BEST TOKEN MODELS EXPLAINED. TOKENOMICS IN WEB 3.0.
Blockchain has brought to our lives a completely new economic model, therefore new brand possibilities are already here for us to learn asap. Here I bring for you the best token models, in a very easy way to digest, so that you have a sense of what are they and how they work.
Crypto-economics and tokenization are unlocking and disrupting our lives with new models for organization and ownership. These new models are “user-owned” and operated, built for and by the communities they serve, Web 3.0 is the internet owned by users.
Blockchain, as a decentralized technology, has brought decentralized finance ( Defi ) through fungible tokens, to digital scarcity and ownership through non-fungible tokens ( NFT´s).
Token economics is a new and emerging field. It’s virtually a blank canvas and these communities are nowadays working together exploring optimal designs, foster community, and exchange value using blockchain technology, while facing new challenges around coordination, governance, and decision making.
In order to address these new coordination challenges by a community in these early days, they are adopting new and novel tools with which to make meaningful decisions.
so let´s dig into the best token models, what are they?
GOVERNANCE TOKENS
Governance tokens represent ownership in a decentralized protocol. Differ from traditional corporations in that they don’t have a centralized group of decision-makers like a CEOs, or C-Level staff; but thorough DAOs ( the acronym stands for decentralized autonomous organizations).
They provide token holders with certain rights that decides a protocol’s direction, like which new products or features to develop, which integrations or partnerships should be pursued, how to spend a budget, and more.
Popularized by Compound and Uniswap protocols in 2020, governance tokens were the standard in DeFi ( decentralized finance) , governance tokens have exactly what the name sounds like–governance rights over the protocol, they have no economic rights, there are no cash flows, but the right to vote. There is obviously some value in having influence over protocols as in the future, there is an assumption, hat these tokens will eventually vote in economic rights to the protocol.
These governance protocols, like UNISWAP is debating to turn on the fee switch, taking a cut of profits from liquidity providers, while the fee switch profits won’t directly accrue to UNI tokens, it will go to the DAO treasury, although is an early indication that this thesis it will be executed in the long run.
Governance protocols are, for example;
Unisawp $UNI
Compound $COMP
Ethereum Name Service $ENS.
STAKING TOKENS
While Governance tokens, have chosen to take the valueless governance token route, others like decided to bestow economic rights to their token holders.
Staking is a simple concept that involves putting your cryptocurrency tokens to use to help safeguard and power the blockchain network. Users earn rewards in the form of transaction fees, that are dedicated each time an amount of tokens is sent from one network user to another.
Users stake their coins to validate these network transactions on blockchains that use a PoS ( Proof of Stake) consensus mechanism. These validators must lock a certain amount of tokens into the network and the incentives are greater for those who stake more tokens.
If they do not possess the required minimum number of tokens, they have “staking pools” where users coins are pooled together to reach that minimum.
In every instance, these tokens earn revenue from the protocol’s business activities.
Staking protocols are, for example;
Ethereum $ETH
Previously, staking wasn’t possible on Ethereum as the network used an energy-intensive “proof-of-work” consensus mechanism to process transactions. However, the community agreed to transition to a PoS model instead. With the Ethereum 2.0, here an article to dig into this
Cardano $ADA
The Cardano network aims to be the flag for an eco-friendly option for everything from transactions to DeFi, GameFi and NFTs.
MakerDAO $MKR
MakerDAO was one of the first to pioneer this effort. Protocol revenue from Dai loans (accrued interest) is used to buyback and burn MKR. By holding MKR, you indirectly earn the cash flow rights by the perpetually decreasing supply of MKR available on the market.
VOTE SCROW TOKENS
The key in this kind of tokens is that, veTokens holders have a special range of rights over the protocol. Vote escrowed tokenomics allow the token holders to select a lock-up period for their tokens. The longer you elect to lock-up your tokens, the more weight your tokens may get in:
- Governance voting
- Earning staking rewards
- Voting on boosts to certain pools
Popularized by Curve Finance, Vote Scrow tokens ( VeToken Model) are the in the lens of token economic design, holders have the option to lock their tokens for a predefined amount of time ( from 1 week up to 4 years).
In Curve Finance, by locking their tokens $CVR, users receive a veToken $veCRV based on the amount of time staked.
Example:
Curve Finance $CVR
Token economics is a new and emerging field. Hope you learn and find it interesting, let´s stay tuned for what is next.
These are fascinating times, aren’t they?.
