Forkast
The Rise of Tokenomics
Tokenize the World Episode 6 - 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 mission critical to blockchain-based assets. Unlike traditional securities (equities, bonds, funds etc) where you have an intrinsic value anchor, with pure ICOs or utility tokens you don't have any of that. There is no intrinsic value and therefore the hundred percent of the value in the token is because of the tokeneconomics associated with it. And the crypto and blockchain-based markets are extremely innovative in designing token economics that power a network and capture value from that network. If lots and lots of people use a blockchain protocol for example, it will have a lot of value. But the question is, how to incentivize people to come and use this network?
Incentive structures are the core innovations 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, a token that sits endogenously on the blockchain, to incentivize developers and early adopters of the blockchain protocol, because they came early before the network has really scaled and direct value. This is the single reason that has driven the 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 to hybridize the world of traditional securities and this exciting world of blockchain-based tokens (equity tokens, debt tokens, fund tokens...). There's no reason why you can't do both. I do think that it helps when you have a token with the value anchor. For example, each equity token directly represents shares in the company, so by holding a token you become a registered shareholder 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 it is based on the same kind of fundamental economic principles and incentives that powers our capitalist economy. The real difference is that, number one, it's obviously digital and people can start to do things programmatically with tokens. Number two, people are starting to use these tokens to get networks off the ground and incentivize people to participate in a network way earlier than they ever could before.
The real promise of Web3 is by hybridizing equity and token, so that investors don't need to worry whether the value is getting captured at the token layer because of the network effects, or whether the value is getting captured by the company as equity. An equity token represents all of it and by buying into it, investors can buy into both th ecompany and the promise of the network around the company.
