From a language standpoint, Tokenomics is a word play between token and economics. From a conceptual stand point, though, Tokenomics is a concept that deals with the world of tokens.
Where does that world exist exactly?
Not just the Metaverse, as many might think.
Tokens, in the crypto space (such as Metaverse), refer to digital assets. Yet if they do not serve a practical value in the real-world they would not be useful. Thus the world of Tokenomics is born where the Tokens not only deal with digital assets in pseudo spaces (such as Metaverse), they also serve a representative value (such as ownership, rights, credentials, abilities etc.) in the real-world.
In the simplest sense, tokens are digital units with value. While crypto-coins are often treated as currency, tokens are units that represent anything of value. For example, tokens can represent voting rights and can exist on more than one blockchain. Tokens can also represent loyalty points, stocks, gold certificates, fiat currencies, art, music, and other assets of perceived value.
In the real-world context, tokens can be compared to things that hold a perceived value such as: Sports club memberships, movie tickets, and driver’s licenses etc.
Leveraging Tokenomics in a business involves the study of all factors surrounding tokens: from the factors that impact tokens to their creation (minting), distribution, valuation and destruction (burning) every aspect of tokens is carefully studied and designed specifically to meet the business use-cases in question.
The incentivization factor of Tokenomics makes it attractive to businesses. Incentives are attractive offerings that hold value for the recipient; so are tokens. This incentivization factor is fundamental to Tokenomics. It is also the factor that makes it a potential asset for businesses. Organizations can derive benefits from well-designed Tokenomics-based projects.
To give an example consider this scenario: a business can issue a token for the purchase of products on its platform. The business can also announce special discounts or other offers for customers buying the products or services using their tokens.
Tokens present businesses with a potential opportunity that allows them to be more in control of their operational model. With Tokenomics, businesses can use tokens to change the way customers interact with their products/ services. Tokenomics can also help ensure that the profit is shared among all stakeholders. In particular, businesses can:
Tokenomics assesses the technical value of a token. In addition, it evaluates the psychological and behavioral factors that drive the token’s success in the long term.
With a well-designed Tokenomics study, businesses can develop digital assets that truly address their customers’ needs.
Tokens are only as valuable as the products/ services they represent. Businesses can develop decentralized marketplaces (many businesses already do) where customers can leverage their tokens. Customers can trade their tokens for the products/ services offered by businesses on these marketplaces.
Customers can be made a part of the profits accrued on the platforms. This can be done by distributing the financial benefits derived from the platform. For example, businesses could offer customers dividends on their tokenized transactions.
Such measures lead to increased customer loyalty. Tokenomics offers a medium to facilitate such customer-friendly business models.
Tokens offer businesses an easier and more transparent way to raise funds. Businesses can sell their tokens to interested investors directly, to raise funds. Token sales are executed through an ICO or Initial Coin Offering. ICOs are becoming a preferred way for businesses to raise funds.
The concept of 'Token Economy' as explored by B.F. Skinner, positive reinforcements and incentivization can help control social behavior. This social applicability can be mimicked in business too. As tokens represent incentivization, they can be used as an opportunity to improve businesses and their customer relationships.
As a science that deals with everything token-related, Tokenomics is here to stay.
Reach out for a free consulting session on how GK Palem can translate your business vision into product roadmaps, technology architectures and build an MVP with optimal cost, time and resources in the Metaverse, NFT, Tokenomics, and Blockchain space.
Gopalakrishna Palem is Startup Consultant with more than 2 decades of experience in building Enterprise Solutions and MVP using Postgres, NoSQL, FIDO2, DID, Blockchain Development, Artificial Intelligence, IOT, Open Source, CarMusTy, CFugue, C/C++ Music Library, Carnatic Music, Song, Notation, MIDI, Typesetting, PDF, Books, Maya, Visual Effects, DirectX, OpenGL, Simulation, Predictive Analytics, Big Data, M2M Telematics, Predictive Maintenance, Condition-based Maintenance, Research, Cryptography, Distributed Ledgers. He is a Mentor for PhD scholars and is a CTO for Hire, Consulting CTO for MVP Building, CTO for Startups, providing CTO as a Service, Virtual CTO and CTO Advisory Services.