Attack on Tokenomics — Recap
I hope you're not getting too hung up with the current market. I, for my part, chose violence, and by that, I mean taking the time to figure out which token models are truly unsustainable.
During my latest space, I had the chance to discuss tokenomics in depth with some fantastic speakers, including Bridget from the 200bn Club, David from Jump DeFi and Trove Labs, Mohamed from Animoca Brands, and Marko from Tonic.
Huge thanks to everyone who showed up and to the speakers 💖
You can listen to the entire space here or read on for my written recap of some important things we covered.
Thoughts on explaining tokenomics to your normie friends
Bridget: Great question! Not sure I have an answer but some of my thoughts. I love the tokenomics engineering community and the fact that they talk about the crypto economic system. So just some of the observations and things I've seen speaking to blockchain engineers is that they need to know finance as well because suddenly it falls under their domain. There's a lot to it, including how to code it, but also why are people buying it, why they are holding it, and why they would sell. Also, driving factors behind engaging with the token and philosophy and ethics behind it as well as governance.
So there's a huge lot to it. I guess it's the mechanics of how people choose to interact with the project or protocol.
David: I think there is definitely some understanding of microeconomics required. Who's a normie? You can't just explain it in one sentence. You have to start with what is a token, then economics. Breaking it down from there. And then, eventually, you understand that it's building the rules that create the economics of a token using a program.
Mohamed: It's worth highlighting that we are still very nascent and often use web2 primitives to explain things. For me, tokenomics is the whole ecosystem of specific projects. It's the bloodline of the ecosystem. Every interaction between stakeholders is a potential on-chain transaction.
Projects and their tokenomics — yay or nay?
Marko: Many projects honestly don't need tokens, or they release them too early. We don't have one now and won't release one before we have a stronger sense of our product-market fit, higher volumes, and getting ready to decentralize. I think most just rush out to create a token.
Recently tokenomics often seemed to focus on hype and enriching the early investors vs. actual value. How do we make sure we communicate more meaningfully about the value of tokenomics?
David: With all the contagion, we're in a good place to clean the slate. Of course, if you have early investors that have 20x their investment by the time actual users of the protocol start to buy the token, that creates a massive issue.
It makes sense for VCs to sell if your investment has 20x'd — regardless of the value the underlying protocol generates. The question then is can the market handle this sell pressure?
Now, as users, we can fight against that. While we do need VC investment, it doesn't have to be always millions in funding, especially if your protocol potentially does not even generate revenues or not sufficiently to justify it being a real startup.
Mohamed: Since the collapse of the terra ecosystem, investors have been more open to investing in equity and token warrants over tokens, as they understand that holding a huge portion of an ecosystem's token isn't healthy for it. This gives them the chance to buy tokens but what's available aren't the crazy percentages we've seen earlier.
Understanding tokenomics for degens and the masses
Mohamed: It depends on the audience. In a gaming environment, you probably won’t care about what’s in the backend. If it’s a token or not. As long as it’s fun.
We’ve been selling mass adoption wrong. We’ve been selling the tech and digital ownership. Most of us continue using Whatsapp even though we know about its data management issues. ^^
The idea of incentivization and prioritizing short-term success over long-term sustainability is what kills many ecosystems and is where we get it wrong, IMO. Because you just attract the wrong crowd with these to-earn models. Incentivization should come in as a retention mechanism vs. attracting them.
David: As a Degen you should look at marketcap and do some simple math because they drive gains.
Aspects of tokenomics requiring more attention?
- Messaging: bring people back down to earth, and tell them crazy yields are not sustainable
- Value created by protocols, and how do the tokenomics capture and distribute that value -> Real Yield
- Behavioral economics & game theory: need to be modeled more into tokenomics. Did you think about fear yet and not just greed? (Insert 3,3 meme)
Bridget: Having more economists and more diverse inputs would greatly benefit the industry, and avoid some of the mistakes previously made in finance and economics.
Play-to-Earn and other to-earn stuff
Mohamed: To earn generally is a flawed idea. The only real thing we do to earn is work. People play games for fun and community. This is what we need to focus on, and then you can enable them to earn, but they should be motivated by the value proposition — outside of earning.
Play to earn or Play and Earn?
Marko: A game has to be good regardless of to-earn or and-earn mechanics else I won’t care for it.
What to look out for when investing?
David: At the moment, a lot of projects still lack a good way for value to accrue to token holders. For example, Uniswap’s governance token doesn’t give you any access to transaction fees. There are also projects designing their tokens in a way to avoid looking like a security.
Worth looking at the value created and if any of it flows back to holders.
Bridget: I enjoy tapping into communities and learning from them as they discuss various assets. I look for projects that solve real-world problems and then learn more about their team. And ideally, even if their roadmap fails that they leave something behind that’s valuable.
Thanks for tuning in and watch out for my next space or feel free to suggest a topic :D
Btw, as always, none of this is financial advice. DYOR and trust but verify.