Economics of Tokenized Incentives 3: Token Value Won’t Align Stakeholders

In a cryptonetwork, token holders would also be unwilling to supply capital at a loss indefinitely if the token’s only value is derived from its ability to generate profits in the future. However, this gets into the unique properties and value capture mechanisms of crypto – tokens may have value capture outside of their ability to produce income.

But, if you read the previous section, you know that there’s a catch: while the value of a protocol’s token is meant to reflect the success of the protocol, it’s very difficult to design a token that actually captures the full breadth and nuance of the protocol’s goals. And the price incentive built into tokens leaves them especially vulnerable to ... See more

In traditional firms, the incentives between users, employees, and owners are often not clearly aligned. When a token on a global blockchain is the business model, incentives are no longer muddled by legal entities, jurisdictions, and business models that conflict with the best interest of the users.

Incentive DesignTokenomics are a tool for aligning the incentives of participants in a network. It is extremely important to identify what behavior is required from each participant in an ecosystem in order for the network to achieve a virtuous cycle. Equally important is designing suitable token incentives that encourage the desired market behavio... See more

This is the crux of the problem that many token-based communities face: whether they acknowledge it or not, they are so focused on token price that they lose sight of why they were created to begin with--the shared values and interests, the intrinsic motivators, the glue that is left when all other bindings are stripped away

In aligning incentives between leaders (core creators and team) of a community and its members, smart contracts and token economics will not only be able to govern access to utility, but also incentivize all stakeholders in developing and co-creating additional utility.