How to design a token economic model? Start with a meaningful goal

Designing a token economy begins with setting a meaningful goal.

Once Bitcoin is released, it has its own life, and your token should be like this.

As a blockchain architect, designing the cryptocurrency token economy is my way of making a living. After a certain work experience, I would like to give some advice to those who designed the token economy for the first time.

Designing a token economy requires several steps, including identifying stakeholders, designing incentives, developing a market-oriented strategy, and implementing a monetary mechanism, all but starting with a critical step to establish a meaningful goal.

Introduction

When you first encounter tokens, you should ask yourself: "Why would anyone want to use this token?"

Throughout history, people are clearly looking for more and more convenient forms of money. The basic bartering of the hunting era was later replaced by other tokens (such as shells, salt or grains) because tokens are easier to transport and store than barter.

A convenient measure is how many people accept your tokens, so slowly precious metals replace those basic tokens, and standardize metal tokens. Subsequently, we transitioned from asset-backed currency to floating currency that currently exists in the database in the form of only 1 and 0.

Ask yourself: "Why would anyone want to use this token?"

Encrypted currency is a new form of currency, but tokens can only succeed if they are convenient enough. In order to achieve this goal, it is necessary to consider how all currencies are convenient and scalable. The first thing to do is to find out: What does this token economy try to achieve?

Do you have a good answer to this? If not, it may be that technology is developed for technology and will not be able to raise funds or achieve profitability.

Evolving healthy economy

In any given token economy, the first task is to find out what it is trying to achieve.

Building a token economy and giving it its purpose is different from building a software product. A good token economy must allow participants to innovate. When designing a token economy model, the designer doesn't tell everyone what to do, only tools, they will participate in ways you can't predict.

Only when people get value from them will they participate in the token economy, and providing this value to your economic participants should be the first aspect of your economic goals.

The intrinsic value of the token economy is directly related to the number of participants, namely the network effect. When your economy is small and you will not be able to create enough value for your participants, you will need to make up for it in other ways, usually with investors.

When designing a token economy model, the designer doesn't tell everyone what to do, only tools, they will participate in ways you can't predict.

As the economy grows, the economic model itself should generate more value and return it to the participants, and when it reaches a critical point, it can achieve profitability.

You may have noticed that I am talking about providing value to economic actors rather than providing value for yourself. Maybe you just want to make the world a better place, don't expect any return, but you may also want to profit from your efforts.

The transaction fees charged may increase significantly as the market grows, but be aware that doing so will create friction in the system and put you at a disadvantage in the face of free solutions. This is why in a fully competitive market, the cost is always as low as possible.

Creating value for your economic actors and creating value for yourself is a repulsive goal and you need to find the best balance. I can't provide an optimal solution, designers should refer to their own market research team.

It is time to know what your token economy will bring to the participants. You should also know that in order to achieve sustainable economic development, it is necessary to achieve a certain economic scale. The focus of the business development plan will be to introduce more users, but since the token economy is essentially a software product, how do you deal with software scalability issues?

This requires combating the growing economic complexity, for which two operational goals need to be added to the business objectives: automation and decentralization.

An automated and decentralized economic model

Once millions of users become part of your economic model, any non-automated task will greatly reduce efficiency and lead to user churn. Your economic model needs to be automated.

In traditional software products, a large number of cloud architectures, automatic server adjustments, load balancers, containerization, advanced infrastructure, and the like are required.

In the blockchain, it is a different way of thinking. You are already running on a decentralized platform with its own reliability and performance characteristics. You can't change these unless you develop your own home network.

When designing a token economy, automation means a deterministic function in the form of a smart contract. This also means carefully considering the content of the smart contract and the content of some front ends, and considering that anyone in the public blockchain might build a front end for your smart contract.

Your economic model needs to be automated. In the world of blockchains, this means different ways of thinking.

Ultimately, automation in the token economy is a system that liberates most of the control and achieves self-sustainability.

Decentralization can be seen as a way of parallelizing the economy while also promoting innovation. The value generated by your economic model is the result of its participants using it in a variety of ways. The creativity of millions of users is beyond your personal creativity. You need to let them be as free as possible to decide what to do.

Decentralization is closely integrated with automation. To some extent the same, releasing as much control as possible will allow you to leave the decentralized blockchain work and domain without any cost to you. Of course, this has to be done in an extensible blockchain.

Now, don't run and build fully automated and decentralized systems. Stop and think about it, automation and decentralization are not a prerequisite for you to meet before you do anything. Their goals are the same as your business goals, and you are working towards them in the same way.

A centralized system with a degree of human supervision is easier to control and may be suitable for the initial token economy. Maybe you only need to have some trigger points in your roadmap to increase the degree of automation and decentralization as your economy grows.

Your journey may be different, but the road is the same for everyone. Providing value to customers and reducing friction has always been the goal of all businesses.

in conclusion

Throughout history, we have seen that the evolution of money is a transition to more convenient forms of money, such as currencies accepted in an increasingly widespread network.

Designing cryptocurrency as an economy that needs to provide value and scale to an ever-larger scale.

When designing cryptocurrency tokens, you should always aim at providing enough users and enough use cases, but in the end you need to accept the fact that the user will decide how to use your product and you need to authorize They are going to do it.

You should design cryptocurrency as an economy that needs to provide value and scale to an ever-larger scale. This is only possible if automation and decentralization are part of the goal. To some extent, these two concepts are the same in a blockchain environment.

Working hard to create a successful token economy can bring huge returns. Of course, from an economic point of view, you can enjoy the fun of creating something. After giving it a spark of life, it will survive and develop on its own.

Author | Alberto Cuesta Cañada

Translation | First.vip Annie Reprinted please keep the information at the end of the article.

Original: https://hackernoon.com/designing-a-token-economy-how-to-choose-an-economic-goal-224b2643576a

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