Designing a Token Economy Model for the Insurance Industry

Stefan Beyer
Aug 21, 2018 · 5 min read

In most blockchain applications tokenized assets form the basis for an economic model. Tokens may represent value, voting rights, investments and other business concepts. However, designing a token economy that works is not easy and requires careful planning. Apart from technical considerations, basic economic principles need to be applied. Tokens exist through the lifetime of a project and a model developed for a start-up idea needs to be able to scale up as the business grows. Different stakeholder need to be considered, and their sometimes conflicting interests have to be balanced. For example, the users of a platform and investors may have completely different expectations towards token price development.

We have talked about tokenizing the insurance business before. In this article, we will look deeper into the Black Insurance token economy models and the design considerations on which the mode is based.

Dual Token Model

The first detail observers may notice about the Black token model is that it differs from most projects by using two complementary token types, the Black Platform Token (BLCK) and a number of Black Syndicate Tokens (BST).

The latter are security tokens that represent investments in insurance syndicates. Each syndicate has its own syndicate token. The number of BST someone holds represents a percentage of the total investment fund managed by the syndicate. BSTs are only available to accredited investors and have no other function than being an investment.

Besides compliance with KYC and AML regulation, having separate security tokens also means that stakeholder expectations are quite clear and there are no conflicts of interests.

The BLCK token, on the other hand, is a utility token that gives access to the platform’s services. BLCK can be bought from the Black Insurance platform directly or on independent secondary markets (exchanges). The various uses of the BLCK token mean that the token economy model is very different from a BST. The clear distinction between the two types of tokens is intentional, as offloading the utility functions into a separate token reduces potential conflict of interests between investors and platform users. In addition, it makes regulatory compliance easier in a number of jurisdictions.

One question that is often asked about utility tokens is whether they could not just be substituted by existing cryptocurrencies, for example, Ethereum’s native Ether token.

However, there are a number of advantages a purpose-built utility token can provide to a blockchain application:

  • Extendibility. Using a purpose-built token allows platform-specific features to be added to the cryptocurrency.
  • Portability and blockchain independence. Tokens can be implemented on different blockchains, and even migrated between chains. Black Insurance makes use of this by allowing tokens to be moved between the private Hyperledger blockchain and the public Ethereum-hosted parts of the platform.
  • Avoidance of undesired volatility. Cryptocurrencies are volatile, and prices may change due to factors related to the underlying platform or even other projects hosted on a platform. In-project currencies should not depends on these factors.
  • Usage in governance models. BLCK is an example of a token with a governance function. It would be undesirable to allow all Ether holders, for example, to participate in Black governance.

Black Syndicate Tokens Economic Model

The internal token economy of each BST simply reflects the syndicate’s cash flow and profit distribution model. Using a separate token for each syndicate allows for differences in profit distribution models and risk and award profiles.

The most basic form of a BST behaves similarly to an interest-bearing security. The value of a BST is the direct result of historical payments and investor’s expectation of future cash flow payments. Profits in this model are distributed amongst BST holders.

A more sophisticated type of BST will allow syndicates to define custom cash flow models which may in itself constitute innovative financial investment products.

Syndicates will also define conditions under which the syndicate can be dissolved and return funds to BST holders in so-called liquidation events. Regulatory requirements that stipulate the need for holding part of the funds in reserve for a number of years are considered in this model. This allows for late claims being processed correctly.

Black Platform Token Economic Model

Rather than representing an investment with linkage to profits, BLCK is used as platform internal currency with the following purposes:

  • Insurance premium pricing. Insurance products are priced in BLCK and all premium payments are made in BLCK.
  • Claims payouts. Payouts resulting from approved claims are paid in BLCK.
  • Transaction and service fee payment. Black insurance services are subject transaction and service fees.
  • Participation in syndicates’ lifecycle governance. Syndicate investors can stake a certain amount of BLCK, in order to obtain voting rights in the syndicate’s governance model.

When designing a token economic model for a project, the factors that may affect token valuation over the lifetime of the project need to be considered. Even for utility tokens two competing factors influence pricing: community expectations and utility factors. In the early stages of the project, the valuation of a token is mainly determined by the expectation of the platforms stakeholders and interested parties. In the ideal case, once a platform becomes active, the utility factor should become more dominant. Therefore, it is important for the BLCK token to be actively used on the platform.

In general, valuation of a utility token available on a free market depends on supply, demand and token velocity.

An analysis of the Black Insurance model shows that these factors depend on the balance of the following parameters:

  • The number of unlocked tokens.
  • The percentage of tokens held for investment.
  • The number of tokens staked for governance.
  • The token possession duration (duration of a transaction cycle).


As the above discussion shows, defining a token economy model for a project is a difficult task that requires careful consideration of a number of parameters. Compromises between different stakeholder’s interests are a necessity of any economic model, and token economies are no different in this respect.

The carefully designed separation between security and utility functions into separate tokens in the Black Insurance reduces this friction. In addition, separated security tokens for each syndicate allow for experimenting with different cash flow and profit-sharing models, increasing diversity in the insurance investment landscape.

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Stefan Beyer

Written by

Computer Scientist with research background in Operating Systems, Distributed Systems, Fault Tolerance and Cybersecurity.


Digital insurance company on blockchain

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