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- 1. TheToken Economy primer (updated) Andy Martin TOKEN 17-Apr-22
- 2. Source, Andy Martin 17-Apr-22 2 New World Hybrid World Old World Optimise the existing world as we automate humans with tech or enhance their performance with AI Build a digitally native new world in white space where there is no incumbent Digitise data in the old world and use this to reinvent industries in a new hybrid physical/digital world
- 3. Source, Andy Martin New World Hybrid World Old World Data New Data tradable as value is community governed digitally native New & Old Data tradable as value is community governed on the internet Old Data is locked and governed in enterprise silos Process User monetize & owns their data & creativity Process built around Users being in control of their data Automate existing enterprise processes Business Innovate White Spaces with DAO Tokenomics Reinvent legacy industry with DAO Tokenomics Optimise brown field with legacy economics 17-Apr-22 3
- 4. Source, Andy Martin 17-Apr-22 4 DAO Tokenomics – Market Fit White space ~ start ups &/or enterprises Go to market as a DAO Incumbent enterprises ~ Go To Market as a DAO Health – common conditions Gaming Collectibles Incentive Optimise the status quo Invent and reinvent markets Electric P2P & Vehicles charging Industrial Supply chains Stable coin Payments Wave 1 Wave 2 Wave 3 Health - rare conditions Carbon, emissions trading & derivatives Digitally native - stakeholder owned data born on the internet Traditional - stakeholder data locked in enterprise silos Public e-Gov Innovation Fuel High access Low access Sharing economy Economy of things Consumer Circular economy
- 5. Source, Andy Martin 5 web3 as a token economy = New internet owned by innovators and users governed by tokenomics Metaverse as a token economy = permissionless economy of connected “verses” built on tokenomics DAO Tokenomics = born digitally native economy plus monetisation of real-world data in new virtual economies 17-Apr-22
- 6. Source, Andy Martin 6 blockchain governs state of assets on the internet .. with shared values to use assets for the fair benefit of all .. by everyone in a DAO .. where “control” = “govern” = “own” In web3 user is a full member of the internet .. with rights to control access to their data .. using a wallet with tokens for ownership .. to initiate trading in the Token Economy .. members have a duty to vote .. for incentives for helpful behaviours & fair value … DAO Tokenomics 17-Apr-22
- 7. Source, Andy Martin DAO Tokenomics • State machine for ownership of tokens • Tracking provenance of who did what & when • Distributed & decentralised source of the truth Blockchain • Individual controls access to their identity, NFT, securities, utility or money • Individual initiates buying and selling Avatar Wallet NFT Value Utility SSI • Community creates a purpose, values, & rules & is then owned & controlled using tokens • Smart contracts govern trading, monetising data (NFT) governed by the data owner • Tokens govern incentives & to democratize value DAO Enterprises Go to Market as a network 7 17-Apr-22
- 8. Source, Andy Martin $ Debt funding Tokens Key Supply Distribute DeFi Marketplace Service layer replaces commercial banks to create credit Smart contract DAO aggregates (small) investors Fiat on/off ramp Smart contract matches finance to demand Smart contract Pays investor Logistics Manufacture Smart contract releases finance from escrow Digital liquidity $ $ DAO is a Networked Business 8 17-Apr-22
- 9. Source, Andy Martin Research Distribution / Wellness DeFi Marketplace Service layer replaces commercial banks to create credit Smart contract DAO aggregates (small) investors Fiat on/off ramp App Join Clinical Trial App Buy Service Clinical trial Diagnose & monitor App Buy / Sell Data Health Token $ $ Service fees NFT value NFT value DAO is automated “shareholders meeting” for a networked business Key Tokens 9 17-Apr-22
- 10. Source, Andy Martin Go to market • Network effects Products • Revenue & value Tokenomics • Incentives / DeFi Innovation Platform Governance • As a network • Network, market or industry • DAO • Zone of sovereignty/rules • Buy & sell data • Apps & wallets earn value • Fees for activity • Professional & foundation services • Store value in the market token(s) • Skill & reputation • Win-win-win • Behaviours • Composability of funding protocols • New funding / reserve model SSI + Token + DeFi + DAO = industry reinvention 10 17-Apr-22
