Crypto Tokenomics will make you dizzy. So you should get started.
Disclaimer: The below justifications around how we are designing our token is draft and subject to change as we move along our pilot and testing.
Yesterday, i spent 2 hours with my advisor who plays both the role of a CFO as well as a Blockchain Advisor to me. (Lucky Me!)
We deep-dived into Financial Economics, some Behavior Economics and my worst — Accounting. And in coming weeks — i expect to have a few lessons in Game Theory.
Let’s be clear — despite 8 years of working in the bank, i have been in an operations project manager role. Whilst i have had some concepts of Finance, i never touched accounting. And definitely not market forces! So it’s somewhat new.
So I spent all afternoon today, coming up with a Cashflow ‘T’ diagram for a couple of scenarios for my token. And then afterwards i had a call with a friend who is quite into crypto-ccy, who has gone through a few crypto-investments.
I walked through some of the token mechanisms and dynamics.
Here’s what i got: “It seems overly complex!”
I think so. Thankfully its hidden for users (where we need to design UX in a simplified way). But behind the scenes, we needed to design an economy that makes sense that promotes usage and maximizes the underlying ccy of crypto.
It wouldn’t be easy. If it was easy — everyone would be able to do it. It requires deep economics, psychology, tech, and marketing. And possibly more.
I have 1 and 1/2 token.
The concept of dual tokens was confusing. And pretty much most people won’t understand the need for it. It’s just not normal.
In Soqqle, we have a E-XP (Electronic XP) and a Soqqle token. SOQQ is used during the token generation event (TGE). Let’s be clear what each token are.
To us, it’s a way for us to put digital tokens to the hands of every user possible. That’s called viral marketing — in marketing terms. How is that going to work? That’s our E-XP.
The world today has not yet fully caught the storm of Blockchain Tokens. There are several centralized platforms out there today that capture the habits of regular people (eg. Facebook). Unfortunately to grab people off these platforms to get benefits of a new wave of exciting new tech is a challenge.
In order to provide incentives for user sign up — sign up bonuses or freebies in some form will need to be provided.
Why not follow NEO’s model
Yes lets follow a model that is working in other places. Let’s look at NEO.
Now, i’m curious — i’m not familiar with NEO.
“So what does it do?”. It’s like the baselayer — its like Ethereum.
Right. So it’s pretty different. Now i need to know how it works.
So they have gas, and they have a NEO token. They have to buy NEO which then gives GAS. Still a dual token model in some way.
Something else is missing.
“How does a user get GAS?”. They have to buy Neo to get it.
“Can they earn it?”. No
(I later studied the Proof of Stake model that Neo has. You can read it here.)
Now. If you know abit about what Soqqle has been doing — this is completely different. Users in Soqqle can earn SOQB. And there’s no cap on SOQB, for reasons for us to manage liquidity, and conversion control as the issuer for protection of the economy.
Which is the fundamental difference. For Neo you have to buy your way in.
For Soqqle — you can earn your way in. Which is preferred.
For our utility value we have to use Bronze. This is because SOQQ needs to remain as FLOAT for price discovery, whilst SOQB needs to remain as FIX to not screw up utility value.
Which is the next topic.
FIX or FLOAT?
The price where a token is first bought in (through the SOQQ token) needs to be managed with price discovery (that is with supply /demand and a host of other factors not within our control).
However the price where value is transacted within the platform as a matter of utility value could be either FIX or FLOAT. In the beginning my intention was to make this FLOAT with a grand idea to help create a new type of job where people could just share for a living.
However it opens up the platform to market manipulation and could destroy the utility value of the platform. For two reasons
- 0 Value
If the value hits 0 for some reason not within my control, the value exchanges generated would be seen as worthless. This will create a massive ‘lack of value’ to users which will disincentize the usage. - Repricing
If the value fluctuates it will require the user offering and receiving value exchanges to re-price the value. This will create friction and chances of failing to meet expectations of users which will also disincentize usage.
Whilst the price of a token can be tagged to a currency (eg USD), there are non-tangible values that can be tagged to the same token as well which often may be overlooked.
For example, based on the tokens — certain gamified values can be introduced to add a different type of ‘store of value’ to credit the user’s contributions to society. Which is the intention of Soqqle’s token — to create a new form of community giving, not just based on a traditional fiat dollar, but backed by real utility usage.
Sign up bonus / Liquidity
As described earlier — getting users off existing platforms that may (or may not) be detrimental to our survival may be a challenge. Especially where users are used to a centralized setup and do not understand the need for a de-centralized setup.
Many articles talk about Blockchain removing the middle-man and how that will change how the world works. In theory for some of us that makes sense. But for every day users the question will be “What’s broken? I don’t think it’s a problem. Why should i care?”
There are many platforms that call for re-distribution of profits driven off our data. Today Facebook sells our interests and the platform to advertisers who then sells us products seemingly to benefit us. That’s not necessarily a bad thing- directing products that could add value to our livelihoods.
It’s true that redistributing advertising revenue could be interesting to a user but to what extent does the user find that a problem? I am a Facebook user, and if a platform comes and tells me it will distribute advertising revenue to me, i will likely ignore it.
Why?
There’s no context around the problem, and the amount of return expected for this ‘decentralization’ can not justify the need for me to switch my habits.
The only way for me to switch my habits is if it gives me a new habit that logically compels me to want to be better. Plus — it must give me an incentive to try it out.
Therefore the sign up bonus. And for that matter — any token generation event (TGE) should also consider the need for incentivizing users to get off a centralized structure. On top of that, figure out how their economy of using the token will be used to retain users.
The reality however of sign up bonuses and other incentives, are that they come at a cost. Especially where tokens may be pegged to a fix rate (point above). So if a user starts with 5 bonus tokens, pegged at $1 each, thats $5 per user. If i have 100,000 users — that’s $500K.
Caps
Whilst the token for the Token Generation Event should remain capped because it’s a supply / demand driven token that will create a good market for the economy, the utility token (our bronze token SOQB) should be uncapped.
This is for a few reasons
- Number of users: As we cannot control or predict the rate of adoption of our platform, it will not be wise to cap the number of tokens here. Based on a reconciliation and prediction system, we will handle our issuance process to manage the token needs.
- Control: Market forces — should someone choose to ‘harm’ the economy and somehow take control by converting a bulk of GOLD to Bronze, they would in theory ‘corner’ the market. By having the ability to free up and create new tokens to support continued growth would mitigate this problem.
All of the above may seem complicated, but they all also make complete sense.
To wrap it up — here’s how a utility value being executed will be accounted from start (when the gold token comes in) to complete (when the utility token gets utilized).
