Why do most of the token economic projects you see fail?

Tokens are the soul of blockchains. Blockchains without tokens are incomplete chains. The concept of a token economy has emerged around tokens. It is hailed as having unlimited potential and is a changer in production relations in the new era.

However, most of the token economic items that can be seen have failed. This article starts with the basic classification of tokens, and tells you why most token economic items have failed, and everything about the token economy. .

I. Token Classification

In 2018, the Swiss Financial Market Supervision Authority classified the token according to its potential different economic functions, and this classification method has been widely recognized internationally. Specifically, tokens can be divided into the following three types:

1. Payment token: refers to a payment method used to transfer money or value in order to obtain a certain item or a certain service now or in the future.

2. Application token: This type of token exists in digital form and is mainly used for applications or services developed based on blockchain technology.

3. Asset token: This type of token is supported by certain assets, such as debts or equity that the holder of the token can request from the issuer, future company income, or a certain share in asset flows. Therefore, in terms of their economic function, such tokens are similar to stocks, bonds or derivatives.

Tokens are essentially a carrier of value. The value, equity, and physical assets are tokenized using blockchain technology. The connotation can be equity, such as dividend rights, ownership, and creditor's rights, and can be assets, such as physical assets. , Corresponding to asset class tokens; can be currencies, such as BTC, USDT, corresponding to payment tokens; can be circulation tokens in applications or services, such tokens are mainly issued for use in applications, such as many DAPPs all have their own tokens, corresponding to application tokens; they can also be all valuable things, such as attention. But in fact, some tokens are a mixture of multiple types. For example, the platform currency issued by the exchange is supported by part of the profit of the exchange and has strong financial attributes. At the same time, the exchange has opened up many use cases for it. , Has use value.

The concept of a token economy was created based on the token, which is called unlimited potential. Its main characteristics are to use the characteristics of the token itself to create a better ecosystem, better value capture models, more user groups, and adoption. Tokens enable a large-scale, distributed form of value creation-the essence of open source collaboration.

There are currently single pass, double pass, and three pass in the token system. Single pass is more common. Most items are single pass. Double pass is mainly represented by MakerDAO. Three pass is represented by Steemit.

But there is also a classification model of tokens, which divides tokens into two categories and four categories:

The first category: utility to ken.

A product or service token represents the right to use a company's product or service.

Reward tokens, users get rewards through their actions.

The second category: security tokens.

Equity token, similar to the company's equity, bonds, etc.

Asset token, which corresponds to assets in the physical world, such as real estate, gold, etc.

The token economic model that we often talk about mainly refers to the reward token. Through the design of the reward model, it encourages the rewarded groups to achieve better development of their own ecology, more value capture, and more user groups. Stronger collaboration on a larger scale.

A simple understanding of reward tokens can be used for benchmark points, but has greater transparency, liquidity, and appreciation expectations than points. The token incentive model discussed below mainly refers to reward tokens.

Because it is clear that in addition to reward tokens, there is basically no need to design complex token economic models, as long as the model of token distribution, circulation, and recovery is sufficient.

Such as exchanges, deducting commission fees, profit repurchase, and designing more use cases, this is enough. The key is the development of the exchange itself. The fancy design of the model cannot affect the essence.

Some tokens correspond to assets, or equity and other rights, and do not require model design, as long as one-to-one correspondence can be achieved.

The charm of motivation

Many viewpoints believe that blockchain can achieve large-scale strong collaboration among human beings, and it will be a huge change that changes the world's production relations. In this change, Token is an important link and cannot be abandoned. ring.

Blockchain incentives begin with Bitcoin.

The Bitcoin network achieved human-made large-scale strong collaboration for the first time through automated operation. One of the key factors is the Bitcoin's incentive mechanism, and even Bitcoin's incentive mechanism has been emulated by many projects.

Now Bitcoin mining has formed a very large industrial chain, and has given birth to listed companies such as Jia Nan Yunzhi, and mining machine giants such as Bitmain.

However, the success of Bitcoin is based on its own multiple factors, especially its creators. Simply imitating the incentive mechanism is not enough to make the project successful. Many fork Bitcoin projects have not survived to this day and survived. Each has its own characteristics.

Fcoin's pioneering transaction mining, with its incentive effect of the token economy, has made a name for itself and has received great attention. Its essence is to create wealth effect, but the attracted traffic cannot create real value. When the wealth-building effect subsided, the tokens did not have actual value support, and eventually collapsed.

