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1. Token Engineering: Unveiling the
Toolkit and Practical Insights
November 2023

2. ● MCF Alumni
● Worked in Web3 R&D focused on DeFi & Mech. design
● Token Engineering Academy Local Host
● Pioneer of Token Engineering as a service in MVPW
● This year:
○ Worked on Auditing of chains worth 300m++ market cap
○ Worked on creating tokenomics + business model for one
of the largest automotive companies in Asia $11.48B ++
market cap
● Love free open source software (FOSS) & knowledge sharing
initiatives
About me

3. ● What is token engineering why is it important?
● Importance of business modelling and Web3
Sustainability Loop;
● Token Engineering project process when there is no
Token;
● Parameter Selection Under Uncertainty (what to do
when there is no data to work with);
● Tokenomics auditing;
● What metrics to we look at when auditing Tokenomics
of a project;
● Conclusion
Agenda

4. ● We are dealing with complex dynamic systems
● “incentive machines with the power to get people to
do stuff by rewarding with tokens”. - Trent Mcconaghy,
Ocean Protocol
● It draws from systems, electrical, and robotics
engineering practices. It also draws from Behavioural
and Ecological Economics, AI, and Optimization.
● goal is to create reliable systems that work under
varying circumstances and to create tokenomic
systems that are exploit-proof.
● You can’t really test edge cases and potential exploits
with excel, at least without hating yourself
What is token engineering and
why is it important

5. Some of the protocols that
faced economy exploits (value
lost in billions of dollars)
Angle Protocol Circle
Harvest
Finance Merlin Labs Uniswap
Atlantis Loans Compound
Indexed
Finance
Pancake
Bunny
Venus/Blizz
LUNA fallout
AutoShark
CREAM
Finance
Inverse
Finance ParaSwap Warp Finance
Bancor DAO Maker
Iron
Bank/Alpha
Homora Ronin Network XToken
Beanstalk Deus DAO Iron Finance SafeDollar Yearn
bEarnFi
Elephant
Money Jimbo
Spartan
Protocol ZCash
BonqDAO Fei
Lodestar
Finance Terra
Build Finance
Fortress
Protocol Mango Markets Tornado Cash

6. Company Sustainability Loop (simplified)

7. Web3 Sustainability Loop (simplified) :

8. Average Token Engineering project - no defined mechanisms
For the new project:
● Ideation workshops
● Benchmarking similar solutions on the
market
● Initial mech. design
● Mathematical specification
● Simulation & iteration, iteration, iteration
● Final mech. design
● Smart contracts & testing
● If something is off, iteration iteration
iteration
● Deployment
● Maintenance == real data + iteration,
iteration iteration, new features released
in phases
Hardships:
● Market Making costs, where to launch &
how & other costs that come with
launching
● Assumptions (usually no data for the
specific use case)
● Can be slow & expensive for the founders
that need to ship something quickly with
faith in their hearts
● Requires a lot of participation from the
client/founders as well

9. Tokenomics auditing
For the already existing projects:
● Ideation and brainstorming sessions
● Benchmarking main competitors after client
inputs
● Gathering onchain data & market data
● Modelling changes of the mechanisms
● Regular meetings with the client to discuss
changes
● Simulation & iteration, iteration, iteration
● Final mech. design
● Smart contracts & testing
● If something is off, iteration iteration iteration
● Deployment
● Maintenance == real data + iteration, iteration
iteration, new features
Hardships:
● Lots of data to fetch and analyze
● Bigger risks as the project already has users
& developed subsystems such as DeFi,
Gaming, etc.
● Implementation limitations, usually has to be
divided in smaller chunks

10. Tooling used in the process:
Initial phases (brainstorming, discovery, actor
mapping):
- Tokenomics canvases (there are a lot of them)
- System/Stakeholder mapping canvases
- Competitor tables
- Causal loop diagrams
- Stock and flow diagrams
- Lots of meetings
Design & validation phase:
- Mathematics
- Excel (rarely only for validating some small
parts, results not technology)
- Python
- radCAD/cadCAD
- Machinations (useless with larger simulations)
- TokenSPICE (rarely used)

11. Tooling used in the Design &
Validation phases:
cadCAD/radCAD:
- supports Monte Carlo methods, A/B testing,
parameter sweeps & Agent Based Modelling
- It can easily be integrated with other Python
modules and data science workflows..
TokenSPICE:
- Useful for simulating EVM systems. Optimized for
Ocean protocol, rarely used in practice.
Machinations:
- Used for games , good for non-devs

12. Parameter Selection
Under Uncertainty
How to configure complex systems when there is no sufficient
information?
Values of system parameters play a crucial role as they influence the
magnitude of environmental events, user actions as well as control
mechanisms, and therefore determine the evolution of the system
How it looks:
1. System goals identification (attaching quantitative measures
to qualitative goals)
2. Control parameter identification (eg. fee rate, minting rate)
3. Environmental parameter identification (eg. price of ETH may
factor into a model)
4. Metric identification (eg. stability, liquidity, activity, etc)
5. Simulation (define scenarios, for external parameters use
data generating processes for example Poisson processes )
6. Optimal parameter selection( optimal values can be selected
based on the basins of attraction —-------> )

13. What metrics to look at when
auditing tokenomics of a project?
● Price movement, volatility, & other time series analysis of the
project & direct competition
● Volume on the exchanges: cexes, dexes
● Vesting schedules / Large unlocks & their impact
● Validator economy
● Usage of the network (are we dealing with an inactive network
that is only used for staking rewards & speculation)
● Fee structure
● User’s elasticity in terms of fees (how big are the average
transactions etc)
● Governance structure & activity
● Tokenomics mechanisms (inflation, initial distribution etc)
● Where the staking & other rewards come from
● Treasury expenditures/Direct ownership of the tokens
● Revenue, expenses
● etc.
There are also mechanism problems that the project’s team has
discovered that are not easily obtainable.

14. Conclusion
● Tokens are a superpower for funding open source
projects
● We need to focus on economic security
● people have lost their life savings in these
“experiments”
● Blockchains are data mines, use that data to inform
your decisions
● Tokenomics are not just a pie chart but a field that can
make or break chains & products we are developing in
Web3
● Let’s try and be less like the guy on the picture

15. For all additional questions, feel free to get in touch with us.
Thank you!
@mvpworkshop
Aleksandar Damjanovic
Software Engineer
Email : aleksandar.damjanovic@mvpworkshop.co
Telegram: aleksweb3
mvpworkshop mvpworkshop @mvpworkshop

16. Q&A