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Tokenomics: the adoption paths of the token economy

By Andy Martin(LinkedIn)

April 12, 2022

This week I’m summarizing my recent posts on DAO tokenomics – the decentralized autonomous organizations that use blockchain technology for high-level governance processes and token-based economics.

The idea of these posts is to reflect on how we will see tokenomics being adopted in businesses and economies, both in new markets and in the reinvention of existing ones.

Tokenomics: which world do we want to work in?

I think each of us needs to decide which of the three worlds we want to work in?

  1. Optimize the existing world as we automate processes with technology or enhance their performance with artificial intelligence (AI);
  2. Building a new digitally native world in a blank space where there is no incumbent, based on blockchain;
  3. Digitize data from the physical world and with conventional practices and use this data to reinvent markets in a new hybrid world, digital and physical.

Honestly, it would be death to be stuck in world 1.

Tokenomics: what role for startups?

The more I think about these worlds, the more I think that the opportunities lie in world 2.

  • The blank space where there is no holder, the same one that Amazon started with rarer book titles that were not in bookstores. Or start looking at a rare health condition that is not yet covered by existing research;
  • With the use of digital assets – data and assets born on the web, where they can be easily digitized, such as digital collectibles in games and the tokenization of assets of companies and people for offering in the market;
  • In the hands of startups.

I think that over time, the focus will extend to more traditional problems currently covered by the incumbent, just as Amazon has been extending its attention to all book titles.

But that disruption will be done for the incumbent and not by the incumbent. Just as happened with the first two waves of the Internet, when incumbents adapted and added a web channel, for example.

However, all the heavy lifting has been done by startups like Google or Facebook.

I imagine the same will happen this time with Web 3 and the Metaverse.

Tokenomics: the 3 waves of adoption

First wave of tokenomics adoption

From the arrival of bitcoin, these world 2 conditions are developed in the digitally created natives, in the blank space where blockchain games and digital collectibles such as avatars or digital wearables have emerged.

After all, just like Cryptokitties, this is really a new market and everything is born digital.

This is where the new business models for the new Internet arise – bringing together developers (innovators) and users who are also owners and potentially also creators of marketable – and therefore monetizable – digital content.

These new markets need a currency with an on/off ramp to fiat currencies and such stable currencies with all the payments part comes in this first wave. A traditional bank may be involved.

Second wave of tokenomics adoption

But where do we go next? Should all the heavy lifting be done by startups or will the incumbent have a role?

We need to look at the problems to be solved and ask whether tokenomics can provide an elegant and resilient solution to Occam-Razor – and I will never forgive McKinsey for that.

It seems that the problems of fixing carbon accounting or circular economy of plastics, say, come to mind.

These problems should be solved by working forward from rewarding the little youngster for good changes in behavior and the big guy waving a big stick.

It’s about changing many people’s behavior a bit – 100% transparent and free of today’s corruptions – and with new derivatives and secondary markets – trading carbon for plastic offsets?

All perfect for blockchain, sir. McKinsey.

I think that will be the second wave.

Third wave of tokenomics adoption

And the third wave is where existing regulation and policies need to catch up more with this new user-driven economy. But even here, cases like that rare book title that made Amazon work, may appear early in wave 2.

This is an article originally published by Andy Martin on LinkedIn on April 12, 2022.

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Do you want to tokenize your business or part of it? Do you have a business solution and does it make sense to issue your own token ?

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