Tokenomics 3: Designing Token Economies

Tokenomics 3: Designing Token Economies

Table of contents

No heading

No headings in the article.

Tokens have always been operational in the real world. Each of these crypto tokens is injected into the world through the blockchain. Each of these tokens operates on its own model and is run by their own small economies.

The design of these systems is such that they work according to the principles of econometrics to give a desired result. This is called "token design" or "tokenomics design."

Principles of economics

The major principles of economics that operate in tokenomics is: the law of demand and supply; behavioral economics; monetary policies, game theories; etc, some of these principles are school of thoughts that also play a part in the way token economies are designed.

What are Tokens

In our previous article we explained that tokens are Tokens are units of value that can be traded. Tokens are backed up by a group of people (DAOor Crypto Community) that believe in its value*

What is Token Design

Think of a token as a country. Every country has its economy, with its own type of money and system of operation. Most countries have economists and policy makers observing the dynamics of demand and supply amongst its people

To maintain a strong economy, the federal government of every country seeks to accomplish three policy goals: stable prices, full employment, and economic growth

Every country wants to be prosperous. Every country desires to be a self sustaining system hence efforts are made to create strong monetary economy. In the same vein, Blockchain Architects & Designers are responsible for creating systems for a strong token economy withing a crypto community. Like Countries, Token Design has a goal; to build an active community, to build sustainable ecosystems and to foster a thriving trade within a token network

Why is Token Design Important?

Wherever there is trade, there is a type of economy going on. So it will help you to think of each token economy as a small country.

Different countries have different economies with which they use to interact within their state, and outside their state with other countries.

Token economies are a lot like the economies of countries

small countries.png

Framework of Token Design

Modern Business Digital Marketing Agency LinkedIn Article Cover (LinkedIn Post) (Presentation (169)) (1).jpg

Token frameworks are the foundations on which a token is designed. If you're a designer, you can think of them as function on which the form is built or the wireframe that determines how the product is built.

When you make cake, you think of 3 core things; flour, sugar & butter, you can imagine this frameworks as the important variables to consider when designing a good token economy

Please note: designing a token is similar to creating a game, you can use the similarities of game design to picture how these variables will play out in the creation of a token. I love scrabble, so I would be using that to explain the major variables in this framework

Market Design

Market design answers the question "How do you design for partcipatants and players" How do you reward activities and incentivize players.

Market design is basically market design. Think of any market you have been on; Facebook Market Place, a job market place or even the market mall in your city... how is it organized to attract and retain customers? What is method is used to keep people engaged and organized while there?

Mechanism Design

Most games have a strategy around them; hence game theory involve the strategies to work, mechanism design is the opposite of game theory.

Think of game theory as bottom to top, think of Mechansim design as top to bottom. mechanism design is also referred to as a token's theoritical framework.

Modern Business Digital Marketing Agency LinkedIn Article Cover (LinkedIn Post) (Presentation (169)).png Token Design

A token design can also be called product design but since we are dealing with tokenomics, we are focusing on networks with primarily built on tokens. However, not all networks require tokens.

Tokens are the incentives that helps cordinate a network/ecosystem. an ecosystem can be too big, that makes it impossible to come to a conclusive decisions, in other aspects, an ecosystem can be too small, so that there are barely counter-active options in decisoon making.

Tokens are used regulate the players in an ecosystem, just the same way a thermostat can regulate the temperature of a place.

In summary, Token Design is necessary to build a long term sustainable token economy. Similar to countries, so much more goes into a token's success than economic and governance design.

As more protocols & DAOs join the crypto wagon, there will be a need for skilled token designers, scientists and consultants to recommend & develop the best way to capture value withing a token economy.

You can also see this design framework as a way to analyze a good token before investing. The framework can be used as a screen to look through a new token by asking questions like?

  • How are decisions made and finalized?
  • How is voting done in this new token economy?

In summary, tokenomics design is the process of creating a systematic design to help you achieve your desired goal. It helps you create a roadmap to the goal you hope to achieve with a new token

A token designer must first identify the most important activity necessary to keep its economy going, before building a system that incentivizes people carry out this action more. This is the whole purpose of token Design

What is your approach towards token design? Do you view it as a necessity before creating a new coin or after creating one? what would you prioritize token design or community engagement?

what new thoughts has this inspired in you? kindly share your thoughts and you can also write to me here;

Resources

  1. Designing Token Economies by Packy McCormick
  2. Token Economics Framework by Lisa TY Jan