- 11. Source, Andy Martin Collateral Earn = + + + + Asset NFT Value Utility User SSI Community DAO Funding DeFi Trade $ Govern Virtual economy The DAO Tokenomics Equation 17-Apr-22
- 12. Source, Andy Martin The DAO Tokenomics Equation 12 Key: † Regulated in the “As Is” world Collateral • Yield • Rent Community • Innovators • Users Earn • Creativity • Behaviour Value • Access • Incentive = + + + + Asset • Derivative • AI-generated Funding • Gamified • Composable User • Anon. • KYC† Govern • Marketplace • Library NFT Utility SSI DAO DeFi $ … or real-world abstraction† Digitally native Virtual economy Trade • Buy-sell • Lend-borrow Govern • Marketplace • Library 17-Apr-22
- 13. Source, Andy Martin Distributed & decentralized governance & ownership Open-neutral “Verifies” Win-win-win “Digital” Data owner, innovator & platform Market data Platform power Identity Incentive Liquidity Monetisation Central governance & ownership Lock-in “Controls” Winner takes all “Analogue” Platform Web 2.0 web3 Token economy – what’s different? 13 17-Apr-22
- 14. Source, Andy Martin Token economy – what is the problem solved? No trusted data without giving market power to a central database No digitally native payments on the internet Lack of democracy of owning & accessing data & services Starting with our own digital identities 14 Slow manual & costly B2B ecosystem Reconciliation post trade Paper, highly inefficient manual B2B2C processes Cost of compliance & disputes in shared B2B transaction High cost of Intermediaries e.g., in payments Lack of visibility & Transparency In asset ownership Barriers to entry in Trading new (e.g., Illiquid) asset classes Lack of liquidity in moving assets High cost of servicing Assets X deep chains of custody 17-Apr-22
- 15. Source, Andy Martin Web3: Token Economy governance is managed by the token holder in a fair and democratic way Apps DAO Wallet Ledgers Tokens 15 17-Apr-22
- 16. Source, Andy Martin Web3: Token Economy governance is managed by the token holder in a fair and democratic way Apps DAO Wallet Ledgers Tokens Users owns, that is manages or controls access to their data and the process to update its state Manages private keys where ownership of 100’s of tokens can be accessed & atomic swaps initiated Manages business model of value exchange (atomic swaps) of tokens for ownership or access for tokens for value Tokens are used for fund raising, ownership and decision making by token holders as the value is managed for collective win:win:win outcomes Tokens are used as rewards for helpful behaviour in providing the ledger updates & platform resources 16 17-Apr-22
- 17. Source, Andy Martin Wallet –It is the user interface layer where ownership of 100’s of tokens can be accessed, and atomic swaps initiated Apps –Many different businesses can be built on each network. App logic governs trading of tokens and are used to incentivise behaviour and denote ownership inside the app. DAO –This is the B2B2C value chain of economic actors (“the community”) who don’t need to trust each other assembled to support complex tokens. This is a marketplace and has its own marketplace token that is used for payments but also governance by way of voting and access and staking rights and duties and critically as an incentive for better collective outcomes. Internet of ledgers –Govern the activity such as atomic swaps of tokens in the network. Tokens are used to pay those who maintain the infrastructure by providing bandwidth and storage and to order and validate the ledgers DAO is a marketplace …. 17 17-Apr-22
- 18. Source, Andy Martin Quadruple entry system Buyer Purchases AP GL Inventory Seller Sales Inventory GL AR Wallet Smart contract Shared data API Journals Journals Shared process Private process Key 18 17-Apr-22
- 19. Source, Andy Martin Token economy Process Wallet Data Process Wallet Data Process Wallet Data Distributors Logistics Inventory Sales Private Inventory Purchasing Private Billing Shipping Private Shared Shared Shared $ Suppliers fees Service Providers API API API Key Artificial intelligence Internet of things 19 17-Apr-22
- 20. Source, Andy Martin Governance model levels 20 Governance Apps. •Trading •Regulation •Payments •Global trade •Trade finance •Provenance •Patient ID •Clinical trials •Supply chain Business networks DAO Wallet Access Internet of ledgers $ X-chain + + Finance Supply chain Health NFT Value Utility SSI Security 17-Apr-22