The upsurge of the content platform triggered by Yuanhu also caused widespread concern. Early big Vs could earn 200,000 yuan a month by relying on early dividends, and they could earn hundreds of thousands of yuan in a few months. The writing boom caused by the money-making effect, like transaction mining, has caused many content platforms to follow suit and follow suit. However, most content platforms that follow the coin-husband model have disappeared except for the force field.

In the DAPP boom at the end of 2018, spinach projects relied on their incentive mechanism to create wealth, which attracted countless lights. But the vast majority of incentives attract not only target users who can truly create value, but arbitrage miners. In the end, the DAPP ecosystem was reduced to a fast-running speculative game, and those who could not withdraw from it in a timely manner could not survive.

These token models have received great attention due to the wealth effect and obtained excellent cold start results, but most of them have failed. This shows that a product wants to succeed only by the incentive effect of tokens. Is absolutely not enough.

Just like Bitcoin is not only successful because of incentives.

Purpose of incentives

Incentives are only means, and collaboration is the purpose.

The ultimate goal is to achieve collaboration through incentives and achieve certain effects through collaboration.

These effects that are to be achieved must have value directly or indirectly, or have value in the long run. The fundamental purpose is to create value, otherwise it is motivated for motivation, meaningless and long-lasting.

The ultimate goal of collaboration is to create value, which requires a viable business model for the project.

Of course, it can also be some actions that can make the business model more efficient, such as improving infrastructure, reducing transaction friction, improving transaction efficiency, and building brand image. These actions cannot directly create profits, but they are also valuable, but The proportion of behavioral incentives should not be too high in a mature token economic model.

Some projects have special business models that cannot form a closed loop in the short term, which also requires the possibility of forming a commercial closed loop in the long run, or can cooperate with other businesses to form a synergy effect, enabling other projects with greater value. The project party's ability has higher requirements.

No matter what kind of token model, it should not be talked about without the business model. Not all projects can become Bitcoin, and they can live by consensus. Ethereum is still talking about value capture. Why can other projects break away from business talks?

In the article "The Economic Paradox of Tokens and the Universe Maintenance Art"-Incentive Mechanism, Social Production, Post-Capitalism, the behavior categories inspired by quasi-integral tokens are divided into the following three categories:

1. Micro task: A very simple task performed by a person or machine, such as labeling an image to be recognized by artificial intelligence, signing in online, forwarding a message, riding a small yellow car, etc.

2. Medium tasks: tasks that have a certain threshold but have been standardized, such as writing articles on the steem platform, liking them, and completing transactions on the exchange.

3. Complex tasks (bounty): high threshold, non-standard "reward" task rewards, the most typical is to contribute code to the project and become a community node.

Through this classification, you can experience the collaboration mentioned above. Through the incentive mechanism, small forces are aggregated to form large forces to achieve goals and create value.

Fourth, the misunderstanding of incentives

Among the discourses about the transformation of the production economy by the token economy, there is a widely-discussed discourse—users are owners.

Users use the product, get the token reward, and because of the ownership property of the token itself, the user who uses the product naturally becomes the owner of the platform. The user and the product form a community of interests, and they will naturally advertise and do the product. contribution. Because of the existence of the token, the user and the product have a strong relationship, which is an effective means to obtain effective users.

But you know there must be but.

This is not the case.

The user obtained your token using the product, and does not necessarily hold your token. It is more likely that the token will be sold for fiat currency, or a mainstream currency recognized by him.

Even if the user sells without changing hands, holding your token can automatically become a community of interest? It is more likely to be just for investment gains, not to become a community of interests with you.

High probability users will neither know you nor recognize you, but just as a place where users can get rewards. The user's loyalty to the product is based on the reward, and the loyalty will vary with the amount of reward. float.


Except what?

Unless your product is really competitive, you are not required to exceed the competition, but it must not be much worse than the competition. In the beginning, you ca n’t get users than the competition. You can use incentives to make up for the initial users and development time.

But if the product is messed up, once the incentive is stopped or reduced, it will enter the edge of death, unable to create real value for the user, unable to make the user truly fall in love with your product, and the incentive alone is not enough to make the product truly successful. .

So what's important?

Just as Bitcoin does not rely on incentives alone to achieve success, there are no products that rely on incentives only to achieve success. The core is quality and value, otherwise it can only be an air tower.

While relying on the incentive mechanism to obtain users, strive to improve quality, create value, let users recognize the development prospects of the project, and have confidence in the product, users will be willing to hold tokens for a long time, and even become maintainers and builders.

So building user consensus is the key, but you really can get user recognition and it is the core.

V. The Inverse of Incentives

Collaboration is achieved through incentive mechanisms, and value creation is achieved through collaboration, but there cannot be only incentives in a system.

