We have extensively researched several successful and unsuccessful token-based ICOs.
These are the major designing levers in tokenomics:
Description: The token needs meticulous planning and thorough analysis.
Design Principles: Different platforms use tokens for different purposes, as listed below.
1. To Provide Ownership to Users - These tokens enable users to own Voting, Contribution, and Access to products/services. Examples: Numerai, DigixDAO, FirstBlood, and Tezos.
2. As Value Exchange Unit - These Tokens are used to exchange value within the platform ecosystem. Users can earn a token either by completing real work or by sharing data. Examples: Numerai, Steemit, Kik, Tezos, and Augur.
3. Pay Per Use - Used to pay freeway toll, security deposits, etc. Examples: Gnosis, Augur, Melonport.
4. To provide Incentive - Provides an incentive to join a network with proper onboarding processes. Examples: Dfinity, Steemit, Civic.
5. Token as Currency - Used for frictionless transactions within closed ecosystem. Examples: Dfinity, Steemit, Civic.
6. Others - Earning sharing Token, Loan Token, etc.
Description: The token distribution model is crucial for the token’s genesis and its lifecycle.
Design Principles: Token distribution methods include those below.
1. ICO - ICO is an unregulated mechanism where the startup platform raises funds against their product/services whitepaper. The whitepaper defines the product/services, fund requirement, ICO time period, etc. Investors get platform tokens as ‘shares’ for their investment.
2. Auction - Dutch auction-based token distribution driven by sellers.
3. Token Farming - Platform rewards liquidity providers with their own platform token in proportion to the amount of liquidity each provider commits.
4. Community Sale - Token holders can get access to a particular community or society based on the decentralized network with intuitive perks and rewards.
Description: There must be a strategy for tokenizing the platform’s assets that is in line with the long-term vision of the investors.
Design Principles: The most prominent mechanisms to tokenize assets are:
1. NFT - Non-fungible token, where tokens are unique (non-interchangeable and non-divisible).
2. FT - Fungible tokens are employed for payment and settlement currency. Here the value lies in the token’s utility.
Description: Incentive rules generate buzz among participants, programmers, users, and personas.
Design Principles: Platforms can define their own incentive rules. For example:
1. Management should reward appropriate user behavior, and inappropriate behavior must be penalized.
2. The reward scheme should include network referrals.
3. If the personas use the platform beyond the stipulation, you can reward this as a motivational tool.
4. Suppose the user is ready to use native tokens instead of other currencies, especially fiat. In that case, incentives significantly raise curiosity in favor of a new token offering.
Description: Pricing a token is the most challenging part of tokenomics since it’s not only dependent on apparent but also on non-apparent factors.
Design Principles: Some factors which can directly influence the price of a token include:
1. Fair launch vs. Pre-mined: Fair launch projects are owned and governed by the community. Pre-mined projects are the allocation of tokens to private exclusive addresses.
2. Token Supply and Demand.
3. Token Burning.
4. Regulation and Legal.
5. Incentive Model.
6. Utility of Token.
7. Lockup or Vesting Period of Tokens.
Description: Inflation, volatility, and crashes can affect the long-term viability of decentralized network-based businesses; hence proactive safeguards are needed.
Design Principles: Mechanisms to control and measure volatility, inflation, and crashes include:
1. Robust crash fault tolerance network infrastructure can prevent network node crashes. A platform should invest in infrastructure before platform launch.
2. A platform should establish tools and mechanisms to generate matrices for velocity, user adoption, and traded volumes to keep an eye on volatility and inflation.
3. Stabilization of the token through third-party stable coin frameworks.