Go2Mars Research
Summary of previous article: Let's do a 100-question self-examination of startup projects. This can be used as an analysis and evaluation of whether you should buy its project tokens, or as a self-examination of problems for newly created projects. All questions are divided into the following seven parts: general issues, token issuance, supply, demand, token utility, past, and current market.
In the latest article "Tokenology: More Than Token Economics" from A16Z Guy Wuollet, the value of tokens goes beyond the monetary value of tokens, and more consideration is given to the multiple forms of value such as social identity and reputation contained in tokens. Tokens, as a vector with direction, are not just scalars with only digital size. In this state, each specific token can represent information such as ownership and membership, and the value covered can become a rich new design space for token system builders, thereby showing the high dimensionality inherent in any value representation.
Tokens are attracting the attention of anyone interested in art, cryptography, design, economics, games, mathematics, psychology, etc. In the process, we also need to go beyond the inherent impression of "token economics = tokens + economics" and move towards a multi-value framework of "tokenology = tokens x economics x art x ..."
Actual use cases of tokens
The value of a token comes from its practical use scenarios. The following scenarios are available for reference:
① Ownership: Tokens give users digital property rights and also allow ownership of superstructures, which are defined as "cryptographic protocols that can run forever for free without maintenance, interruptions or intermediaries." In this case, they will create value that the owner can obtain or destroy. Of course, this value is not just monetary value, but also has value in other aspects.
② Coordination: Tokens can be extended to represent not only membership in that community, but also to establish digital cultural identity. In this case, holders of such tokens can also vote on creative decisions in a decentralized collaboration between creators and the community. Creator tokens, social tokens, and NFTs all allow fans to interact directly with their favorite artists.
③ Incentive structure: Incentive design is often described as the key to understanding and motivating human behavior, but it can also coordinate systems, organizations, and networks. Tokens can help coordinate validators and miners in Ethereum and Bitcoin. This also makes it possible to enable decentralized governance in DeFi protocols such as Uniswap and Compound. Tokens can help NFT projects (such as BAYC) or digitally native DAOs and communities (such as FWB) to grow rapidly in membership and create related derivative products.
④ Access to goods and services: Token gating can be used to prioritize early or more active community members, or to differentiate between casual and more dedicated participants through other criteria and ensure a richer experience overall.
The above token use cases are far from complete, as this is just the beginning. But as the token formula above imagines, this is an extremely rich design space - spanning art, economics and other fields.
Seven Effective Tips for Token Economics
Of course, in the early stages of token design, it is also necessary to focus on the pure economic context of the token’s value dimension, as Wuollet gives seven effective tips for early entrepreneurs in his token design advice. Combined with our experience with failed early token economics projects, these ideas will give you a more complete idea of the 100 token economics self-examination questions at the end of the article.
① Don’t build complex models before clarifying your goals
Many early project parties will put too much energy on a perfect token economics model, which is particularly evident in business finance/economics founders, because they usually have the idea of becoming central bank executors. But in the actual operation of the project, you should not design the "perfect" token economics and token release system too early, but should rigorously review the project goals. What purpose do you want to achieve? The premature design of the project's economic system may cause the project to fall into the misunderstanding of "token design for the sake of token design". You should gradually explore the actual design of tokenization from your clear goals and ideas.
② Evaluate existing work from first principles
Objectively evaluate your economic system from the perspective of practicality. Token models are often evaluated based on the price of the token or the popularity of the related project, and these factors may have nothing to do with the ability of the token model to meet its stated goals. If you simply use market valuation, popularity, or other methods to evaluate the value of a token, it may lead the builder of the economic model astray. Don't let the turmoil of the market disrupt your design ideas.
③ Clarify the hypothesis
When focusing on building a token economy, it is easy to take basic assumptions for granted, but these assumptions may not hold true in actual operation. For example, in a new protocol, the hardware bottleneck is the limitation of computing speed. If the designer does not declare this limitation, it may cause users to misjudge as part of the token model, resulting in bad consequences.
④ Verify the hypothesis
Token models usually make a series of assumptions, and what token designers have to do at this stage is to verify their assumptions in a variety of ways, such as rigorous statistical modeling, which usually helps test these assumptions in the form of agent-based modeling. If it is an assumption about human behavior, it is often verified by talking to users and observing what people actually do, especially through the verification of empirical results generated by the incentivized test network in a sandbox environment. Of course, formal verification or intensive auditing will also help ensure that the code base operates as expected.
⑤ Well-defined abstract barriers
Abstract barriers are interfaces between different layers of a system or protocol that separate different components of a system, allowing each component to be independently designed, implemented, and modified. Clear abstract barriers are useful in their own right in engineering, especially software design, but are necessary for decentralized development and large teams building complex systems that are not understandable to individuals. In token design, the goal of clear abstract barriers is to minimize complexity. Reducing interdependencies between different components of a token model results in cleaner code, fewer bugs, and better token design.
⑥ Reduce dependence on external parameters
When creating a token model, consider exogenous parameters that are not intrinsic to the system but affect the overall performance and implementation, such as the cost of computing resources, throughput, or latency. If your token model only works when the parameters stay within a limited range, there is a high chance of unexpected behavior.
⑦ Revalidate the hypothesis
When a project makes any changes to the token economic model, you should revalidate your assumptions. Never assume that user behavior will remain the same as the economic model changes. Although generally speaking, this mistake will happen later in the design process: the project has spent a lot of time defining the goals of the token, defining its functions, and verifying to ensure that it works as expected, and then identified an edge case and adjusted part of the token design to adapt. But forgetting to revalidate the entire token model may result in unexpected consequences by fixing an edge case.
100 Questions to Ask Yourself About Token Economics
Let's do a 100-question self-check on startup projects. This can be used as an analysis and evaluation of whether you should buy its project tokens, or as a self-check of newly created projects. All questions are divided into the following seven parts: general issues, token issuance, supply, demand, token utility, history, and current market.
Token Issuance: How Projects Launch Their Tokens
Supply: The price of a token is fundamentally determined by supply and demand
Demand: Why buy tokens from the market
Token utility: the purpose of the token in the project
History: Token performance since launch
Current Market: Bear Market and Other Related Things to Consider
references:
[1] Guy Wuollet：《Tokenology: Moving beyond ‘tokenomics’》;
[2] Guy Wuollet：《7 Sanity Checks Before Designing a Token》
[3] Kirill Naumov:《100 questions you should ask yourself when analyzing tokenomics》
