Fan tokens: Cryptocurrencies Designed for the Sports World

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Fan tokens: Cryptocurrencies Designed for the Sports World
Fan tokens: Cryptocurrencies Designed for the Sports World

Designed to stimulate the commitment of supporters and better monetize their fervor, fan tokens are experiencing growing success in the world of sport. It must be said that everyone is a winner: the clubs benefit from new cash inflows, and the fans participate in the life of their team(s). However, the risks they pose should not be overshadowed in the absence of clear regulations. Let’s examine this innovative tool that could redefine the relationship between sports entities and their supporters.

The Fan Token Brings Clubs and Supporters Closer Together

If some still wonder what the innovations brought by the blockchain and cryptocurrencies can be used for, fan tokens are good proof of their usefulness. Comparable to certain types of social tokens, they help to strengthen the bonds between sports teams and their most fervent supporters.

We owe this invention to the company Socios.com, which has already established partnerships with the biggest teams on the planet in a dozen sports disciplines. It was she who issued the very first fan token in history, that of Juventus of Turin, in December 2019.

Since its creation, the model invented by Socios.com has proven itself, and competitors are beginning to emerge. The total capitalization of the sixty existing fan tokens represented almost half a billion dollars in April 2022.

What is a fan token?

Naturally, it is to the company Socios.com that we owe the term fan token, which is used generically today. And as the name suggests, this is a digital token designed for fans.

Concretely, fan tokens offer their holders the possibility of voting for secondary decisions concerning their team (electing the player of the month, for example). They also provide access to rewards and unforgettable experiences offered by the biggest sports clubs in the world.

Like any token, the fan token is fungible and exchangeable for other cryptocurrencies. And if Socios.com has chosen to issue its fan tokens on the Ethereum blockchain, the new players in this market have opted for in-house solutions. For example, the Binance platform relies on its own blockchain (the BNB Chain) to issue its fan tokens, as does Bitci.com.

Football is the most represented sport, by far, in the sixty or so existing fan tokens. But other disciplines have planned to take advantage of this new financial windfall. At the time of writing, this concerns motorsports, basketball, MMA, eSports, tennis, ice hockey, American football and even cricket. But it’s a safe bet that this list will grow with the democratization of fan tokens.

Fan tokens are currently focused on the areas of sports and eSports. But in the years to come, they could very well conquer new worlds, such as music or fashion.

Artists or influencers could thus follow the example of footballer Keisuke Honda, who created his own fan token. Issued on the Rally.io platform, the KSK Honda Coin offers its community the opportunity to access exclusive content about it.

How to buy fan tokens?

To take advantage of the benefits of fan tokens, you must hold at least one unit. This is enough to access all the experiences offered by these new tools. But some prefer to accumulate large quantities. Why? Because the more tokens they hold, the more weight their votes will have in influencing decisions in the life of their favourite club.

In practice, fan tokens are purchased using cryptocurrencies:

  • Socios.com relies on its Chiliz (CHZ) token, which allows buying all the tokens available on the platform;
  • Binance treats fan tokens like the cryptocurrencies available on its platform. Buyers, therefore, have access to different pairs depending on the tokens available. For example, the Lazio Rome token can be bought against Bitcoin (BTC) and Trias (TRY), but also against the stablecoins Tether (USDT) and Binance USD (BUSD). They can also be paid directly in euros by bank card;
  • Bitci.com uses its own cryptocurrency, Bitcicoin (BITCI).

The sale of fan tokens is always done in two stages:

  • The initial sale: when they are offered for sale for the first time, the fan tokens are bought at a fixed price on a given date. This is what Socios.com and Bitci.com call a Fan Token Offering (FTO). Binance prefers the Launchpad term of fan tokens;
  • Sale on the secondary market: once the initial sale is completed, the fan tokens are traded on the secondary market. Logically, the main platforms present in this sector are Socios.com, Binance and Bitci.com.

The value of each fan token is dictated by the law of supply and demand. Indeed, they are all issued in limited quantities, which makes their price increase if many fans rush to buy them.

This is what happened in 2021 following the announcement of the signing of Lionel Messi at Paris Saint-Germain. The PSG token had jumped +106% in just three days. By following the same logic, it is easy to imagine that the launch of a collection of non-fungible tokens (NFTs) accessible only to the holders of the fan tokens of a sports entity could increase their value.

In general, the opposite is also true. A major injury to the star of the team repeated poor performance, or financial penalties are events that can cause the price to fall.

What explains the success of fan tokens?

By relying on the blockchain, fan tokens offer a unique experience to sports fans. On the one hand, they allow their holders to benefit from governance rights in the management of their core team(s) by giving them the right to vote on secondary decisions related to the club. On the other hand, they offer the possibility of earning rewards. And there, the imagination of sports entities and fan token issuers is the only limit.

