Developing a framework for creating blockchain-based token ecosystems

Blockchain technology enables individuals and organizations to create secure, decentralized, and global networks, by designing protocols and network-related cryptocurrencies. These cryptographically secured tokens can represent anything of value, such as ownership of a 'real-life' asset or the right to obtain services in a specific blockchain-based network. The simplicity of issuing new tokens and programming it for whatever use, has resulted in major increase of new tokens. Many of these tokens have caused networks to evolve in decentralized, peer-to-peer markets, which are essentially the generation of new sorts of micro-economies, or token ecosystems.


Challenge

In 2017, there were no frameworks or guidelines on how to create viable blockchain-based token ecosystems. It was clear that these ecosystems are more than a 'regular' ecosystem, economic structure or blockchain protocol. Like blockchains, tokens are highly programmable thereby allowing businesses to create 'structures' that incentivize and coordinate economic actions of agents. These 'structures' are often referred to as token economics, and are a combination of cryptography, game theory and economics. With the rising interest in crypto, and with new projects coming up all over the world, it was necessary to have proper guidelines.


Approach

We focused on so-called utility tokens: tokens that carry no rights other than the right to use them as a means to obtain services in a specific blockchain-based platform/network, and to enable interaction with the platform (and the related agents), that either already exists or will exist in the future. Reason being is that utility tokens were the most common token in the market, plus we worked with these tokens within our own projects.


We used scientific research, in-depth analysis of existing blockchain projects and interviews with industry experts (both blockchain and non-blockchain related), and combined these insights with our knowledge on game theory, business and economics. Field research and building on the experience and learnings of current projects is obviously essential when dealing with topic as token economics, plus only very little scientific research had been conducted on this topic back then.


Results

We developed a framework for structuring token economics (see below) that companies can use when (thinking of) issuing a token. This framework can be found at the bottom of this post. Keep in mind that blockchain

technology and tokens are still in a nascent stage, and thus new concepts emerge over time. It is therefore recommended to not pin down on the token economic framework, but rather use it as a high-level overview that provides guidance.


We also drafted a proper report with additional findings and insights that are useful for anyone working with crypto. It touches upon incentive structures, governance, valuation, decentralization, and more. It is recommended to use this report next to the framework. The names of the respondents and projects have been anonymized.



Framework for structuring token economic
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 © 2020 by Daan Maasson