PURPOSE-DRIVEN TOKENS

Native network tokens that steer collective action in Web3

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Token Kitchen

4 min readApr 6, 2024

This post is an excerpt from the book DAOs & Purpose-Driven Tokens and discusses how the governance of Web3 networks is closely tied to the design and distribution rules of their network-native tokens. These tokens and are designed to be purpose-driven and steer the actions of their stakeholders with automated incentives and/or disincentives.

GAME CHANGER “Proof-of-Work”

The emergence of the Internet created a new institutional infrastructure for more distributed and global coordination over the Internet. In Web2, these Internet-based platforms have been, for the most part, centrally governed by mostly private and sometimes public organizations. This has changed ever since the emergence of Bitcoin’s groundbreaking consensus mechanism, Proof-of-Work, which marked the beginning of a new era of socioeconomic coordination over the Internet.

Proof-of-Work introduced a mechanism for anonymous network actors to collectively maintain a public payment infrastructure in the absence of trusted intermediaries coordinating and mediating individual action — all this by rewarding network participants with newly minted network tokens upon “Proof-of-Work.”

Aligning incentives among a community of anonymous Internet actors in a collusion- and attack-resistant manner introduced a new form of coordination mechanism over the Internet and sparked a new field of science around economic coordination games using cryptographic tools. It showed how a reward mechanism that is tied to a network-native token can steer the actions of anonymous Internet users to collectively pursue a common purpose, which is why I refer to these tokens as “purpose-driven.”

The open-source nature of the Bitcoin protocol allowed anyone to take the code, copy and modify it, and issue their own purpose-driven network. Many other protocol designers took the idea of collective value creation to the next level. They started to issue their own purpose-driven tokens by tweaking Bitcoins technical, social, political, and economic design.

As a result, many new forms of tokenized incentives emerged, with various degrees of sustainability and success. The Ethereum network, and similar blockchain networks that emerged later, paved the way for easy technical issuance of tokens — from simple asset tokens that represent private goods, to purpose-driven tokens that incentivize the co-creation of public goods.

Since the emergence of Bitcoin and later Ethereum, many novel forms of Web3 networks have emerged that are steered by purpose-driven tokens — i.e., one or several network tokens are designed to incentivize network actors to contribute to the collective goal of the network.

PURPOSE aka PUBLIC GOOD

With “purpose,” I refer to a greater goal beyond maximizing personal profit. This might be a public good, such as a P2P payment network like “Bitcoin”, a P2P social network like “Steemit,” a P2P stable token like “DAI,” a P2P telecommunication network like “Helium,” or a P2P data market such as “Ocean.”

The collective goal could also be the reduction of negative externalities on a public or common good — such as the reduction of CO2 emissions via CO2-tokens, or biodiversity tokens as conceptualized by “Rebalance Earth.” All the mentioned use cases are analyzed in my book DAOs & Purpose-Driven Tokens.

NEW FORM OF CAPITAL-DRIVEN COMMON´ISM

Purpose-driven tokens provide an alternative value creation mechanism that fundamentally differs from conventional economic systems, which predominantly incentivize individual value creation to create private goods.

DAOs, aka Web3 networks, aka Web3 based communities — and the purpose-driven tokens that steer them — transcend traditional political and economic philosophies such as “capitalism” versus “communism” — philosophies that stem from a pre-Internet era, when industrialization and privately owned companies and corporations were on the rise, liberal democracies were still nascent institutions, and secular governments had just transitioned out of feudal and religiously tainted governance systems.

Purpose-driven tokens often represent some form of internal currency of a network/ community/ distributed Internet tribe. They are issued according to the rules defined in the computational protocol of the decentralized organization and have created the need for a new areas of research and development, generally referred to as cryptoeconomics/ token economic/ cryptogovernance/ token engineering.

REFERENCES

This link will lead you to a website that contains all the references to the source materials used for the research of the chapter, and should also provide a reading list for all those who are interested in a deeper dive into the topics presented.