Crypto Research

Modern Economical Nonsense – Tokenomic Models

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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