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Modern Economical Nonsense – Tokenomic Models

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What is tokenomic? For investors, tokenomic is to find sustainable investment options. For traders, tokenomic is to find a trading strategy to gain short-term profits. For developers, tokenomic is a way to find a sustainable long-term growth solution to create a better community. However, there is much more than just growing your wealth and gaining more profits. Tokenomic is a test of the economy that potentially can be implemented nationwide through policy implementation and helps nations to grow in the future.

Let’s explore. 

Table of Content

Trilemma 

Tokenomic Trilemma

Over Design

Further Readings

In Conclusion

Trilemma 

Image credit: https://www.economist.com/schools-brief/2016/08/27/two-out-of-three-aint-bad

Let’s examine how a nation plays its tokenomic. The central banks play a role to control (manipulating) three factors: 

Free capital mobility: open to foreign investment

Monetary autonomy: low-interest rates

Exchange-rate management: peg its national currency exchange rate against the standard (US dollar)

If you live in a rich country, you have the flexibility to adjust to all three factors. However, other countries may not be that lucky to do so.

Moreover, only two factors out of three are possible. You can A) fix the exchange rate and open to accept cross-border capital flows while they diminished your monetary autonomy or B) can open to accept cross-border capital flows and have monetary autonomy but loss controlling of exchange-rate management or C) can fix the exchange rate and have monetary autonomy but losing opportunities to open to foreign investment.

For example, the Fed in the United States can A) boost their foreign investment and fix the exchange rate to expand their domestic economy or B) boost foreign investment and domestic investment through a lower interest rate environment and keep the exchange rate fluctuating or C) fix the exchange rate and have monetary autonomy to print more money while driving foreign investment away.

Just to note here that we do not examine how effective those actions result after the implementation here.

Tokenomic Trilemma

We may only realize there are two factors for tokenomic as supply and demand. However, there is one more factor to influence your tokenomic model: distribution.

You can easily accomplish supply through the creation of more tokens by increasing the supply or burning tokens to diminish supply. Such manipulations then hopefully influence the demand side which is less likely to be controlled by token creators. There is a third factor of distribution from token creators either through airdrops, or assigned contributors through paying for their performance, or utilized into treasury through investment, Defi, funding future projects, and many more ways. 

Of course, you will have certain constraints on your ability to manipulate tokenomic.

You can control supply and indirectly influence demand to reach a fair distribution result of a more sustainable community. Or you can create financial incentives to increase the demands for tokens through staking as one example.

Once you try to manipulate distribution, then the equilibrium system will shift. Increasing more supply will lower your token price since tokens will likely distribute more to powerful players in the system. Or lower supply to increase the token price while sacrificing your token liquidity.

Carefully adjusting tokenomic is necessary to build a sustainable community without possibly being labeled as a rug pull project.

Over Design

3 categories of the design of tokenomic:

Platform economic: Token integration 

Tokenomic: monetary policy

Treasury management: investment, play to earn, incentives models to users

But rather, my opinion is that if you design everything, you are entering into a centralized zone to manipulate so many factors to try to yield the best results while losing opportunities to let the system digest itself into the optimization process.

You will run into incentive misalignment, manipulation of the token, and losing token productivity.

It went back to the discussion on how one can interfere with another’s property rights. Such philosophical debate continues discussing but continuing practicing through trial and error helps to determine the better solutions.  

Further Readings

Here are further readings to enrich your understanding of the tokenomic in different aspects.

All You Need to Know About Tokenomics | by Ehsan Yazdanparast

Tokenomics 101: The Basics of Evaluating Cryptocurrencies – DeFriday #19 | by NAT ELIASON

Tokenomics Report: The Major Exchange Tokens | by Mattison Asher, Laurence Smith

Understanding Token Economics (Tokenomics 101) | by ANATHA

What Is Tokenomics and Why Is It Important? | by Robert Stevens

What is Tokenomics? | by Matt Hussey

The law of tokenomics, revisited | by Louis Lehot

Video Guide: What Gives Cryptocurrency Value? – Tokenomics Pt. 1 | by Bhaneeta Chadha

Video Guide: What Gives Cryptocurrency Value? – Tokenomics Pt. 2 | by Bhaneeta Chadha

The Three Tokenomics Problems and a Productivity-Linked Tokenomics Design | by Jack Chong 

In Conclusion

The tokenomic model is not a set topic that people continue exploring more possibilities. Maybe you can find a better way to implement it that works for everyone the best.

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Crypto Research

Bitcoin is not dead yet

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Bitcoin is not dead. In fact, the value of Bitcoin has increased in the past few months, and this is because of a lot of positive attention that Bitcoin has received. Many people are still interested in using virtual currencies to store their money. However, for these people who have been long-time Bitcoin users, the demand for Bitcoin has grown as the price has increased. If this assumption is valid, most people who plan to buy bitcoin will need to have a good reason for doing so. What if this assumption is no valid?

What is a cryptocurrency?

A cryptocurrency is a digital currency that has no primary functionalities other than being able to be stored online and exchanged for various other cryptocurrencies. Some of the most popular cryptocurrencies currently are Bitcoin, Ethereum, and many others.

Why to buy Bitcoin

There are numerous reasons to buy Bitcoin, but the most important one is to diversify one’s investments. If you are mainly investing in Bitcoin and other cryptocurrencies, then you will definitely want to buy more of them in the future. However, if you are trying to diversify your investment and purchase other cryptocurrencies, then you should start with the oldest and most successful ones. Additionally, individuals who hold positions in various financial products like stocks or bonds may also want to purchase Bitcoin. This is not a recommended move, however, as volatility in the market makes it difficult to know what will happen next. But when the economy will have a long recovery time, buying Bitcoin is not a wise move since it may take even longer for Bitcoin to recover its price.