- 21. Source, Andy Martin DAO’s Business model has 3 parts • Economic model, incentives, disincentives & behaviour changes • Governance model, how decisions are made on-chain via tokens & voting or off-chain & guiding principles of fair, democratic & open • Commercial model, of monetisation & fees Business model Providers Benefits Incentive Behaviours Openness Commercial Co-opetition Govern Decentralise Monetise Funding Democracy Trade, trust & ownership Key: Token liquidity 21 17-Apr-22
- 22. Source, Andy Martin Token economy – where to start? Automotive Banking Energy & Utilities Telco Distribution/Consumer Travel & transport Identity Provenance & visibility Ecosystem reconciliation Tokenisation Value exchange •Vehicle ID •Vehicle lifecycle •Supply chain visibility •Vehicle leasing •Car eWallet •Financial settlements •KYC/KYT •Collateral mgt. •Post trade •Issue, custody & service •Payments •Usage on a singular entity •Cybersecurity device provenance •Grid balancing •Renewable energy credits •Peer to peer trading •Mobile security •Supply chain mgt. •Roaming, fraud & overage mgt. •Digital services enabler •Platform services marketplace •KYB / KYS / SSI •Anti-counterfeit •Disputes mgt. •Post trade •Circular & sustainable economy •Engagement e.g., recycling & loyalty •Passenger •Baggage handling •Multimodal tickets •Loyalty X-industry •Travel marketplace 22 17-Apr-22
- 23. Source, Andy Martin Token economy – a strategic framework Incentives & token design App. Co-opetition Collaborative Value Differentiating Value Identity Provenance & visibility Value exchange Private data Private process Strategy Optimize existing markets Reinvent markets Experiment in markets DAO Tools Network Join Build Extend Network effects Platform Public Private Composite Technical services Roadmap 23 17-Apr-22
- 24. Source, Andy Martin DAO on-chain bookkeeping Andy Martin NFT Value Utility 24 17-Apr-22
- 25. Source, Andy Martin Six areas of on-chain entries (1 of 4) Key Items in italics are included in the following charts 1. Funding & reserves Issue (on ramp from fiat) Collateral (raised from banks) Reserve fund (manage XR to fiat) Redeem (off ramp to fiat) 2. Governance/voting Decision making Incentive (e.g., for helpful behaviours) Release funds to app. projects Finance member operations 3. Financing Staking for DeFi creating credit & earning yield 4. Ledger level Fee (for maintaining the ledger) 5. Apps level Stake (right to develop app.) App fee (paid by customer) Fees share (to DAO) 6. Data monetisation Access (fee paid to access data) Fee share (to data owner & DAO) 25 17-Apr-22
- 26. Source, Andy Martin All fee, access and stake value settlement in (utility) tokens Outflow Inflow Key DAO entity Issue1 Data queries Access6 Data owners Fee share6 Fee share6 Innovators apps Stake5 App fee5 Access6 Validate & order Fee4 Fee share5 Redeem1 Reserve fund1 Collateral1 Six areas of on-chain entries (2 of 4) 26 17-Apr-22
- 27. Source, Andy Martin DAO entity Data owners Data queries Innovators apps Validate & order Value flow Tokens & Reserve fund Apps Data Outflow Redeem1 - - - - Inflow Issue1 - - - - Inflow Fee share5 - - App fee5 - Outflow - - - Stake5 - Inflow Fee share6 Fee share6 - - Fee4 Outflow - - Access6 - All fee, access and stake value settlement in (utility) tokens Outflow Inflow Key Access6 Six areas of on-chain entries (3 of 4) 27 17-Apr-22
- 28. Source, Andy Martin DAO Token Economy Data owners Validate and order Basic services Identity5 Provenance5 Payments5 Collaboration benefits Fee share6 Marketplace Buy/sell data6 Innovator apps5 Fee4 value data data value Data queriers Collaboration benefits value data Innovators Collaboration benefits value data Crypto - fiat Reserve fund1 Customer & economic actors Demand value Service Key Value flow in marketplace token Data is tokenized (NFT) Six areas of on-chain entries (4 of 4) 28 17-Apr-22
- 29. TOKEN 5 Laws Token Economy Andy Martin
- 30. Source, Andy Martin 30 • Law 1: Value by buying and selling of data tokenised into digital assets • Law 2: Networked businesses’ token stores this new value created by DAO members’ innovation • Law 3: Total value created increases through optimisation, network effects & synergies • Law 4: Behaviours governed by the token are at the level of the wallet, App, DAO & ledger • Law 5: Token value designed to stay inside DAO, but may be converted to fiat 5 Laws of the Token Economy business model design 17-Apr-22