The most classic rewards to date consist of giving priority access to NFTs issued by a club or offering seats in the VIP stand for gala matches. But they can also provide unforgettable experiences. Last year, Socios.com caused a sensation by offering the possibility to 22 holders of the FC Barcelona fan token to play a match on the legendary Camp Nou pitch.

On the club side, the reason for the success of fan tokens is obvious: this revolutionary tool offers them a whole new welcome financial windfall in a complicated economic context. Indeed, the restrictions linked to the Covid-19 pandemic have considerably reduced the cash flow for all sports entities. But it’s not just a question of big money…

Fan tokens help stimulate the commitment of supporters by involving them in certain choices in the life of the club. Certainly, these are not important decisions, but it remains unpublished. Fans can thus vote for the design of their team’s bus, the choice of the 3rd jersey, the music for entering the players on the pitch, etc.

What are the risks surrounding the use of fan tokens?

The legislative vagueness surrounding fan tokens

Like most activities born of the crypto revolution, fan tokens evolve in a  more or less large regulatory vagueness depending on the country. Naturally, this legislative void implies non-existent protection for the holders and issuers of these cryptocurrencies. In the event of scams or a sudden drop in prices, they remain on their own for the time being.

Sports entities are sometimes victims of this lack of clear legislation in this area. The Arsenal club was thus pinned in December 2021 by the Advertising Standard Authority (ASA), the British advertising authority. He was criticized for not insisting enough on the risks associated with investing in fan tokens in his ads promoting the token issued in partnership with Socios.com.

The question of the responsibility of the various players in this ecosystem also remains to be settled. Indeed, fan tokens are issued jointly by sports entities and token-issuing companies, which raises questions about the identity of the person responsible in the event of a problem for the holders. Normally, all these details are specified in the contract binding the two entities, but it would still have to be accessible to buyers.

To ensure minimum losses for the various players, total transparency should be imposed on the conditions of issue, purchase, sale and transaction. Who knows what would happen if a fan token disappeared? After all, the contracts that bind token issuers like Binance and sports entities have only been signed for a few years.

We cannot ignore that they ask many questions, especially about the risks of manipulation that they could cause. One could very well imagine that a club buys back a large portion of its fan tokens just before making a sensational announcement in order to take advantage of the rise in price. Ditto for a star who is about to sign a contract with a new club: to date, nothing would prevent him from investing a large sum of money in the tokens of this club just before the official announcement in order to achieve profits.

Finally, in the absence of a regulatory framework, it should not be forgotten that fan tokens remain subject to a sudden ban in certain countries.

As you will have understood, at present, the risks of abuse remain very high.

A still immature market

Investing in fan tokens remains complex for anyone unfamiliar with the cryptocurrency ecosystem. Certainly, the user experience is improving over time, but it is not yet within everyone’s reach. You have to be able to open a wallet, buy cryptocurrencies, and then exchange them for fan tokens. When you are not used to all these procedures, the risk of errors is great. But we note immense efforts on the part of players in this sector to educate holders and facilitate the exchange of fan tokens.

The immaturity of the fan token market is also illustrated by the failure of IQONIQ. This company, which intended to compete with Socios.com, was placed in compulsory liquidation in January 2022 after concluding commercial agreements with renowned football teams such as Olympique de Marseille, AS Monaco, Real Sociedad and Crystal Palace.

In the end, the clubs did not receive all of the sums promised by IQONIQ as part of their partnerships, and the holders of the IQQ token saw its value fall due to the company’s setbacks. The CEO of the company, Kazim Attila, assures us on Telegram that he intends to come back even stronger in the coming months, but we are waiting to see…

Our opinion on fan tokens

On paper, fan tokens have everything to seduce

They allow supporters to finally have a say in certain decisions of their favorite team(s) while offering them numerous advantages and other rewards.

Sports entities benefit from a new financial windfall that is as providential as it is unexpected. But not only that, fan tokens allow them to better interact with their fan communities and thus boost their engagement.

In practice, there are still grey areas to be clarified

Pending the arrival of clear regulations on a global scale, the fan token market remains a real Wild West. It is subject to speculation and does not escape high volatility, not to mention the risk of manipulation.

If you plan to get started, we advise you for the moment to invest only for emotional reasons by opting for the fan token of your favorite club. In 2022, they trade for a few euros, so you don’t risk getting into debt. But don’t be too greedy, and only invest what you are prepared to lose.

In the long term, fan tokens have a bright future

We must not forget that the very first fan token appeared in December 2019. It is a completely new tool, which remains to be tamed for all players in this sector.

There is no doubt that fan tokens have all the assets to impose themselves in the long term and that they will have their role to play in the advent of Web 3.0. But the most exciting thing is that most of their uses are probably yet to be invented. We can’t wait to see what it will bring over the next few years.