers, and see ads in exchange for BAT.

1.5B tokens were issued and distributed over 85% to investors and the wider market - a big long term positive in my book. Until further notice, there will never be any inflation - also a big net positive. BAT tokens have no further intended utility than the payment function described above - a feature I perceive as a net negative.

The numbers of publishers signing up to the Brave ecosystem are steadily increasing. The more publishers there are on the platform, the more attention there is on the platform and thus the more attractive it will be for advertisers to use Brave instead of competing ad networks. In order to do that, advertisers will be required to build up BAT reserves to pay users with.

OVER THE LONG TERM, ADVERTISERS WOULD HAVE TO ENGAGE IN SOME FORM OF RESERVE MANAGEMENT ON THEIR BAT HOLDINGS, IN ORDER TO LOCK DOWN A BEST PRICE IN TERMS OF USD, AND OPTIMIZE THEIR COST BASIS.

The model is already getting some traction, most of which comes from the crypto-native community. The quality of ads that Brave shows is relatively low, with the majority of the advertised brands being VPN and exchange products. Unsurprising - given the type of user that has become an early Brave adopter, but for the product to become stickier, I feel we would have to see better quality advertising.

Brave token economics from the ground-up

Earlier on, I mentioned that I see BAT's utility as * only * a payment token, as a net negative. The reason why, is that it introduces a lot of overhead for advertisers. There is virtually no reason for merchants to adopt a highly unstable currency equivalent as means of payment in order to reach audiences, except perhaps for if they are long the platform itself - in which case the presumption becomes that every merchant will wear an investor hat. Even then, the case for pure payment tokens is grim as the aforementioned adoption mechanism is a zero-sum game.

If the majority of token economy participants decide to just build up reserves of the native payment token, you would have to assume that their involvement in the Brave ecosystem will not drive the majority of their business, so long as running costs cannot be covered using said token without exchanging it for fiat. In itself, that limits the addressable market.

Now, if the majority of participants decide to not be exposed to volatility and sell down on their token denominated income immediately upon receiving it, then everybody else is incentivised to do so - or be left holding the bag. If we agree that this dynamic is true, then it creates the perfect conditions for a race to the bottom.

The final argument that could work in Brave's favour, would be that the product will be so irresistible and as such attract so many users, that it will be impossible for advertisers to ignore it.

THIS COULD BE THE CASE FOR BRAVE, ONLY IT CAN'T, AS LONG AS ITS CORE VALUE PROPOSITION IS -  QUITE LITERALLY - BLOCKING ADS.

I have been using Brave with the Rewards feature on for 3 months now as an experiment and earned 5.9 BAT thus far, which amount to $0.5 pcm at current prices. In western world standards this is inconsequential. Personally, I would rather pay 3x as much to not have to bear with ads.

It’s neither stable, nor volatile - what is it?

For almost 2 years now, BAT's price has ranged between $0.15 and $0.50, and while that makes a good case for relative stability enforced by market forces, it certainly is not as good as a stablecoin's, while it doesn't seem to have the potential for a moonshot either.

Given this price action history, one would expect those advertisers that decide to build BAT reserves to drive up the price to ~$0.5, at which point cyclical sellers would be triggered and they would drive the price down again. Conversely, at prices near the $0.15 level, utility seekers would start buying up reserves again. Without a systematic mechanism to break the cycle, I could see it just endlessly repeating. Good for the speculator that is interested in taking advantage of that cyclicality, but bad for almost everyone else.

A better model would be one predicated on some sort of stablecoin, where BAT would be the protocol asset that would give validators that would stake it access to ledger fess.

We are increasingly seeing traction in the work token space, with Terra's dual token model providing for a good example.

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