The idea that blockchain technology can be a savior for a broken ad tech supply chain is gaining momentum. After all, it promises to bring advertisers and publishers closer together, streamline payments and allow providers to compete on value instead of through black boxes and arbitrage.
If blockchain succeeds, it could spur serious innovation. But while there’s no shortage of white papers about moving the ad tech space into blockchain nirvana, it will take more than a good idea to reinvent the space. A solution can only work if it can scale.
With the traditional ad tech model, scale is achieved by each player (DSP, exchange, SSP) doing all of the heavy lifting to aggregate supply and demand and then sitting in the middle and charging a fee to recoup the investment.
The creators of any blockchain solution will require a similarly large investment in infrastructure, technology and “heavy lifting,” but they won’t be able to recoup this investment through arbitrage style fees. Instead, to get things rolling, these initial players will need to open-source the technology supporting the blockchain and give away this valuable IP for free.
But why the heck would they do that?
Enter coin economics
By creating a supply of “coins” or “tokens” to operate the network, these early adopters can raise money to fund the engineering required to build and launch the blockchain and also define the right incentives for participants to grow the network over time.
For example, a group of advertisers, vendors and publishers could agree on a vision for a blockchain and raise money among themselves and other investors to fund the buildout of that blockchain. A fixed supply of ownership or “security” tokens could be created to launch the development effort. In exchange for injecting money, resources and technology into the effort, members would receive these tokens (much like how funders invest in a startup company and receive equity in exchange).
As the blockchain grows, it could rely on a separate supply of less restricted “utility” tokens to operate the actual network. Media would likely be settled in U.S. dollars or other fiat currency, but all other transactions within the network could be paid for with utility tokens.
To make sure the creators of the blockchain are aligned with its success, a small percentage of each utility token transaction could be automatically paid out to the holders of the security tokens. If the blockchain doesn’t grow, the security tokens would end up worthless; if the blockchain scales, its creators would be rewarded by the appreciation of their security tokens.
Ultimately, a successful ad tech blockchain relies on proper coin economics. Blockchain creators win when the blockchain itself thrives, and advertisers, publishers and vendors can buy and sell ads more easily, transparently and at stable prices.