Too many crypto projects have crashed and burned because of unsustainable tokenomics. DOP is driven by fairness, and building the foundations for long-term success.
Thousands of crypto projects have been launched over the years, but there’s one area where many have fallen short: tokenomics.
Creating a new digital asset is harder than it looks — and without a sustainable ecosystem, even the biggest and brightest ideas are destined to fail.
As the mainnet of Data Ownership Protocol nears launch, we’ve unveiled a suite of changes to our tokenomics — driven by an ambition of benefitting all our users.
We’ve reduced the DOP allocated to our team, boosted the budget for marketing, and increased the pot of tokens that’s going to be shared among our testnet users.
In this article, we’re going to explain why sensible tokenomics matters — and how it can make or break an up-and-coming project.
Product first, tokens second
A common criticism of crypto projects is this: a lot of the time, they don’t need a token. Opportunistic entrepreneurs sometimes see digital assets as nothing more than a vehicle for speculation — something that can be pumped and dumped.
But for decentralized organizations that have put a great deal of thought into their offering, and have focused on creating a product that adds value to end users, tokens can be indispensable. They can be used for governance, with ownership giving holders the right to cast votes on proposals that affect a project’s future direction. In other cases, these digital assets unlock perks such as lower transaction fees or discounts on services.
DOP ticks the box when it comes to putting the product first. We’ve created an ecosystem that champions selective transparency — giving crypto investors everywhere the ability to control how much information about their transactions and holdings are in the public domain. Digital assets can be encrypted and decrypted at will, as well as sent to other protocol users. In our project, one key use case of DOP tokens involves compensated elected committee members who are tasked with keeping the platform safe. This crowdsourced, decentralized approach to oversight means emerging threats are handled without centralized points of failure.
Keeping supply in check
In recent years, some of the world’s biggest fiat currencies have been ravaged by eye-wateringly high levels of inflation. While many major economies set an annual target of 2%, the likes of the UK and the US saw levels breach 10%. This is incredibly painful for consumers, who see the value of their savings erode in real time. Much of this was caused by extensive quantitative easing over many years — especially during the coronavirus pandemic. The supply of dollars, pounds and euros was ever increasing, and it was inevitable that this would water down the value of those already in circulation.
Bitcoin was invented as an antidote to this, with a fixed supply of 21 million and a predictable issuance schedule that couldn’t be altered. However, not all cryptocurrencies fall into this category. Some, like DOGE, have no limit on the quantity of coins that can be mined. This lack of scarcity dilutes the value of assets already in circulation — and ultimately makes it less appealing as an investment. Imagine a hot summer’s day, where everyone is looking to cool down. If ice creams were in short supply, shoppers would be willing to pay more for them, but prices would likely fall if supply was in abundance.
That brings us to deflationary tokens, where the supply gradually diminishes over time. Done right, this can ultimately beef up a digital asset’s purchasing power. This is often achieved through automatic buyback-and-burn mechanisms. DOP falls into this category, as a portion of transaction fees are burned to slowly erode the tokens in circulation. How it works is simple. Users settle fees in the cryptocurrency they’re transacting with, and this is then converted into DOP. From here, 75% is permanently burned, with the remaining 25% distributed to stakers.
Another important piece of this puzzle is vesting schedules. This ensures tokens gradually unlock over time, incentivizing long-term support for a project and alleviating selling pressure. It also encourages stakeholders to work as hard as possible to add value. Within DOP’s ecosystem, no tokens will be released to the team for a year — and after that, they will start slowly entering the ecosystem over a 24-month period. Funds earmarked for other purposes are also distributed at varying pace.
Making distribution fair
The art of tokenomics doesn’t end here, as careful thought needs to be applied to how tokens are distributed among stakeholders. Getting the balance wrong can have huge ramifications. If the pot for advisers is too small, they may not feel adequately incentivized to offer their expertise. Scrimping on the marketing allocation makes it harder to create a buzz about a project and spread the word. Meanwhile, an inadequate share for the community can prevent cutting-edge use cases and ideas from getting the funding they deserve. Going too far the other way can also cause problems. An overly generous portion to one individual category can mean that a small group ends up having significant control. That goes against the values of decentralization that all projects should strive for.
This is why DOP has allocated tokens across 10 categories. From early adopters who got in on the ground floor with our project, to the team that have put their blood, sweat and tears into making our infrastructure a reality, great care has gone into ensuring distribution is fair. Planning for the future also matters — and that’s why we have a long-term treasury fund to finance development, security bounties, community initiatives and partnerships in the years to come.
Exciting things ahead
DOP’s token is at the beating heart of our ecosystem — and has been built with the simple but powerful objective of adding value to users and rewarding those who support the network.
Owning a token isn’t about waiting for the number to go up so you can cash out for a quick payday. It’s about being part of a community — a place where everyone works together to make the world better — and accessing the latest technology. That’s why Data Ownership Protocol has established an intuitive dashboard where members can put forward proposals, with their peers voting on whether they should be approved. Voting power is determined based on token balances, meaning those with a greater financial interest in the project’s success have a greater say.
You can learn more about DOP’s tokenomics — and what it means for you — in our whitepaper.
