Tokenomics is the abbreviation for Token Economics or also Token Economy.
As the words say, it’s a matter of building a Token Economy.
Economy is an ecosystem where users exchange value, giving away what they can give away to get what they need more. Every passage of Economy adds up to an offer-demand balance, hoping that is a true balance.
Do you remember Tokenomics from the 2017-2018 ICO Jungle?
Well, the singular thing is that back in time we all called it “Tokenomics” when it was mainly a matter of how many tokens were going to be allocated and to whom. Sometimes, also lock-ups and vesting schedules were inserted.
Back then, Tokenomics was represented by some Pie Diagrams. Quite easy for being defined a Token Economy, uh?
Source: Author. Token distribution for ForceFi. https://docs.forcefi.io/tokenomics/token-distribution
At that time anyway, the total number of tokens listed was just a very few thousands at the most.
Now total tokens are more than 24000, meaning that the newcomer tokens must bring a real innovation and an innovative service to be able to play their chances to succeed.
So, what are the biggest risks that a startup may encounter when designing a Tokenomics?
The first one, is not providing a real use-case (or use-caseS) to the token. If the token is not correctly integrated into the Business Model it risks to become a stand-alone tool that soon or later is going to be dismissed with a lot of value loss for some users/investors.
To avoid this scenario I created the “ITERATIVE APPROACH” that is something came up from my long years of experience in the management field, together with business creation and design.
My management experience led me to understand that every Business Model has to be the most perfect possible at the starting point BUT it must consider some decree of FLEXIBILITY to allow some slight change of trajectory during the path.
Like my mentor during the thesis has written on his Door:
In Theory, Theory and Practice are the same. In Practice they are not.
-That said, what is the real utility of the token?
-Why people should buy it?
Source: created by Author via https://imgflip.com/memegenerator
The second thing, is that some “soft pools” have to be forecasted and kept apart. These soft pools will provide the elasticity to create extra-programs (incentives, ambassadors and so on), issue partnerships and so on.
What if a startup wants to issue a referral program but all tokens are already allocated?
The third aspect, is that vesting and lock-ups must be very clear. Sometimes, across the several tokenomics I designed, I had some external feedbacks. Some of them were very well accepted while some others were just sent back to the sender.
No, I am not that arrogant. But an ancient Samurai motto said “Listen to everybody but then follow blindly your personal code”.
And it’s not a matter of being infallible. On the opposite. It’s accepting corrections from two cathegories of people:
-People that really knows what they are saying OR
-People that have no interest in creating a damage to me or the project.
Source: created by Author via https://imgflip.com/memegenerator
At the third point, I often see investors claiming for shorter vestings and cliffs. What they do not see is that if some vestings and cliffs gets too much shorter, they are going to get potentially damaged as well.
Reducing the vesting/lock-ups for investors would mean creating selling pressure too early making all the other investors in a bad position.
If the Team has a shorter vesting/lock-up, they put as well small investors in a bad position but also bigger investors may risk to see lower profits from their initial investment.
Source: created by Author via https://imgflip.com/memegenerator
Fourth and to be carefully considered, is the cashflow.
I see teams complaining about the number of tokens they get or the release schedule, or the Founders keeping for themselves a bunch of tokens.
Well, Founders and Workers have to be incentivized to work thoroughly and effortlessly to the project.
Anyway, tokens for Team should be considered at the same level of SHARES from a company. Not from a legal perspective (I am not a lawyer) BUT from an ideological and strategic perspective.
Have you ever seen founder selling their shares of a company to face everyday expenses?
There is not a prepaid card to sell Shares. Not for the moment at least.
That’s why as
CASH IS KING CASHFLOW IT’S KEY
The fifth aspect that a startup should expect from a Tokenomics expert is a support while creating the token and some support in the strategy as well.
Token Economists that create a Tokenomics like a bomb-drop and then they flee away is something that may cause even some troubles to the startup.
Startuppers when hire a specialist in Token Economy cannot take care also in its work: they want someone understanding their needs and then helping them also in the integration to make sure that its work is going to fit the requirements of the Business Model.
So, why I am telling you this?
From my experience I have seen that as a Token Economist, my role is to make the Token fits the Business Model adapting (when allowed) to the Business Model to make the project moredecentralized and eventually even more sustainable and suitable for incentives and parallel programs.
Anyway, what I usually offer and find it much appreciated from startups, is my support in the Go-To-Market strategy. This happens for two reasons:
I have deeply studied the Model of the company making me one of the people that better understand the mechanics of the startup
I am not a theoretical person and I like seeing my work coming into force, adapting it eventually to the needs of the company
I have of course wide experience in doing Strategical Business Choices, leading to the expertise in Tokenomics to an interesting merge with the go-to-market phase.
So, when choosing who to onboard into the project, make sure he or she has a deep understanding of business mechanics and business models so to make a token organically integrated in the startup AND being able to hold startup’s hand from the Early Stage to the Market Phase.