What are fan tokens, and how do they work?

What are fan tokens?

Fan tokens, as their name indicates, are digital assets that the holder, a fan of a specific sports team, club or player, owns and derives value from. 

Traditionally, fan engagement with sports teams, players, leagues and clubs was passive. Fans purchased tickets and merchandise, while the team or players collected the cash, creating an ecosystem with a one-way street.

The emergence of fan tokens, with roots in blockchain-induced decentralization, however, transformed the scenario. How does a digital asset help forge closer connections between teams and fans, constructing a new kind of ecosystem that was advantageous to both stakeholders?

Helping create a fan-based reward system, these tokens are finite assets that fans can buy, sell and exchange collectibles, merchandise or meet-and-greet sessions with the team. Fan tokens do not function as traditional currency in the sense that they are not generally accepted as a medium of exchange for goods and services outside of specific fan token ecosystems. However, within their respective platforms, fan tokens can be used to access exclusive content and participate in voting and other similar activities.

Though popularized by an app and fan token platform called Socios, the fan token model has now been adopted by other blockchain companies. On Socios, fan tokens are purchasable with CHZ, the native coin of the Chiliz blockchain. Fan tokens are associated with several sports teams that monetize their fandom with rewards. Providing holders access to a string of engaging activities, fan tokens are assets designed to keep fans more involved with the team or player.

What is the difference between fan tokens and NFTs?

One property that makes fan tokens different from nonfungible tokens (NFTs) is fungibility. Fan tokens are fungible, while NFTs, as the name denotes, are not.

Fungibility is a property that refers to items being readily interchangeable with an identical piece at a specific rate. In fiat currency, a dollar bill is equal to another bill of the same denomination. Fungible assets are divisible into smaller units and lack unique traits, making it convenient for holders to trade them. Precious metals, bonds and equities are examples of fungible items.

NFTs are unique tokens that cannot be replicated. Examples of NFTs are virtual event tickets, blockchain identity, metaverse assets, etc. Facilitating the claiming of ownership of a unique piece of digital data, NFTs sit on a blockchain just like any other crypto token.

Fungibility is a property that means any of the fan tokens could be easily replaced with another fan token. The tokens being fungible also makes them easily tradable, as they become part of the secondary market. Fan tokens, however, are team-specific, and only a finite supply is available with each team.

What is the role of fan tokens as utility assets?

There are either utility tokens or security tokens on blockchains. Fan tokens are generally utility tokens, programmed to offer a string of benefits for the fans. Fan tokens are quite like points on a mobile app that a team could award or top up to their fans. A robust backend technology holds the project in place.

As utility assets, fan tokens play a key role in the monetization of the fan ecosystem. Teams can use the fan tokens to roll out a new revenue stream. When sold for the first time, it could provide a huge capital boost to a team. When Barcelona’s fan token sold out, it raked in a whopping $1.3 million.

The blockchain aspect, on the other hand, ensures the usage of tokens for non-critical voting and other engagement activities. Non-critical voting refers to instances of tokenholders casting votes on matters that might not have a major impact on the project.

For example, fans might be allowed to decide on the color of the team wagon or what song to play after scoring a goal. This is different from governance tokens, where tokenholders are in a position to take critical project-specific decisions.

What are the various types of fan tokens?

An array of fan tokens is in vogue across sports industries, though football club tokens are more well-known. However, fan tokens are also emerging in other sports, gaming and even movies.

In football, various clubs have collaborated with Socios to introduce tokens to their fandom. Some mentionable names in the football arena include AC Milan, FC Barcelona and Manchester City FC. Fans can buy their favorite fan token on the Socios app using CHZ.

Professional mixed martial arts organizations, such as the UFC and PFL, have launched fan tokens to give fans access to fan pools, chat forums and game rewards. Entertainment company Mogul is offering entertainment tokens that enable directors, actors, screenwriters and moviegoers to get rewarded in the process of movie-making.

Additionally, celebrities issue NFT fan tokens, which signify ownership of a particular item or experience connected to the celebrity. Examples of assets that can be represented by these tokens include access to exclusive content, experiences or even merchandise.

Similarly, NFT fan tokens issued by gaming businesses that represent a variety of assets, such as in-game objects, access to premium gaming material or even voting privileges for specific game-related decisions, can be issued.

How do fan tokens work?

Fan tokens work by allowing fans to buy ownership in a specific asset or experience related to a sports team, celebrity or artist and giving them access to exclusive content and benefits.

Teams looking to launch fan tokens collaborate with blockchain-based platforms, like Socios, to mint the tokens on a blockchain. A fan token offering (FTO) is scheduled where fans can buy the tokens for a flat price. Post-FTO, the value of fan tokens could rise or fall, depending on team performance, use cases, demand, project execution and similar other parameters.

Barcelona, Manchester City, Juventus and Paris-Saint Germain have also launched their fan tokens. Additionally, the KPOP Fan Token (KPOP) is a utility token that provides K-pop fans with a tokenized share of influence on the Korean pop music industry through social applications and support.

Fan tokens function as an automated membership key, granting holders a variety of benefits. The tokens make the holders eligible for team recognition and unique rewards. Not only can they access collectibles and merchandise but also get a berth for interactive sessions and autograph meetings, which are just not accessible otherwise.

As fan tokens endow holders with the right to have a say in team decisions, they are comparable to corporate shares. While they may not grant them a decisive say, like governance tokens do in tech-related features, allowing fans to vote on club matters is a welcome step. It makes them feel like part of a club.

Often, if a user has more tokens, they enjoy greater influence in the fan ecosystem. Some teams require users to hold a certain number of tokens before they become eligible for voting and other perks.

Where to buy fan tokens?

Fan tokens have provided teams with a potent tool to monetize their vibrant fan bases and open up a secondary revenue stream. In the process, they are also able to create a blockchain-based reward system for fans.

Fan tokens function quite like other cryptocurrencies. Coming with a limited supply, these tokens could be bought on the platform of the relevant project, or a supportive exchange. The process of buying fan tokens from Socios involves following steps:

• Create an account: To buy fan tokens from Socios, users will first need to create an account on their website or mobile app.
• Purchase CHZ: CHZ is a cryptocurrency that is used to buy fan tokens on Socios. Users will need to purchase CHZ through a cryptocurrency exchange, such as Binance or Coinbase, and transfer it to their Socios account.
• Choose a fan token: Once they have CHZ in their Socios account, users can browse through the available fan tokens and choose the one they want to buy.
• Buy the fan token: To buy the fan token, users will need to use their CHZ to make the purchase. The price of the fan token will vary depending on the team or organization and the current market demand.
• Store the fan token: Once users have purchased the fan token, it will be stored in their Socios wallet, which is a digital wallet that allows them to manage their fan tokens.
• Trade the fan token: Users can also trade their fan token on the Socios platform or on other cryptocurrency exchanges that support the token.

However, please note that the concept of fan tokens is still new, and as new use cases emerge, it is only going to get more robust. Teams that have rolled out these tokens have been able to boost fan engagement. As more token holders use them to participate in related events, their worth increases.

As a viewer, one likes teams to operate with winning as their only goal. However, in order to sustain itself, generate income continuously and make money, a team must operate successfully as a business. Creating fan tokens has immense business potential. As more sports teams realize this, they are now competing to roll out their own fan tokens in their quest to leverage new opportunities and edge past competitors.