Forkast

Episode 6 - The rise of Tokenomics

Episode 6 of Tokenize the World. Host Angie Lau, Editor-In-Chief of Forkast, asked Henry what the fundamental difference is between Tokenomics and Economics. Henry explains the importance of Tokenomics to the digital community and how it is mission critical to blockchain.

Tokenomics rather than plain, old economics is a phrase that's become increasingly common with the rise of the crypto economy. But what is the fundamental difference between tokenomics and economics?

How important tokenomics is to the digital community and why?

Tokenomics is absolutely missioncritical to blockchain-based assets. Unlike traditional securities (equities,bonds, funds etc) where you have an intrinsic value anchor, with pure ICOs orutility tokens you don't have any of that. There is no intrinsic value andtherefore the hundred percent of the value in the token is because of the tokeneconomics associated with it. And the crypto and blockchain-based markets areextremely innovative in designing token economics that power a network andcapture value from that network. If lots and lots of people use a blockchain protocolfor example, it will have a lot of value. But the question is, how toincentivize people to come and use this network?

Incentive structures are the coreinnovations of tokenomics. If you look at like Bitcoin and Ethereum for example,it’s not just about the technology layer, but how they use a native token, atoken that sits endogenously on the blockchain, to incentivize developers and earlyadopters of the blockchain protocol, because they came early before the networkhas really scaled and direct value. This is the single reason that has driventhe blockchain world so fast and so quickly: token economics.

How does the tokenomics of equity tokens differ from utility tokens?

The future of blockchain assets is tohybridize the world of traditional securities and this exciting world ofblockchain-based tokens. There's no reason why you can't do both. I do thinkthat it helps when you have a token with the value anchor.  For example, each equity token directlyrepresents shares in the company, so by holding a token you become a registeredshareholder of the company.

 

How do you see tokenomics evolving to the point where it is part of the common vernacular?

Tokenomics is here to stay because itis based on the same kind of fundamental economic principles and incentivesthat powers our capitalist economy. The real difference is that, number one,it's obviously digital and people can start to dothings programmatically with tokens. Number two, people are starting to usethese tokens to get networks off the ground and incentivize people toparticipate in a network way earlier than they ever could before.

The real promise of Web3 is byhybridizing equity and token, so that investors don't need to worry whether thevalue is getting captured at the token layer because of the network effects, orwhether the value is getting captured by the company as equity. An equity tokenrepresents all of it and by buying into it, investors can buy into both thecompany and the promise of the network around the company.

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