Economics of Tokenized Incentives 2: Selecting Effective Performance Metrics

However, even if token value was perfectly aligned with network value — the way that a company’s stock price is aligned with shareholder value — token value still fails the second criterion for a good performance metric. Blockchain platforms should not rely on token value alone to generate participant incentives for the same reason that employers d... See more

3. IF YOU USE PERFORMANCE METRICS, MAKE THEM WIDE-RANGING, RELEVANT, AND HARD TO GAME Imagine you’re a product manager and your pay depends largely on reaching a particular sales goal for the next quarter. If you’re smart, or if you’ve got a family to feed, you’re going to try mightily to hit that number. You probably won’t concern yourself much with

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token price is a poor performance metric for incentivizing the types of behaviors that blockchain platforms want — and need — their participants to engage in.

The power of incentives cannot be overstated. Properly devised incentive mechanisms can supercharge a group’s ability to efficiently optimize for its selected target metrics. Which sounds great — and it is, provided that those target metrics are a proper representation of the organization’s goals.