Why not to buy Bitcoin

There are a number of reasons not to buy Bitcoin when the economy is bad. One of the top reasons is because you do not know where to start. There are many online retailers that sell everything from computer hardware to electronics, but you will probably never go that route since FTX is a prime example to let loss of trust on the exchange service. Another reason not to buy Bitcoin when the economy is bad is security. The amount of money and time to spend of securing Bitcoin is considerable. It is also likely that many criminals will target people who have money stored in a self-custody wallet.

Conclusion

The demand for Bitcoin has grown over time as more people adopt the digital currency as a store of security and money if that is the case. As more people adopt the currency, the value of Bitcoin has increased. This growth is likely due to many reasons, including the fact that many people now want to use the currency as a store of security and money. Although cryptocurrency has seen rapid growth over the past few years, it does not guarantee it will grow in the future. The demand for cryptocurrency will likely decrease in the future if people realize that it does not have any primary functionalities other than being a cryptocurrency itself.

Of course, this is no financial advice.

Photo by Silvestri Matteo on Unsplash

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Crypto Research

Invest NFT is a very bad idea

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You’re probably thinking, “but why would I ever want to deal with non fungible tokens or NFTs?” Well, that’s because there are a couple of very practical reasons why you shouldn’t. Firstly, non fungible tokens are not very good for your long-term investment. Let’s take an example. You have just purchased a 5 million worth of NFTs from Coinbase. Your long-term investment is protected for the next three years — barring some catastrophic event? But even if you manage to maintain your long-term investment for the next three years, imagine what will happen once you hit five of those years! Without a doubt, these problems increase exponentially when you have a bear market — how much can you keep NFT value? It’s quite likely that you will be broke. 

What is a non fungible token?

A non fungible token is an crypto that is not from a recognized blockchain like Ethereum. After being offered for purchase, these tokens can be easily bought and sold on any exchanges you would think. However, they are extremely liquidated and hard to sell.

Proper use of tokens

When you want to buy or sell a single NFT, you can always purchase it with other cryptos. However, NFT is just a symbol of owning something that is … useless…

Fees and charges on transactions

A transaction fee is charged when you make a payment with a cryptocurrency exchange. You can choose to pay this fee in fiat cash or a payment service like Coinbase’s Wallet.com. The transaction fee is a percentage of the amount of money you have just transferred. You can pay this fee in exchange for having access to the market for that particular crypto exchange. Some exchanges will charge you a trading fee in addition to the transaction fee. This is mainly to help cover their fees. 

What happens if we try to sell NFTs?

Creators will benefit from each transaction. That is all. Unless there are exclusive perks that follow of owning NFTs, there are no much value that you want to possess them. 

Conclusion

NFTs are not as what we expected them to be.

Photo by Ashley Jurius on Unsplash

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Crypto Research

When crypto bank is a shadow bank

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If your business goes bust, what will you do? You’ll probably need a fresh start. Fortunately, that can be a lot easier than you think. But that is not easy for a shadow bank, particularly the crypto shadow bank. Let’s explore what to do when your shadow bank goes bankrupt.

What’s the profit in being insolvent?

When your business is profitable and has plenty of cash in the bank, you can either pay your debts or use the profits from your sales to repay your creditors. If you’re able to meet your debts, you can then use the profits from your sales to pay your creditors. In some cases, you can even try to access your assets to pay your creditors. However, crypto shadow bank has illiquidity assets that unlikely can exchange to cash and pay off the debt. They are likely to go bankrupt with cash on hand and forced to sell their illiquid assets later to pay off debts.

Residual income or loss?

In general, if you’re able to show that you have a profit in being insolvent, it’s a good sign that the other parties in your business have their ear. If they haven’t, they could become targets. If you can show that you have a surplus, that is money left over from one period of activity when you were profitable and unable to pay your bills, you could be able to get your debts forgiven or pay them in full. For example, if your sales this past month were $1,000 and the total amount saved was $400, your surplus could be $100. If you can’t show this, you may have to start again from scratch. Unlike crypto shadow banks, they made huge profits when the market rose but lost quickly when the market went down. When the market goes down, they are less likely to get more funds since investors lost their appetite on the crypto.

What to do if you’re insolvent and no one will pay your bills

If you can’t show that you have a profit in being insolvent, you usually have three choices. You could either pay your bills or try to get a loan to avoid bankruptcy. You may also be able to get a special interest group on your local real estate board to readize you and make any required property inventory. You can also call a mortgage broker and arrange to buy a home.

But if you are running a crypto shadow bank, you cannot sell crypto because the market goes down faster to preserve your asset price. You cannot get another loan because likely you have highly leveraged your previous loans with high risky assets.

Get a loan to avoid bankruptcy

If you can’t pay your bills, you might be able to get a loan to make repayments on your credit cards or other debts. However, this shouldn’t be your only source of cash. For example, if you have a net worth of $5 million and your debt is $1 million, you could borrow $500,000 and have it repayments in as little as a month. Again, this is a very low-risk way to make payments.

But in crypto shadow bank, that is no an option for you.

Make payments on time

If you’re able to show that you have a surplus, you can try to pay your debts in a timely fashion. For example, if your debt is $500 and you owe $100, you could pay the full amount in a few weeks, or you could wait a month and then pay the rest. This is a low-risk way to make payments.

In the crypto shadow bank business, you cannot make payments on time and will likely go bankrupt soon.

Try private loans

You can go ask private loans with high-interest payments for the short term to offset your losses. This is not an option for crypto shadow bank again, they have already possessed high risky private loans.

Conclusion

Small businesses can weather uncertainty but no crypto shadow banks, which is why many crypto lending services keep collapsing.

Photo by Martino Pietropoli on Unsplash

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