TokenWork: Introducing the Token Utility Canvas (TUC)

A framework for developing technically and functionally sound tokens and business models.

by Marc Ziade, Co-Founder of Frontier and Strategy Director at ConsenSys

With over $20 billion in token sales to date, interest is high for blockchain projects, tokens and crypto-assets. Tokens not only constitute a new way for blockchain startups to enable access to their products, or to generate revenue to build or operate them, but tokens also enable new business models and present entirely novel ways for everyday people to interact with each other and enterprises.

Ensuring that a project’s tokenized ecosystem is functional, fair, and compliant with all applicable regulations is an utmost priority. The notion of “token utility,” the use case and efficacy underlying a tokenized blockchain project, is of central importance for any worthwhile project that intends to take part in this new paradigm. For this purpose, ConsenSys is launching TokenWork, a Think Tank initiative for designing consumer tokens and their functional utilities.

In this first post of “TokenWork”, we’ll take a look at the Consumer Token Utility Canvas, and go over the foundational elements of token utility.

The Importance of Consumer Tokens

While investment tokens represent an innovation in issuance of securities by digitizing the process and making it more efficient, the truly remarkable innovation in business models presented by blockchain technology comes from consumer tokens. Consumer tokens are digital tokens that are inherently consumptive in nature and are designed to be used or consumed in some way. Innovators can design these consumer tokens and the platforms on which they operate in ways that provide incentives for platform participants to sustain particular desired behaviors in order to facilitate the function of the platform. In other words, consumer tokens are one of the key elements that allow decentralized platforms to replace central entities and disintermediate existing industries.

Moreover, in particular cases, consumer tokens allow products to build strong network effects by ensuring early adoption and an increase in service usage leading to robust platforms.

However, the innovation of consumer tokens has produced the need for a framework that addresses design considerations of such tokens, such as:

• What is the consumptive use and how essential is it to the business model?
• What is the consumer token user experience?
• How to determine the number of tokens to be created?
• How does the system maintain equilibrium?
• How can can we be sure that no participant can take advantage of the system?

Designing a Consumer Token

Figure 1: Consumer Token Design Process

The focus today in token design relies heavily on the technical side. Limited work is being done to link the token design to customer needs. Figure 1 presents a suggested consumer token design process. We propose that the design of a consumer token can be broken down into four steps. In fact, consumer tokens require strong thinking around the decentralized platform value proposition and network dynamics in addition to legal and technical considerations.

Step 1: Consumer Token Utility Canvas

The first step requires a determination of the utility of the token in regards to the problem it addresses and how it aligns with customer needs. This canvas allows founders to assess the importance of the token’s utility to the decentralized platform.

Step 2: Token Mechanics

This step consists of designing the token user experience, as well as developing the token economic mechanics in terms of generation, circulation, and burn. Moreover, mechanism design should try to achieve equilibrium in the system.

Step 3: Token Legal Review

Legal review is essential to ensure compliance with all applicable laws in every jurisdiction in which the token will be launched. For example, in designing a consumer token, care should be taken to avoid inclusion of characteristics that could support the conclusion that the token is an investment in certain jurisdictions.

Step 4: Token Technical Design

Once the token model and mechanics are defined, the final step consists of developing the technical design to ensure technical feasibility with regards to smart contracts and other features.

It is important to note here that this process is iterative as opposed to sequential, requiring a number of iteration loops before finalizing the design. In addition, continuous testing should occur throughout the process: user testing in step 1, game theory testing in step 2, A/B testing in step 4, etc.

The rest of this article focuses on the first step of the consumer token design. It will answer the question of how to determine a token utility that is in line with the platform’s value proposition and customer needs.

Determining Token Utility

Traditional startups employ the Business Model Canvas (BMC) (Figure 2) to define their value proposition and target customer segments. The canvas is then used as a starting point for value proposition and customer segments validation and testing through lean feedback loops.

Figure 2: Business Model Canvas (Source: Strategyzer)

When it comes to determining the utility(ies) of a token, the Business Model Canvas fails to clearly define the type of interaction among participants within a decentralized platform. For this purpose, we have developed a Token Utility Canvas (TUC) (Figure 3).

Figure 3: Token Utility Canvas (TUC)

The Token Utility Canvas provides a way to determine the token utility and the role it plays in incentivizing participants’ behaviors on the decentralized platform. The participants’ desired behaviors should be aligned with the customer needs identified in the Business Model Canvas.

Figure 4: Token Curated Registries TUC

Figure 4 presents an example of the TUC applied to Token Curated Registries. In this example, the decentralized platform allows to decentrally curate a list.

Three participants are needed on the platform:

• Curators, who would ensure a high quality list through voting based on the proportion of curation tokens held
• Candidates, who would apply to join the high quality list by depositing a number of tokens. In case the application is denied, the tokens would be distributed to the curators who rejected the candidacy
• Consumers, who would read / use the list. Note that consumers don’t need a token since their behaviors are driven by the need to have the list curated

You can find more information on Token Curated Registries here.

Figure 5: TUC Development Process

The Token Utility Canvas is useful in developing blueprints for token models. However, the real value resides in the process leading up to defining the TUC. As indicated in Figure 5, the process to develop the TUC starts with listing the type of participants on the platform, the desired behaviors we want them to have, and incentives we could provide them. For each desired behavior/incentive, a proposed token solution is identified, if needed. Subsequently, a prioritization exercise is conducted based on the necessity of the token and the urgency of the desired behavior. The result is a token matrix with one or two tokens needed to sustain key desired behaviors on the platform.

We have been testing the TUC within ConsenSys. The TUC has also been tested and is being used by Token Foundry in their client engagements. However, this is still an early version of a token design framework and more testing will be performed to validate and refine it. Feel free to send comments, suggestions or questions to mark.ziade@consensys.net. We’d love to hear from you!

Stay tuned for more on the consumer Token Utility Canvas — and a detailed example on how it was used with one startup — in the next article!

Disclaimer: The views expressed by the author above do not necessarily represent the views of Consensys AG. ConsenSys is a decentralized community with ConsenSys Media being a platform for members to freely express their diverse ideas and perspectives. To learn more about ConsenSys and Ethereum, please visit our website.