After the initial hype of cryptocurrency and blockchain, the market’s excitement has been tempered a bit. But a new kind of business model is still emerging thanks to that technology: tokenomics.
Tokenomics—which, as you can guess by the name refers to economy based on “tokens,”—is the model that every startup is trying to adapt to their business. But is it really the future of commerce, or just another failed idea that will lead to consumers’ disinterest?
Let’s roll back a little and take a look at what this actually is.
What are tokenomics?
Before asking that question, we must answer what are tokens themselves. It’s not hard to explain, as they’re basically just another word for “cryptocurrency.” Bitcoin, for example, is a token. The difference is that it acts as a universal currency for all kinds of transactions across the globe.
Tokenomics, on the other hand, refer more specifically to tokens that are issued by a company and then used exclusively for the services that that same company—or others involved– offers.
“Some companies see their mission in creating an ecosystem with their own cryptocurrency,” explains Qvolta in an official statement, a company that functions as a wallet for Bitcoin and Ethereum. “In such cases, tokens become the core of the project. In these projects, the creators conceive the condition that users must use their tokens. People can take full advantage of platforms only when they take part in the turnover of tokens.”
The idea is for users to buy tokens, then use them to purchase services or simply operate inside of that closed ecosystem. The tokens serve as “the main link of all operations within the platform.”
Think of it as a videogame: you put in real money and get virtual, in-game currency in return to spend inside that game, and that game only. The difference with tokens is that you’re spending them on actual, real-life services.
Are there any benefits?
There are certainly some we can mention. While Qvolta claims that tokenomics are an all-round good thing, calling them innovative, convenient and effective.
Indeed, there are benefits. Companies for example can a have much more seamless operations thanks to a full-on integration with their own currency. They also eliminate any barriers present on conventional exchange operations, particularly in the case of cross-border transactions. A good example of this is Concierge, a travel startup we’ve talked about before that offers tokens as a decentralized way of doing tourism.
However, there are other considerations that must be taken into effect. While it’s true that Tokenomics are less dependable on the environment’s conditions, they also run the risk of fragmenting markets, leading to broad inconveniences for the ones that really matter—the consumers.
As they’re gaining coverage, economics based on tokens are also starting to receive more categorization. William Mougayar, author, investor and Blockchain theorist & strategist, came up with three tenants for the token utility: Role, Feature and Purpose.
Each role has a key purpose. Mougayar despicts this in another chart:
Mougayar also talks about several other aspects of launching a token economy. “Owning a token bestows a right that results in product usage, a governance action, a given contribution, voting, or plain access to the product or market,” he explains, regarding the rights of using tokens. “In some cases, tokens will grant real ownership.”
Right now, many startups are flowing the market with their own tokenomics. Time will tell if they will prove to be convenient for consumers and companies, or fragmentation will be a problem as previously mentioned. The sure thing is that blockchain technology doesn’t start or end here.