Token Engineering Research
A few weeks ago Krzysztof Paruch joined us to help set up our Token Engineering activities at our Research Lab. Why are we doing this? Token Engineering is a new field of research that is currently evolving, very much under construction, just like in the picture above. A lot of startups have practical questions as to how to design tokens, now that it has become so easy to issue your own token on a Blockchain, but nobody seems to find the blueprint to it.
Blockchains have become token issuance machines, and it seems to me that cryptographic tokens, through the backdoor of ICOs, have emerged to be the killer app of Blockchain. But the question as to how to design, and where to apply these tokens, remains unresolved to many yet. Just as the WWW made it easy to publish a webpage with a few lines of code on this giant global billboard called the Internet, Blockchain has made it as easy to issue your own token in a few lines of code to represent any type of value or access right. Remember that it took us a over decade to figure out what we can really do with websites, and when we did, the Web2 took off. It might therefore take us a while before we can really unleash the power of this new token economy ahead of us, but before we can, there are many questions that need to be resolved.
While Ethereum and similar protocols have made it possible to create any type of token with a few lines of code, we still lack (I) a clear taxonomy for classifying different types of tokens and their purposes to clearly understand what we want to do with a token; (II) we also lack the necessary modelling and forecasting tools to design the governance functionalities of those tokens, especially for more complex type of purpose driven tokens that intend to auto-incentivise some kind of behaviour in a network of autonomous agents; (III) and we have little to no best practices for blockchain tokens: While a lot of tokens have been issued through ICOs over the last few years - mostly for fundraising purposes - most of these issued tokens lack proper functionality and mechanism design. We can hardly learn from any best practices, but we can learn from a lot of worst practices.
Research Activities
Our aims therefore is to develop instruments and methods suitable for the formalisation of classification, design, architecture, parameters and behaviour of agents in a tokenised network. Our research focus will be on purpose-driven tokens that incentives participants of an ecosystem of autonomous agents to achieve cooperative behaviour without (or with less) centralised institutions. Our work will be performed in two parallel streams: (a) a theoretical research stream; (b) a practical stream. The combination of both will allow for the successive evolution of token engineering standards.
- Backward-looking Theoretical Research
We build on the assumption that tokenised protocols that govern an autonomous network of actors — including their rules, agents, nodes, token and governance structures — resemble nation states, not companies. Therefore we want to analyse tools that nations states use to model their agents behaviour: Macro- and Microeconomics and related scientific fields. Our aim is to identify existing models, approaches and solutions that can be adapted to the context of tokenised ecosystems. We will explain how economics and mathematics have already developed various models and approaches to formalise economic motives and mannerisms of rational agents, which have been and still are being used by national governments, regulators and institutions. The question to resolve is wether and to what extent these economic models can be applied in the context of token driven ecosystems. Our goal is to investigate similarities with existing solutions which can be applied to design purpose driven tokens. In order to achieve that we will describe the properties of x (one, two,…) current models in Economics and discuss possible and necessary adaptations to capture the respective token dynamics. Our roadmap:
- Identify similarities of Token Economics with existing scientific (sub-)fields
- Formalise network-design and network-evaluation models for Tokenized Ecosystems based on existing economic and mathematical models
- Investigate and identify token functionality potential from a monetary perspective
- Develop and define a taxonomy for this new scientific field
- Design a bottom up Token Engineering framework to enable future state of the art design of ecosystems
- Summarise the ecosystem-design recommendation into scientific papers.
2. Forward-looking hands on Events
Hosting and participate in a series of events like talks, workshops, hackathons etc. the goal would be to collect current questions, solutions and knowledge of the whole community, bridging the gap between academia an startups. Find a selection of past and upcoming activities here.
- City of Vienna, Token Gathering
Oct 2018, with presentations by Kris Paruch - Token Engineering Global Gathering
26. October 2018, Berlin
with Keynote & Workshop by Kris Paruch and Shermin Voshmgir - Token Engineering Vienna, Kick off Meetup
13. Nov, WU Vienna
Hosted by Kris Paruch - Crypto Monday, Intro to Token Engineering
16. Jan 2019, WU Vienna
details TBA
The goal of our Token Engineering research is to combine both theoretical and practical stream to test all investigated solutions with respect to their applicability and their scientific background. Existing models and methods will be adapted and extended to capture all new mechanisms and dynamics of tokenised ecosystems.
Token Engineering Global Gathering
As a first step, we participated in a Token Engineering Event in Berlin, where developers, engineers and researchers from around the world got together. During a day full of talks, panel discussions and presentations contributors were able to present their take on best-practice approaches in tokenised ecosystem design. Krzysztof Paruch and I outlined our current state of research in a keynote followed by an interactive workshop where we took one random economic model that we first explained from a classic economic perspective, and then tried to map and adapt it to current tokenised ecosystems like the Bitcoin Network with a group of 30 participants in a follow up workshop.
We chose one economic Model for this deep dive session — the DSGE (dynamic stochastic general equilibrium) model, that is currently being used by many central banks to formulate and communicate monetary policy. It is used for macroeconomic systems building on microeconomic foundations. It assumes that all agents within the economy have their own preferences and solve an optimisation problem to maximise lifetime utility. These models also emphasise agents’ intertemporal choice: which means that agents current behaviour is dependent on expected future outcomes. Many variations and extensions of DSGE models exist. In their simplest form they include households (representing the demand side of the economy), firms (representing the supply side of the economy) and a monetary block (representing a central bank’s policy choices). It can also account for shocks on all sides for unpredictability of future developments. Krzysztof Paruch will elaborate in a separate blog post the details of this models and why we chose it as a starting point of our applied research activities.
To sum it up, we were quite surprised by the massive interest and positive feedback from the participating community members. Amongst engineers and business developers I was very happy to find many interested economists who participated with lively discussion of our 1,5 hour workshop, at the end of a full day conference. Videos of the talks can be found here:
If you would like to participate in the formulation of research questions, please contribute to this gdocs.
References
- Towards a Practice of Token Engineering Methodology, Patterns & Tools. TE Series Part II, Trent McConaghy, Mar 1, 2018
- Token Engineering 101: Why Engineering is Necessary, Michael Zargham, Jul 1, 2018:
- Token Engineering Wiki
- https://twitter.com/tokengineering
- https://www.slideshare.net/tokenengineering
About the Author
Shermin Voshmgir is the Author of the Book “Token Economy“. She is the director of the Research Institute for Cryptoconomics at the Vienna University of Economics, and the founder of BlockchainHub Berlin. In the past, she was a curator of TheDAO, and advisor to various startups like Jolocom, Wunder and the Estonian E-residency program. In addition to her studies at the Vienna University of Economics, she studied film and drama in Madrid. Her past work experience ranges from Internet startups, research & art. She is Austrian, with Iranian roots, and lives between Vienna and Berlin.
