How to understand "token economics"?

Foreword: With the evolution of blockchain projects, the exploration of more scenarios, the encryption economy model is also evolving. One is to consider compliance with regulations, and the other is to consider how to promote the development of the network through tokens, and then capture the network value. . There are a lot of details to explore. The Austrian economics may give us some inspiration.

The author of this article is Jackson Laskey, translated by the "realthinkbit" of the "Blue Fox Notes" community. In order to understand “what is token economics?”, we should first understand the relationship between the field and the existing economic genre (including the application school and the academic school), and then explore the early stage of the blockchain economics engineer trying to block the chain. Specific issues addressed.

Among the various schools of economic research, the Austrian school provides the most knowledge in understanding the economics of tokens. The top economists in Austrian economics include Ludwig von Mises, Friedrich Hayek and Murray Rothbard. They are known for their unique approach to developing their economic theories and their views on the role of sound currencies and the state in the economy.

If the great economists of the Austrian school are active in 2018, I think the token economy will be their main interest. The Austrian scholars were the first to guide us to see the future of a stable currency. Economists who have created business cycle theory will immediately see that exchangeable and sound currencies can promote human well-being, such as bitcoin.

Austrian scholars may also find the potential for economic design through the use of smart contracts without economic coercion. Today, economic experiments through smart contracts, side chains, and forks provide a stage for discovery without limiting individual rights.

What may not be obvious is the need for Austrian's behavioral methodology to guide the success of the first generation of blockchain projects. Behavioral science is the study of human behavior, and human beings perform purposeful behaviors to achieve their goals. Unlike the data-driven Chicago School and the idealistic Keynesian school, the Austrian School uses an incentive-based deductive approach to thrive in creating models. For an innovative and complex environment without historical data, this is a suitable approach, especially for economies of scale.

Token Economics is Human Behavior + Technology

With regard to the theory of human behavior, how individuals respond to changing incentives is not a new attempt. After all, human behavior originated in ancient Greece. Token economics is not a new field, it is simply applying human behavior research to new technologies.

For an example of this technique, it is unclear whether Mises and Hayek will consider how to fork an economy, that is, when an individual can participate in one, two or two do not participate, the result will be Affect the costs of each stage of production in these economies.

New technologies for studying human behavior include blockchains, smart contracts, and open source practices/forks. In a broader sense, the speed of development of trust-based decentralization activities (we hope) is that token economists must consider the trade-offs of existing models. In addition, the ability of non-human autonomous credible entities operating in these economies offers the possibility of organizing economic activities between the parties, and incentives are inseparable from these entities.

Other new technologies are actually just reboots. Considering things like pledges, this is a common feature of the token economy. Token pledges, whether in the form of collateral or only for certain privileges, are practices promoted by blockchain technology, but are not unique to blockchains. The deposit for a rental property is quite similar to the token pledge to ensure that bad behavior is avoided.

An Austrian economist may tell you that if the tenant suddenly finds a yellow shade in the living room, if the value of the repaint exceeds the value of the margin at the end of the lease, they will decide whether to paint the room for them. Like the blue. When it is realized that yellow is a hateful hue, the longer the time from the end of the lease, the more likely the room is to be painted.

We believe that blockchain entrepreneurs do not adequately consider the following aspects: such as the true economic cost of pledge and the amount of mortgages necessary to prevent bad behavior. They put more concern on dazzling technology and fundraising. (Blue Fox notes: The author's meaning is that the real economic cost of pledge is less than the cost of malicious behavior.)

The complexity of the token economy in dealing with decentralized supply and demand

The Austrian school understands how producers can meet the needs of consumers in free market conditions. While blockchain unlocks the ability to meet certain previously unattainable consumer needs, the relationship between producers and consumers is often more complex in these networks. Token economics experts must be able to see the gap between supply and demand in the token economy and use blockchain solutions to connect the two sides so that both sides can thrive.

Looking at the Metacert protocol, which has many other features, the platform seeks to connect consumers who want to understand the URI of the encryption scam to the decentralized producer network that can detect these crypto scam URIs. In the traditional case, the centralized entity will be responsible for paying individual producers and selling the aggregated URI information tables to consumers.

However, this centralized entity is contrary to the goal that Metacert attempts to achieve through its decentralized model. In this case, the goal of the token economist is to find a way to efficiently allocate consumer resources to create a URI information table without central authority. Token economists must understand the motives of producers and consumers and the spirit of decentralization.

The main challenge of token economics

Although all of the above is highly relevant to token science, the main reason for this area is to solve a very special problem in the blockchain. Blockchain entrepreneurs hope to raise funds by selling tokens to investors, and they will not be classified as securities. We believe that the main way to circumvent these securities laws is to ensure that tokens have some kind of application on the networks they build.

Although not all of these tokens were created with the consideration of securities laws, the financing advantages of this asset class are obvious, and the lack of sophisticated token economic modeling suggests that during the 1CO boom, people existed The attitude of the "together fundraising, and then to find a way later" token model.

Therefore, the challenge for token economists is as follows: How do these networks of functional tokens are structured? When the network creates more value for users, how does the token that gives investors value add value? Although the Austrian faction may point out that the securities law will encourage companies to invest resources to create non-securities investment vehicles, this is in some sense skeptical about the role of token economics in the current blockchain pattern.

Without these laws, token economists may do other work, but this is political reality, so the main goal of most token economics is to build functional tokens as both an investment tool and a decentralized network. The basic component.

It can be seen that this is not always a simple matter. Building a network that brings currency appreciation due to network growth is challenging. Some common pitfalls include binding token values ​​to certain network functions, but in fact the success of the network function does not lie in the involvement of valuable tokens.

Other projects have intentionally created a token structure that is used as a Ponzi scheme, in which only the earliest adopters can see the upside. Even if the network is built to achieve growth and its growth can lead to a rise in tokens, the forked competition may limit the potential upside to investors who wish to partially cash in the value of the network.

Although the use of functional tokens to raise funds may initially be to find ways to circumvent securities laws, the resulting creativity and innovation may provide a competitive advantage for projects that are well suited to this model. We have seen that the new network has structured its tokens so that the use of tokens can take advantage of incentives and have the ability to capture more value than traditional equity.

Metacert and Workcoin are project examples that tie functional tokens to many network functions, so the demand for web services is equivalent to the need for tokens. Both projects use pledges to adjust incentives and increase the value of tokens. Metacert is especially new because the decentralized networks they build are separate from their existing centralized services, but are designed to help their existing centralized business network.

They have an interest in the network through token ownership, and that equity may far exceed the direct value of their centralized business because the network is likely to be used by a wider audience. Unlock this innovative structure by using functional tokens instead of network ownership.

As these projects and structures they depend on expand, additional token economics analysis is necessary to understand what works, but the evolution of the project is clear, which is a direct result of better token economic planning. .

in conclusion

With the maturity of the first generation of blockchains, the question "What is the economics of tokens?" may have a simpler answer. As the industry continues to evolve its revolutionary technology, token economic innovation will remain a key part of the creative network, generating economic value in ways and quantities never before seen. The Austrian Human Behavior Methodology aims to understand the complex systems of human interaction and trading, and it will provide unparalleled value in the pioneering field of token economics.