No one doubt about this. Firstly, Personal Computer democratized our working style, Secondly, Internet democratized our content publishing, and Thirdly, Blockchain is now democratizing our credit and capital management. We can see the analogy between Crypto bubble in 2017 and NASDAQ Internet bubble in 2000 because most of crypto and blockchain startups were lacking to build their robust business models. Thus, realist thought comes into my mind that as only very few survived after NASDAQ bubble such as Amazon, most of blockchain startups which people are now actively discussing will disappear until next growth wave raises in this industry.
Here is the capture of NASDAQ Composite Index from Google Finance for reference.
One of the interesting facts in Crypto Bubble 2017 was 50% of money flowing into this market came from consumers in Japan. Since Mt.Gox affairs became World 1st incident to get people's proactive attentions for crypto and blockchain, Japan might be "Ground Zero" for this third wave. Let's see together how it will go in future.
For this post, I wanna share my thought about "token economy" because I believe this will be nexus on blockchain industry in long term.
What's Token Economy?
Token Economy will be "A Network Effect model combined with Reward Economy and Security Economy based on P2P Fashion". What does it mean?
About "Reward Economy"
Reward Economy has affiliate mechanism for users who contributes the growth of web services and applications. Let's take the example of Uber and Airbnb. You started to use Uber. Once you invited your friends to Uber and those friends take their 1st ride in Uber, both you and your friends can get coupon of Uber such as US$20 amount. In another case, your friend invited you to use Airbnb. When you book the room on Airbnb on your summer vacation, you friend get coupon of Airbnb such as US$30. This is basic mechanism of reward economy. Marketers can maximize the viral marketing effects of their products by incentivizing their users. This looks very simple but robust marketing campaign because each potential user has their own life style and unique thoughts, thus, to personalize marketing communication message for each to motivate them to use products is impossible idea for marketers these days. And marketing econometrics for reward economy should include active user definition and base size, average revenue per user (ARPU) , and break even points of reward costs.
From token economy perspective, we define user behaviors not only on user acquisition as I mentioned about Uber or Airbnb but also service operation itself base on P2P fashion.
Steemit, a reddit with token economy, is under experiment now. Well-designed this mechanism enables startups to run their operation with smaller team size, thus, we can minimize the potential issue of bureaucracy on growth stage.
About "Security Economy"
Second one is Security Economy. This is related to IR. Most IR specialists consider market cap of the company, the stock price, the market liquidity as critical KPIs for IR. But, to me, from Token Economy perspective, IR specialists must measure the loyalty of share holders to the company, too. IR specialist does not care about this point seriously at present because shareholders are now not equal to customers of the company. ESG and SDGs are the new trend on IR, but still under development. This fact generates huge friction costs in security economy because investors for the company only care about their investment return and stock dividends. The mechanism of security economy unfortunately created the monster of mammonist.
Comments what I found on the interview article of Brian Chesky on Forbes clearly indicates the friction cost and dilemma on security economy - Here is the original article link on Forbes. The following is the quotation.
Quotes - But Chesky is not most CEOs. In addition to looking after investors, Airbnb will also measure progress with regard to four additional stakeholders: employees, guests, hosts and cities. Airbnb hopes this will ease acceptance of some unusual corporate initiatives, like asking the SEC to allow Airbnb to grant its hosts stock as if they were employees and to offer them low-cost home improvement loans. But it also reflects a desire to remain true to its communal roots.
“We essentially have the Airbnb community as a virtual seat at the table, channeled through the founders, to say what are the right things to be doing to be growing,” says Reid Hoffman, the LinkedIn cofounder and Airbnb investor.
But that sort of inclusion will only become more difficult after an IPO. Airbnb had been searching for a way to remain private forever, but after talking with Morgan Stanley in the fall of 2017, the company realized there isn’t a private path forward. Instead, it is eyeing going public in mid-2019 at the earliest. The window will be short: In 2020, a large chunk of employee stock options will expire, vaporizing their equity overnight.
Chesky is visibly squeamish when asked about going public. Too often, he says, companies lose track of the bigger picture and settle into a quarterly cadence. “The problem is some people forget they’re climbing the mountain in the first place,” he says.
About "Network Effect"
Network Effect is product feature oriented marketing mechanism to build and grow active user base on new web services and products. My very 1st time to see the well-designed network effect model is Napkin Test by Jeff Pezos.
He described Amazon Growth Strategy with a very simple but robust model.
Variety of item selections on Amazon creates better customer experiences. Thus, Amazon can get more user traffic. Such traffic attracts more sellers on the platform. This is very 1st network effect on Amazon, and once Amazon can run this positive spiral, their enlarge this cycle to the second network effect. There, growth mechanism on 1st network effects enables Amazon to build lower cost structure of their infrastructure such as picking cost and delivery cost, thus Amazon can sell their inventory with lower prices. And the lower prices will be directly connected to better customer experiences, thus, Amazon can get more traffic on their platform.
And most importantly, the greatest benefits for users on token economy is user can get capital gain through the growth of blockchain startups they get involved in. Let's take the example of Airbnb coupon case study. At this moment, the value of your Airbnb coupon is based on cash, not security. $30 worth Airbnb coupon worths exactly $30, you can use only inside or Airbnb economy, and sometimes the coupon has expiration date. But, in the future, you save some of the Airbnb token. The initial value of the token is supposed to $1 per a token. But, 3 years later, when Airbnb token is listed on Binance or other crypto exchange, the price goes up $10. So, your capital gain through your contribution on the growth of Airbnb ends upto 10x. Also, if you believe blight future of Airbnb in long term, you invest some of your assets into Airbnb ICO, too. Thus, such network effect model combined with reward economy and security economy is "Token Economy".
To me, Bitcoin looks a token economy as digital gold. So is Ethereum for dApps. But, I don't think both of them are robust ones yet. In long term, I believe entrepreneurs in blockchain industry must be "Token Economy Designer" as his primary role.