You must be punished for wrongdoing and sanctioned for breaking the law. In the same system, not everyone can do good things, and no one does bad things.

There is only incentive and no punishment. It is assumed that human nature is good, and it will not do ecologically unfavorable things for its own self-interest, but this is actually not true.

When a certain behavior of the user is beneficial to the user and harmful to the ecology, but there is no punishment mechanism, such behavior will surely prevail, causing continuous damage to the ecology.

When designing the token mechanism, this contradiction must be avoided, that is, the contradiction between the user's own interests and the overall ecological interests.

Decentralized token incentives, everyone can participate, but not everyone will be a builder and maintainer, more people will be ordinary participants, or even disruptors, a large-scale token incentive model must be designed Punishment mechanism to suppress the occurrence of ecologically harmful behavior.

Guiding user interests to be consistent with ecological interests through rule design is a very important point in the token economic model. It encourages users to collaborate to create value, rather than motivating users to destroy ecology and consume ecological value.

To be more popular is to drill the loopholes of the rules, to flee the platform wool, and if the token incentive mechanism cannot achieve a better anti-cricket mechanism, its harm is inestimable.

Dimensions of motivation

Monetary incentives are just one type of incentive. Many people and many behaviors are not motivated by money. Multi-dimensional incentive mechanisms should be considered by the project.

Human needs are multi-dimensional and multi-level, and driving should also be multi-dimensional and multi-level, and not only a single dimension driven by money.

When bitcoin has no price, mining and preaching based solely on interest are not driven by money. They are more based on such characteristics as interest, freedom, and privacy.

After the Bitcoin price soared, it attracted a group of professional mining miners. The group of miners has made great contributions to the security of Bitcoin, but their main purpose is also clear. Mining makes money, and they can be driven by money. of.

And the groups that are constantly preaching because they hold Bitcoin, their main purpose for propaganda is not because Bitcoin is cool and they do n’t mine, but just need more people to understand and recognize Bitcoin. Increase the price, they can profit, as well as hidden benefits such as popularity, fans.

Throughout the entire Bitcoin system, incentives are just one link, realized through Bitcoin itself. But the incentive mechanism is a very important part. Through the incentive mechanism, different talents, resources, and funds are brought together to grow into a huge ecosystem.

But Bitcoin itself has a lot of wonderful features. It absolutely controls its own funds, never issues additional funds, free transfers, privacy protection, etc., and the system is robust, reliable, and highly secure, as well as the mentality of the first successful digital currency implementation. Occupation, these together form the unique value of Bitcoin, these unique values ​​are the effective basis of the Bitcoin incentive system. Furthermore, with the increasing amount of funds carried by Bitcoin, it has begun to build a consensus on value storage, which is another unique story.

From the perspective of the Bitcoin system, the incentive mechanism is multi-layered and multi-dimensional, not only the single dimension of money. Therefore, the product should explore more human-based incentive mechanisms to aggregate multi-level and multi-demand users to form a larger community of interests.

Application fields of reward tokens

In theory, anything of value can be tokenized, but the market value of the token economic model that we often say refers to reward tokens. Reward tokens are not applicable in all fields.

The so-called collaboration through incentives is to aggregate the small energies of countless individuals to form a large group of energies. Therefore , the areas where the token economy is naturally applicable are those areas that can create value by motivating a large number of users to collaborate and be motivated. It is human.

Let ’s take an example of the unsuitable use of token incentives. When the spinach DAPP was popular on EOS, it brought a lot of attention and users to the spinach DAPP through the incentive effect of the token economy. But it is essentially a money-making effect, and normal people do not gamble because of incentives.

This is anti-human. Spinach DAPP must be able to attract real gamblers instead of arbitrage miners if it is to create value. But can gamblers be attracted by incentives? And that high threshold.

There are not many user groups in the currency circle, and the proportion of gambling is not high, so it is impossible to survive by attracting real gamblers in the currency circle, and it is impossible to attract outside gamblers, which is not suitable for use. Examples of token incentives.

Three points for judging the applicable fields of reward tokens: the incentive behavior conforms to human nature, a certain amount of user base, and the incentive behavior can create value through aggregation.

Incentives are only part of the system. It is impossible to make a product successful by relying solely on the incentive mechanism. It is more important to create value and gain user recognition, so that users can truly become owners, aggregate public power, and achieve a greater range of strong collaboration To truly realize the transformation of production relations.

Let us collectively look forward to the era when the token economy will realize a great change in production relations.


statement: This article is the author's independent opinion, does not represent the position of the Blockchain Research Institute , nor does it constitute any investment opinions or suggestions , picture source network .