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Introduction of Smart Media Token (SMT)

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The was a little euphoria in the Steemit community last Friday when @ned (Ned Scott – CEO of Steemit) announced the white paper for Smart Media Token (SMT). The price of Steem was lingering at USD1.20/Steem shot up to USD1.60/Steem. The general consensus is if the value of Steem appreciates, this must be a good thing.

One of the first thing that @ned spoke in his short video announcing SMT was open scrutiny of the White Paper which I think that all legitimate models must have, an open approach to criticism. I will be attempting to first introduce how the SMT token works, the basic framework of the SMT and its implementation based on the White Paper. The link to the white paper is hereby attached.

https://smt.steem.io/smt-whitepaper.pdf

SMT is an emulation of the platform that Steemit currently operates but more inclined to a specific purpose or to benefit a specific community. This idea is called ‘Monetizing the Community’. The concept is the same, the basis of reward is on proof of brain which is subjectively evaluated by the community and the votes are weighted votes, so it means different people depending on their contribution to the community and their reputation will have different say in the reward system. Anyone participating in the platform will be paid. Since the system is focussed on a specific community, it can be authored to bring about a specific user behaviour for instance participation in content generation, participation in census or data collection, participation in engagement or even critical evaluation.

Example:
A local television station wishes to organise a local beauty pageant. They can adopt the SMT and give tokens to its participants which is the viewers, the participants, the producers, the crews and the jury. Just like what we see in Steemit, there is participation by way of engagement. In short we call it curation. The producers achieve their target to encourage more active participation by their viewers and contestants alike. Viewers seeing that there is reward are more readily to engage and the entire pageant becomes a small economy of its own based on engagement and content creation. The viewers that actively participate would have more tokens and it will also give them more influence in the pageant’s result and the entire system cannot be rigged because it rides on the blockchain system. Hence the accountability is there and there reward that spurs more activation participation from all its stakeholders is in place.

Traditional Approach

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Publishers depend on paying subscribers. We take Reader’s Digests for example. The content providers, publishers, animators, designers and editors are from paid from paying subscribers or advertisers. Therefore a subscription based model would centre its resources in pulling more subscribers rather than concentrating on the real value of its publication, which is the content. In the advent of more ad-blocking softwares, advertisements will find it harder to reach its audiences, making advertisers shy away from online media publishers. Therefore, unless it has a strong subscriber base or pool of unlimited resources, the publication will soon die a natural death.

How SMT Resolves This

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The publication can start its own ICO to launch its token. Interested investors can participate by pumping their real world assets in exchange for these tokens. The token will then be circulated in the community through engagement by way of content creation or curation. The entire system is then thrown into the Steem blockchain and it auto manages itself. There is no worry about engaging advertisers and the publishers can fully concentrate on the real value of their core business which is the creation of quality contents.

The content providers on the other hand will be rewarded through the system which is reward based. If an author is well liked by the community, he would receive good rewards. So there is a healthy spur of competition to be popular and to generate quality contents.

How SMT benefits STEEM?

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In monetizing the community, the ICO is raised by funding through issuance of smart token by using STEEM as a pair. This works just like how we trade in FOREX. Whenever this token launched, the STEEM that is required to acquire the token will be locked and this will reduce its supply which will automatically result in the appreciation. Some steemians are confident that STEEM should realise its real potential at USD6 and some values it at USD10. We will only know once the white paper is carried to fruitation.

The next floating question is how do these holders of token find a price in the market and how do they monetize it. If a USD100 note cannot be utilised and its value is not recognised, it is as good as trash. Hence a decentralised exchange is needed (DEX). This is a relatively new concept where traders can change tokens into steem or other tokens with ZERO transaction fee, a new introduction into the system. Trader are so used to paying a portion of their transaction to facilitate the exchange. SMT has effectively introduced a new creature into the STEEM world, the TRADERS.

These traders in order to trade will rely on their bandwidth which is controlled by the steempower that they hold. This gives them more incentive not to power down if they are actively trading. The same concept is alive and kicking for those in the steemit world. Those actively posting contents and curating will need more steempower. The more steempower means the more influence in the upvotes and curation rewards. So the creation of SMT has added another dimension to the economy of steem which previously has been confined to the steemit world.

