Tokenomics, the true art of NFTs
Whether NFTs may or not be considered a new form of art, there is an art to creating NFTs. A way in which a tasteless piece of code meant to certify the ownership of anything digital or physical acquires unique storytelling features. That layer of storytelling is called tokenomics.
A definition
Tokenomics is a term that refers to those economies built around tokens. It concerns the game’s rules and what you can do or not in the universe of token transactions. How you can trade, exchange, or store your assets in a way that is meaningful or at least motivating to keep you interested to stay in, investing your resources (time or currency) in growing that environment.
Altogether, these rules create narratives which sometimes are straightforward (like limited editions) and sometimes more complex (like governance). Regardless, they need to be coherent, consistent and stimulating to build the engagement required by the token economy to remain relevant.
Think of collector stamps, coins, or Magic cards. How did some of those objects become so unique and valuable?
Strictly speaking, tokenomics is also a valid concept to describe the trading rules in that kind of “classic” collectables. But in the space of NFTs, due to the use of smart contracts and operations at a large scale, rules can be more elaborated and dynamic, which opens the space to unfold new territories of interaction, and with this, storytelling.
Community tokens
By default, every narrative built around NFTs responds to some form of tokenomics, but that doesn’t mean that every collection has intentionally designed one.
The Cryptopunks, for instance, do not have any internal rules or pointing system to incentivise their trade or the emergence of an inner economy. It is the evolution of Etherium and the fact that they were an early manifestation of a rapidly growing NFT market that has made them so popular, coveted and scarce.
As NFT markets become more sophisticated, new generations of digital communities start to explore the potential of tokenomics. A well-known example is the Yuga Labs and its Ape Coin, a currency that operates within the ever-growing universe of Bored Apes they are creating. The idea of introducing a local “coin” is the latest solution to Yuga Labs’ attempt to provide its community with value and voting power to collectively decide which new projects to execute in the future.
Many NFT collections, specially PFPs (an acronym for “picture for proof” or just certified profile pictures), work similarly. They focus on empowering their community by attaching social value to their tokens, which translates not exclusively into coins but also social events, unique experiences or philanthropy. In tokenomics, this factor –the possibility to join a special club of token owners– is known as utility.
Artistic communities
But the art of tokenomics does not only apply to projects with big social ambitions in mind. There’s also tokenomics for smaller communities, less focussed on long roadmaps, more oriented towards thoughtful stories and aesthetics. We can find examples of this in the world of digital fine arts. Kaleidr is an example of that.
Created in the year 2021 by the artist Dun, Kaleidr explores the potential of tokenomics to create a collaborative artwork. It consists of 7 NFT series that can unlock a final piece together. The project’s website describes it like this:
“(Kaleidr) is the story of a fictional person’s effort to remember something important over the course of one single imagined day. Each part of the story is made up of a number of 1/1 works. Part 1 consists of 32 1/1 works, each telling of the moment just after waking, in 32 different ways. Part 2, consisting of 24 1/1 works, goes further into the imagined morning… telling in 24 different ways. And so on and so on.”
The tokenomics in this project encourages Kaleidr collectors to combine their NFTs. If this happens, the artist takes the tokens and creates a new piece that combines them into a new chapter of the story.
If all the collectors choose to pair up and combine their NFTs this way, Dun will create a new art piece containing the end of the story. This NFT, part 8 of the series, will be auctioned among the community of Kaleidr collectors.
The art of tokenomics
Tokenomics is an interesting combination of traditional storytelling and economics. We could argue that there’s nothing new to this, since working out narratives around scarcity principles or supply and demand are the daily bread of politicians and economists. However, using these mechanisms to tell fictional stories and build digital communities around them is certainly something novel. Especially when these communities are, to some extent, decentralised.
Some of the most powerful stories in human history have been created in a similar fashion. Think of most mythologies; they are stories that have gained depth and credibility because they have been transmitted from one community to another over centuries.
And while mythologies survived and evolved thanks to traditions and regional agreements such as morality, elites and cosmovisions, in the globalised society we dwell, these things have become somewhat a source of discord rather than encounter. For that matter, if we add some hope to our thinking, tokens could be the beacon for a new way to create myths. And perhaps, just as myths have done, they could bring meaningful turns to our history of humanity.
