I have observed the token economies of a lot of cryptocurrency projects. To be honest, most of them are absolute crap. Sure, you've got your base-layer cryptocurrencies that provide the infrastructure layer for what they hope turns into a thriving, blossoming ecosystem like what we see on Ethereum. These types of cryptocurrencies or called coins. They provide the gas that powers transactions and interactions (usually via smart contracts) on their network. The other types of cryptocurrencies are called tokens. They are built on top of these base layer infrastructure coins. In fact, some people don't even think tokens should be called cryptocurrencies.
The primary tokenomic (which is a portmanteau for "token economic") model for these tokens is typically FFOL - Fundraise & Figure Out Later. I've invested in, and even worked with, those kind of projects. THEY ARE BULLSHIT.
However, from their whitepaper onward, one second-layer token project has stood out above the rest for the general soundness of their tokenomic principles. They say that "the best teachers are good students" and I hope to live up to that phrase when I design, or assist in the design of as the case may be, my own tokenomic systems.
When it comes to DeFi ecosystem projects, hands down the most impressive one out there these days with an active project is Synthetix (SNX). Nothing else even comes close. In fact, I just read an amazing op-ed on The Defiant by SNX founder Kain Warwick that outlines his view on how "to build something valuable and then add decentralisation incrementally as the project progresse[s]." That's exactly the same brew I've been drinking for years in the blockchain business. I used to get laughed out of the room by maximalists of whatever stripe. Now, however, with the success of Synthetix, that view is starting to change...
To explain myself, I’ll need to tell a little story.
I remember standing in a Seoul hotel lobby on a hot night in the summer of 2018. It was Hashed Night and there was a throng of crypto insiders at that event, all milling about trying to nosh on the premium spread provided by one of the luckiest crypto funds in the world. The guys at Hashed had somehow miraculously parlayed $600,000 into $250 million, mostly through the magic of Ethereum (ETH) and Icon (ICX) and a couple other solid winners, I'd guess. No idea what they have left these days. Back then, there were just tons of shady folk in the industry, no doubt attracted to the supposed millions of Hashed like moths to a flame. There was even a former US Olympic speed skater there that night, Lord knows what he was doing selling blockchain assets. But he had an entourage and throngs of people asking him what he, of all people, thought about crypto. Turns out he didn’t know much. He’s no longer in the industry these days.
I saw Kain Warwick all alone there at Hashed Night. He was standing up against a column with all these kinds of characters swirling about him munching on a plate of some of those primo appetizers. There was no one around him, but I knew it was him because he was wearing his project’s t-shirt. Stablecoins were the big innovation that year and @kaiynne had probably the least loved, but most innovative, of all of them. At the time, his project was called Havven and the only reason anybody had even heard of his Australian team was that they had done this quite successful massively viral airdrop campaign. But then, like all projects of that era, it listed on a couple of China-related exchanges and then its native HAV token dumped 90% or 95% or 99% or whatever it was. People didn’t care anymore.
It’s not a criticism. It’s just what tokens did back then. But that price action explains why Kain was up against the wall, all alone. I had some HAV tokens from that airdrop. I figured they’d just become worthless, like pretty much every other token from the 2017-18 bubble. But whoa, did I ever turn out to be wrong on that one!
Kain Warwick wears a t-shirt branded as Havven, the previous brand name of the Synthetix DeFi platform. Photo from CryptoMondays.
However, within a year, Mr. Warwick had completely revitalized his project. What was an also-ran back on that balmy night in Seoul in 2018 is now SNX, a top-50 token with about a $150 million market cap. How the heck did he do that? The turnaround began with 2 important decisions:
Rebranding to Synthetix (Nov 30th, 2018): The team made the critical decision to become “so much more than just a stablecoin.” And with that system redesign, Synthetix pivoted from stablecoin to Crypto Supermarket. That’s how SNX arguably became the first truly DeFi project, way back before DeFi was even a thing. In fact, the word “DeFi” is not even mentioned once in this rebranding blog post.
Establishing SNX Inflation Pool (Feb 15th, 2019): The team made the tough decision to inflate their existing token supply over the next five years by 150%. On its face, it sounded like an awful decision, especially to bitcoin maximalists and traditional finance guys, particularly occurring when it did at the deepest depths of the crypto winter. But this ultimately proved to be a very sound decision. That’s because the inflation pool “adds incentive for people to participate and contribute at an early stage in the system’s life, which is when it’s most important due to the compounding nature of network effects.” At that time, the nadir of the bear market, it was virtually impossible to get any token holder to be an active participant in your project. But get them to stake their tokens and earn some more by interacting with your platform? Boom! DeFi in the Synthetix ecosystem was off to the races.
These two very tough decisions are a big reason why SNX is now the #2 DeFi project according to Defipulse.com, which is sort of the CMC equivalent for the DeFi subsector. Oh, and in the 2 1/2 months between those two blog posts, all of a sudden “DeFi principles” became a thing to abide by. Things move fast in the digital asset industry. Real fast!
It's an inspiring turnaround for one of the best projects in the space today that still has a lot of potential to grow. Basically, once ETH2.0 is live, they will be able to run their on-chain exchange for synthetic assets on Ethereum for a fraction of the time and cost it requires these days for participants on their v1 platform.
At FinNexus, we take this story to heart as motivation for our own project. We only hope that we can build something as special and unique as what SNX has done. For sure, we'll be taking their tokenomic principles to heart when we implement our design. No, we're not forking Synthetix. We're not TRON, who actually did do that with their oikos.cash project. But we do admire the innovative usage of inflation and token incentivization schemes to reward platform participants for performing actions that are net positive for the ecosystem. I explained this in a longer Medium post, but what I wanted to take the time to highlight Synthetix, and Kain Warwick in particular, for the inspiration and the innovation that they have provided as we have continued to iterate on the FinNexus vision.
Thanks!
& PEACE ✌🏼