Potential Application

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There is an entirely new economy created out of SMT. New tokens would be floating in the exchange market determined by DEX and there is no chance of manipulation just like how any blockchain cannot be manipulated. New websites supporting the DEX system just like how steemit.com supports the steem blockchain will be created and popular tokens may have its own value that could be monetized and deposited into debit or credit cards to be used like normal fiats.

A few models can be sculptured out from this new introduction:

i) Incentive for voting participation from members of a targeted community which makes census a breeze. Voting can be on different aspects for instance a developer can issue token and invite their purchasers to vote and comment on different aspects of the development in return for reward that could translate into cheaper purchase of the next development;
ii) Companies running appraisal of the employees. There can be a very limited but controlled weighted votes by the peers or subordinates of any big organisation which may be better for employee confidence and transparency. This closes the gap between superior and subordinates. Superior still maintain a higher say by the weighted votes.
iii) Encouraging critical evaluation through curation process. The party under scrutiny must not be the holder of any voting power to prevent fear of unfavourable comments which could be downvoted or flagged. There would be a healthy and extremely critical and constructive curation that will benefit the organisation under scrutiny.

The lists is endless. The possibility is only as far the eyes can see.

Scrutinising the White Paper

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We saw China and Korea clamping down on the raising of funds through ICO. The rationale is simple, pooling of funds in the public domain has the capability of crippling the entire economy depending on its scale if the entire process is not legitimate. The pooling of resources is also deemed as deposit taking which can only be done by certain people who are known as regulated person. In all legal landscape there is a general provision that can be used by any government to clampdown on activities that they deem suspicious and could damage market confidence. This is the catch all provision that is so ambiguous that it can be regarded as unconstitutional.

Lets take a look at the English legislation which is generally adopted by all Commonwealth countries including Malaysia, Australia, Singapore, India and others.

United Kingdom’s Financial Services and Markets Act 2000

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Section 3. Market confidence.
(1)The market confidence objective is: maintaining confidence in the UK financial system.
(2)In this Act “the UK financial system” means the financial system operating in the United Kingdom and includes -
(a) financial markets and exchanges;
(b) regulated activities; and
(c) other activities connected with financial markets and exchanges.

22(1) An activity is a regulated activity for the purposes of this Act if it is an activity of a specified kind which is carried on by way of business and
(a) relates to an investment of a specified kind; or
(b) in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind.

6(5)“Regulated person” means an authorised person, a recognised investment exchange or a recognised clearing house.

So, in short a trader may fall under the category of an authorised person because any person who carries out any regulated activities within section 22 of the FSMA 2000 must be an authorised person. Definitely running a DEX would be considered as ‘investment of a specified kind’ or ‘investment exchange’. In short the FSMA 2000 regulates exchanges whether it is called a centralised or decentralised exchange. The person who operates within the system of exchange would be a Trader hence the legal net would be able to sieve this individual and impose all regulatory controls.

I choose to use the UK's model of FSMA 2000 because we can expect the same legal impediment in other jurisdiction as well.

Conclusion

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In short this is a great idea, one that will definitely launch Steem into the orbit and make it one of the most traded and capped crypto in the coin exchange. However the main difficulty that this SMT may face which is also identifical to the reasons why ICOs are being banned would be financial regulatory control and the above provision would also stem down on the emergence of a new creature called TRADERS in the DEX market.

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There are good reads in the Steemit world on the SMT that may shed light from a different perspective.

@nanzo-scoop (https://steemit.com/smt/@nanzo-scoop/dissecting-the-smart-media-token-smt-whitepaper-an-easy-overview)
@the-alien (https://steemit.com/smt/@the-alien/smart-media-tokens-introducing-the-game-changer)
@boxmining (https://steemit.com/steemit/@boxmining/my-take-on-smart-media-tokens-smt)
@luzcypher (https://steemit.com/steemit/@luzcypher/smart-media-tokens-could-bring-mass-adoption-to-steemit-allowing-anyone-to-launch-their-own-coins)

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*To lend credibility to my review above, I was a lawyer of 12 years of litigation practice in Malaysia with experience in commercial and banking litigation.