With the inception of and research around cryptography-based currencies and networks, there is a real need to devise an innovative, economic model based on game theory to bring intuitive incentives for network participants; for example, suppliers, buyers, sellers, and service providers.
This model is radically different from traditional ones. This new model is known as ‘cryptonomics’ and enables a decentralized network and the protocol to achieve two objectives:
Cryptonomics is limited to cryptocurrencies and does not include digital tokens built on decentralized platforms (except those based on cryptocurrencies). Examples include carbon emission, carbon sequestration, identity documents, contracts, usage rights, etc.
To get a return on investment (ROI), the creators of a digital token should have a strategy to create value and demand for it. The right incentive and distribution model can make a token appealing to investors or users, driving up the token’s price.
Incentive Model: Impacts actors and personas directly and is the primary factor in ensuring an ROI.
Distribution Model: Generates network effect. Creating a cascading impact and spreading the word about the decentralized system to bring more participants to the platform is critical.
Every token employs a different mechanism to generate demand and value due to its unique makeup to manage supply, fee, grant, stake, and reward tokens. The study of the economics of tokens is known as ‘tokenomics.’
In this guide, we’ll primarily focus on the tokenomics of endogenous tokens generated by decentralized platforms (blockchain), to settle transactions and generate value from underlying economic activities within the platform.