Tokenomics: Beyond “Tokenomics”

“Tokens” are a hot topic in the crypto and web3 world. Even outside of web3, tokens are attracting the attention of anyone interested in art, cryptography, design, economics, gaming, mathematics, psychology, and more.

The token has been described as everything from a “breakthrough in open web design” to a “new digital primitive” (similar to a website). We can generally define tokens as “units of value native to the Internet.” But the key point is: tokens not only represent monetary value, but also represent social value, reputational value, etc. Value comes in many forms.

Tokens represent multidimensional values; they are vectors, not scalars. To borrow mathematical notation, a scalar has only magnitude, while a vector has both magnitude and direction. Specific tokens can represent ownership, membership, identity, etc. Crucially, tokens are important in that they enable builders to maintain an inherently high dimensionality in any representation of value, thereby opening up a rich new design space.

This is why I believe the term “tokenomics” (used to describe the research and design of tokens) is very limited and inherently limiting. It fails to capture and convey the full dimensions of a rich design space. Tokens can be used to coordinate and organize people, not just within a purely economic context but beyond.

Token design is still in its infancy, so limiting the dimensions of a token to a purely economic context limits the possibilities for its construction. That's why I think we need another term. I propose the term “tokenology” to refer to the “science” of how to coordinate people, organizations, and/or computations to achieve common goals, primarily through the use of cryptography and mechanism design.

Putting the tokens within the broader context of blockchain and cryptocurrencies: Blockchain is a new computing paradigm that creates a way to organize people , society and capital in novel ways. Two main advantages of blockchain are composability and tokens. Here, I’m focusing on tokens.

Terms people use in the crypto industry also include “token model,” “token mechanism,” or “token design” (we use the last one as well; see here). But they all refer to how the token interacts with the associated protocol, system or mechanism. For example: Ethereum’s token model specifies how Ethereum works in the protocol; the token model is a subset of the entire protocol.

So, more specifically, how do we use tokens? There are many ways to do it, but to summarize some of the current use cases, we can use the token like this:

for ownership. Blockchain is one of the first ways to launch user-owned and operated open source services at scale; Ethereum is a great example of a user-owned and operated “world computer.” Tokens also give users digital “property rights,” which is another important concept here. Finally, tokens are allowed to have superstructures, which are defined as “cryptographic protocols that can run for free and forever, without maintenance, interruption, or arbitration.” In this case, they will also create value that the owner can access and destroy; but This value doesn’t have to be just money, it can be very valuable in other ways as well.

is used for coordination. Creator coins, social tokens, and NFTs allow fans to interact directly with their favorite artists and prove their fan status—whether as an early purchaser, to demonstrate intensity of support, or out of community and meaning. For example, the strength of Dogecoin is the memes, community, and “belief” it represents. Tokens can also expand to not only represent membership in that community, but also establish digital cultural identities; in this case, holders of such tokens can also contribute to decentralized collaboration between creators and communities. Vote on creative decisions.

is used for incentive structure. Incentive design is often described as the key to understanding and motivating human behavior, but it can also orchestrate systems, organizations, and networks. The tokens help coordinate validators and miners in Ethereum and Bitcoin respectively. They also support decentralized governance in DeFi protocols such as Uniswap, Compound, and more. Tokens can help NFT projects like BAYC or digital native DAOs and communities like FWB with membership growth and derivative creation.

is used to access goods and services. Smart contract platforms like Ethereum sell computing services; Helium allows anyone to buy LoRaWAN and 5G transmission; Filecoin allows anyone to pay for data storage… just to name a few. Many NFTs are also used to “control” digital and physical experiences. Token ownership can be used to prioritize early or more active community members, or through other criteria to distinguish casual participants from more dedicated ones, and ensure a richer experience overall.

Of course, this list of token uses is far from exhaustive, it’s just a start. But as you can see, this is an incredibly rich design space—it encompasses everything from art to economics.

Tokens are clearly important — not just to the crypto industry, but to industries outside of crypto as well. Once they are combined with another key feature and benefit of blockchain. We can gain a deeper understanding of how tokens represent direction, not just numerical values. There is so much more that tokens can represent.

Again, the token represents a vector, not a scalar. Only when we treat tokens as native ways of representing value vectors can we begin to convey the rich design space here.

"Value" is an abstract concept, and most people confuse "value" and "currency". Tokens allow you to explicitly represent value without having to become currency. I argue that since the modern Western economy is almost entirely denominated in dollars, it loses information by reducing high-dimensional vectors to scalars. Today, value is generally 1) implicit, or 2) presented only in dollars. Value can be expressed in several other ways, including dollar-centered. In fact, all interactions deliver value, most easily reflected in the form of time and information.

The key is that developers should be able to use new token designs to make the implicit value explicit.

So do we call it “tokenology” as I’ve suggested here, simply drawing on the study of tokens; or is it something else – I’m also curious what alternatives you would propose plan! - We need to move beyond token economics = token economics. It’s Tokenology = Token x Economic x Art x… a new term that also helps us usher in a new, richer era of token design.

Translation｜Yusi cai

Proofreading｜shwana zhou

The above is the detailed content of Tokenomics: Beyond “Tokenomics”. For more information, please follow other related articles on the PHP Chinese website!