Tokens, altcoins, cryptocurrencies - whatever you call them, native assets for blockchain projects have flooded the market. With them have come investors looking for the next big coin that could make them rich. Meanwhile, developers are working round the clock on projects using tokens to solve user problems, attract buyers, and entice new users with rewards.
In this rapidly evolving landscape of blockchain technology and cryptocurrency, tokenomics has emerged as a critical factor in the success or failure of each project. Tokenomics, a portmanteau of "token" and "economics," refers to the intricate web of interactions governing blockchain tokens. For developers venturing into the world of token creation and blockchain-based projects, a deep understanding of tokenomics is paramount.
Tokenomics determines everything from how a token supply is distributed, to the incentives and game theory involved, to how the token is used. Between crafting a sustainable token model and navigating the complexities of token distribution every cryptocurrency developer is tasked with building a system that can help ensure the product remains resilient and stable over time.
MattyTokenomics, a token economics professional that has worked with Top 50 projects, recently launched an open source guide for developers looking to understand and master tokenomics. In this interview, we look into the guide’s creator and his view of the market at large.
1. What is the purpose of this developers’ guide?
I started writing ‘Tokenomics for Builders’ after speaking to startups that had just graduated from a Web3 accelerator. All of them were struggling with the same questions when it come to their token. How to decide if they should launch a token and when to do so, standards for allocation and vesting, legal structure, incentive and value accrual mechanisms.
It was clear they needed aguidewith a step-by-step design framework and all the answers in one place. I got to work compiling what became the guide that is now taught at multiple accelerator programs.
2. How do you see crypto developers prioritizing tokenomics in the future?
I think crypto is slowly maturing where we’ll see fewer unsustainable Ponzi scheme games, and see more sustainable, rigorously designed tokenomics that prioritize economic security and incentive alignment. There will always be exceptions to the rule, but builders have enough historical examples to see that bad tokenomics can create economic exploits and kill even good products that have large user bases.
Just as it’s standard to getsmart contractcode audited, it’ll become more and more standard for tokenomics to be audited to ensure what the code is designed to do makes sense in the first place.
3. In today’s market, can a digital asset survive without carefully considering tokenomics?
Not in the long-term no. We’ve seen plenty of collapses caused by poorly designed tokenomics: Terra Luna, Steemit, Axie Infinity, STEPN, Olympus DAO, Ampleforth, Iron Finance, Mango Markets, the list goes on. Fragile designs with poor risk management can still have a short term pump with enough hype marketing, but it never lasts.
Serious builders that want to build technology for the long term, not pump-and-dump schemes, need to ensure that incentives are well balanced, sustainable, and resilient to volatility. That requires taking token design seriously.
4. What are the chances that a cryptocurrency project could have one tokenomic structure and revert to another?
It is possible to change tokenomics after launch, but it’s typically a very painful process that makes it hard to recover momentum. A whole chapter of the guide is devoted to helping builders think through the pros and cons of launching a token for a reason - most founders underestimate the risks, costs, distractions a token brings.
It always easier to change the design before launching, which means taking the time to design, model, and rigorously stress-test a token before launch, even if you plan to give it away for free. Even tokens given away for free bring new types of risk and headaches for builders.
Conclusion
For any cryptocurrency project to see lasting success, it is important to get several aspects correct. Tokenomics is without a doubt one of these aspects. As the market has aged, the quality and standards for tokenomics that investors expect have increased. Fortunately for founders, however, there are more resources available than ever before to design a high quality, sustainable tokenomic model.