Tokenomics

In this course we will discuss what tokenomics is and how to correctly implement it for your project. Something that might be helpful is to think of tokenomics as the economics of your token (token + economics = tokenomics).

For the sake of not making the course vague, we will be discussing tokenomics for a project that wants to use a token to create and manage an apartment complex.

What is tokenomics?

Tokenomics is a study of how your token will perform in an open market. It is the most important aspect of your project that should be considered before you start developing your project. It is also the most overlooked aspect of a project.

Why is tokenomics important?

Tokenomics form the foundation of your project. It can be thought of as the business-model of your project. If you have a strong business-model, you have a better chance of succeeding.

How do we implement tokenomics?

Tokenomics have many different aspects to it. In this course we will discuss the following:

1. Token design
2. Economic models and incentives
3. Token distribution and initial offerings
4. Governance

Token design

When designing a token, you have to consider what you want to achieve with your token. Do you want to create a token that is used within its own ecosystem? Do you want to create a token that is used to represent ownership in an asset? Or maybe your token is used to represent a share in a company?

These questions can be categorized into 3 main types of tokens:

1. Utility tokens
2. Security tokens
3. Governance tokens

Utility tokens

Utility tokens are tokens that are used to access a product or service. They are usually used within their own ecosystem or to promote the use of the platform's product or service.

For example, the Brave browser has a token called BAT (Basic Attention Token). This token is used to reward users for viewing ads. The BAT token is used to promote the use of the Brave browser and to reward users for viewing ads curated by the Brave platform.

Security tokens

Security tokens are tokens that represent ownership in an asset. These assets can be real world assets like property or they can be digital assets like digital art.

For example, the NBA has partnered with Dapper Labs to create a digital collectible platform called NBA Top Shot. The digital collectibles are called "Moments" and are represented by a token called "NBA Top Shot Moments". These tokens are used to represent ownership of the digital collectible.

Governance tokens

Governance tokens are tokens that are used to govern a platform. They are usually used to vote on proposals that will affect the platform. This kind of token can also be seen as a "share" in the platform as it gives the token holder voting rights.

For example, the Balancer platform has a token called BAL. This token is used to vote on proposals that will affect the Balancer platform.

Sometimes a token can be a combination of the above mentioned token types. For example, the BAL token is a combination of a utility token and a governance token. The BAL token is used to vote on proposals that will affect the Balancer platform and it is also used to reward users for providing liquidity to the Balancer platform.

In our example, we will be choosing a security token as we want to use our token to represent ownership in an asset (one of the apartments in the complex). We will create our token as an NFT (Non-Fungible Token) as we want each token to represent ownership of a specific apartment.

Economic models and incentives

There really isn't any one-size-fits-all economic model. The economic model you choose will depend on what you want to achieve with your project. Instead of discussing types of models, we will explore which questions you must ask yourself to determine how you should design your economic model.

Who will be using your token?

You have to understand who your stakeholders will be. What does your platform do? Who will be using your platform?

In our example, our stakeholders will be the people who want to own an apartment (or part of an apartment) in the complex. They will be using our platform to buy and sell apartments.

How can we incentivize our stakeholders to use (and continue to use) our platform?

Once you have identified your stakeholders, you have to consider how you can incentivize them to use your platform. What will they get out of using your platform? What will they get out of holding your token?

There are various ways to incentivize your project. Some projects turn to airdrops for early adoption. Some projects turn to staking to incentivize their stakeholders to hold their token. Some projects turn to a combination of both.

You can really get creative here, as long as you make sure that whatever you are doing is sustainable and will benefit both your platform and the stakeholders.

In our example, we will be incentivizing our stakeholders by giving them ownership of an apartment or a part of an apartment in the complex. If the apartment is rented out, the owners will receive their payouts in the form of USD tokens. They will also be able to sell their apartment to someone else if they want to.

How will the platform generate revenue?

You have to consider how your platform will generate revenue. As initially raised funds will be used to develop the platform, you have to consider how the platform will generate revenue to sustain itself.

In our example, the platform will aim to have an initial offering to cover start-up expenses. The platform will also generate revenue by taking a percentage of the rent that is paid by the tenants. The platform will also generate revenue by taking a percentage of the sale of an apartment.

Token distribution and initial offerings

These topics are closely related to the economic model you choose. You have to consider how you will distribute your tokens and how you will raise funds for your project.

How will you distribute your tokens?

Deciding how you want to distribute your tokens will depend heavily on your economic model and the stakeholders you have.

You will have to consider the following:

• How many tokens will you create?
• How many tokens will be held by the team?
• How many tokens will be distributed via an initial offering?
• How many tokens will be distributed to the community via staking? (if any)
• How many tokens will be distributed to the community via airdrops? (if any)

In our example, we will be creating 10 NFT tokens per apartment. Let's assume we have 10 apartments in our complex. We will be selling all of the tokens in an Initial Offering. No tokens will be held by the team and no tokens will be distributed via staking or airdrops.

As our example diagram will not be THAT exciting, here is an example of what a random project's distribution diagram would look like:

How will you raise funds for your project?

There are different ways to raise funds for your project, including:

1. Initial Coin Offering (ICO)
2. Private Funding

In our example, we will be raising funds via a kind of Initial Coin Offering (ICO) that is similar to how properties are sold in the real world.

What will you do with the funds you raise?

Again, this will depend on multiple factors as not all projects will have the same needs. Maybe you already have a working product and you just need funds to expand your business. Or maybe you need funds to develop your product.

In our example, we will be using the funds to develop the apartment complex, which includes the development of the apartments and the development of the platform that will be used to manage the apartments. We will also use the funds to pay for the legal fees and other costs associated with the development of the apartment complex.

Governance

Governance is an important aspect of the project as this will determine how the project will be managed. How exactly you manage your project will mostly depend on who the stakeholders are and what they want to achieve with the project.

Types of governance

There are two main types of governance:

1. Centralized governance
2. Decentralized governance

Centralized governance is the most common type of governance. In this type of governance, the project is managed by a central entity. This entity can be a company or a group of people. The entity will make all the decisions regarding the project.

Decentralized governance is a type of governance where the project is managed by the community. The community will make all the decisions regarding the project. This type of governance is usually implemented via a DAO (Decentralized Autonomous Organization).

In our example, we will let the owners of the apartments vote on proposals that will affect the apartment complex. For example, if the owners want to change the fee structure of the apartment complex, they will be able to vote on it. One token will equal one vote, meaning if you have more tokens, you will have more voting power.

Conclusion

Implementing tokenomics is the most important first step you have to take when starting a project. It will determine the trajectory of your project and will help you make better decisions regarding your project. It's important to always revisit it and make changes if necessary.

Disclaimer: The model we generated as an example is by no means a perfect example and is not intended for use as a real world example. It is merely an example to help you understand how to implement tokenomics for your project.