Co-founder and CEO of the 0x Project Will Warren said that “token sales are being used to drive network effects around specific applications (dApps) rather than the common building blocks (protocols) that make applications possible.”

His article, The Difference between App Coins and Protocol Tokens lays out a clear distinction between app coins that serve to facilitate a static use case vs. protocol tokens that form a foundation for the creation of new applications.

Ether is the native protocol token for the Ethereum blockchain. It’s used to maintain consensus across the network. But smart contracts provide yet another layer for building decentralized applications and protocols on top of Ethereum.

In a similar way, adChain, utilizes adToken to economically incentivize individuals towards the common goal of curating a registry of premium publisher domains which can be harnessed for digital advertising.

adToken plays an intrinsic part in the curation of the adChain registry because if you remove it, then you remove the incentive to curate the registry properly. If we examine this more closely, we can see that if Ether were to replace adToken and the registry’s listings were to devolve due to subpar curation by Ether holders, it would hardly affect the overall value of Ether (since Ether is used to power the entire Ethereum blockchain). If the value of a decentralized registry is not tied to the value of the token that is used to curate it, then in most cases there is little incentive to curate it properly.

For adChain to be curated in such a way that it provides high-quality listings for advertisers, it requires a native token like adToken whose value is pegged directly to the quality of the listings in the registry.

Therefore, the cryptoeconomics surrounding adToken make it a clearcut example of a protocol token. If adToken holders curate a high-quality registry, then the value of adToken appreciates. If adToken holders curate a low-quality registry, then the value of adToken depreciates. In this virtuous cycle, adToken holders are rationally incentivized to curate the highest quality registry possible.

Furthermore, the adToken protocol enables decentralized applications to hook into the adChain Registry’s smart contracts to provide additional functionality.

In practice, decentralized applications built on top of the adChain protocol will leverage the registry by offering services such as on-chain, or off-chain payment settlement between advertisers and publishers (paid out in cryptocurrency), the categorization of domains by country, audience or other, professionalized voting tools, advanced domain analyses, bot detection tools, user interfaces and more.

The cryptoeconomic’s of adChain provides a “public infrastructure” that allows for a wealth of other applications to be built on top of it. Apps, on the other hand, provide some feature or service but don’t necessarily need a native token. Ethlance, the peer-to-peer job listing platform built on Ethereum, is a perfect example of an App that doesn’t require a native token because it can use Ethereum’s native token, Ether, and it works just fine. Users are still incentivized to use Ethlance because it’s fees are a fraction of the cost of other freelance job listing platforms like Fiverr or Upwork and the value of Ethlance as a platform is not directly tied to the price of Ether.

The coordination mechanism of adChain is to align adToken holders to curate the best possible registry of premium publisher domains. And the driving force is the financial benefit adToken holders stand to gain if the adChain registry is highly valued by the digital advertising industry. The end result is a high-quality list of premium publisher domains that can be used as a public resource to create any number of other decentralized applications. The adChain registry can, therefore, be decoupled from the dApps that are built on top of it and facilitates interoperability.

Written by Hunter Gebron