- 31. Source, Andy Martin DAO Token Economy Data owners Validate and order Basic services Identity5 Provenance5 Payments5 Collaboration benefits Fee share6 Marketplace Buy/sell data6 Innovator apps5 Fee4 value data data value Data queriers Collaboration benefits value data Innovators Collaboration benefits value data Crypto - fiat Reserve fund1 Customer & economic actors Demand value Service Key Value flow in marketplace token Data is tokenized (NFT) Law 1: Value by buying and selling of data tokenised into digital assets 31 17-Apr-22
- 32. Source, Andy Martin $ Debt funding Tokens Key Supply Distribute DeFi Marketplace Service layer replaces commercial banks to create credit Smart contract DAO: Aggregate (small) investors Smart contract matches finance to demand Smart contract Pays investor Logistics Manufacture Smart contract releases finance from escrow Digital liquidity $ $ Law 2: Networked businesses’ token stores this new value created by DAO members’ innovation 32 17-Apr-22
- 33. Source, Andy Martin Law 4: Behaviours governed by the token are at the level of the wallet, App, DAO & ledger 33 Governance Apps. •Trading •Regulation •Payments •Global trade •Trade finance •Provenance •Patient ID •Clinical trials •Supply chain Business networks DAO Wallet Access Internet of ledgers $ X-chain + + Finance Supply chain Health NFT Value Utility SSI Security 17-Apr-22
- 34. Source, Andy Martin All fee, access and stake value settlement in (utility) tokens Outflow Inflow Key DAO entity Issue1 Data queries Access6 Data owners Fee share6 Fee share6 Innovators apps Stake5 App fee5 Access6 Validate & order Fee4 Fee share5 Redeem1 Reserve fund1 Collateral1 Source, Andy Martin Law 5: Token value designed to stay inside DAO, but may be converted to fiat (1 of 2) 34 17-Apr-22
- 35. Source, Andy Martin DAO entity Data owners Data queries Innovators apps Validate & order Value flow Tokens & Reserve fund Apps Data Outflow Redeem1 - - - - Inflow Issue1 - - - - Inflow Fee share5 - - App fee5 - Outflow - - - Stake5 - Inflow Fee share6 Fee share6 - - Fee4 Outflow - - Access6 - All fee, access and stake value settlement in (utility) tokens Outflow Inflow Key Access6 Source, Andy Martin Law 5: Token value designed to stay inside DAO, but may be converted to fiat (2 of 2) 35 17-Apr-22
- 36. Source, Andy Martin References Martin, Andy, The Token Economy (October 16, 2021). Available at SSRN: https://ssrn.com/abstract=3972111 or http://dx.doi.org/10.2139/ ssrn.3972111 Martin, Andy, 5 Laws of Tokenomics (January 26, 2022). Available at SSRN: https://ssrn.com/abstract=4018141 or http://dx.doi.org/10.2139/ ssrn.4018141 36 17-Apr-22
Editor's Notes
- DAO Tokenomics is used to fairly govern communities so that their assets can be best used to democratically create value for all.
- DAO: a digital organization built on top of a Blockchain, with an open and shared balance sheet, core rules on-chain (scripts), and collective ownership through fungible tokens. DeFi (Decentralized Finance): finance services, like borrowing, lending, currency exchange, provided by scripts on top of a Blockchain, removing thus the bank intermediary Metaverse = experience Web3 = community NFT = ownership Wallet = identity Crypto = money / value Blockchain = infrastructure
- Blockchain - rewrites and codifies the economics of trade but only when the cost and time required to establish that trust and ownership is at or below a tipping point per transaction. Imagine when central banks issue CBDC then all of the costs of commercial banks, to create credit, can be replaced by blockchain’s automated distributed, decentralized finance as a new service layer. That surely changes the economic model a lot in favour of blockchain. What then becomes critical is who owns the consumer facing wallet infrastructures? For example in an economy of intelligent “things” trading with other intelligent “things” this layer becomes a wallet held on hardware chip in the device.
- financial services new unbundling and reintermediation opportunities of collateral management enabled by global access to liquidity. The DAO is the automated “shareholders meeting” for these new networked business” but change “share” to “token”. In my picture we have direct token ownership (the new decentralised equity) and it’s leveraged version through DeFi (the new decentralised debt) DAO: a digital organization built on top of a Blockchain, with an open and shared balance sheet, core rules on-chain (scripts), and collective ownership through fungible tokens.
- add in the 2nd row “Products & Services” / “Buy-Sell data & services” “Apps & Personal Wallets earning fees & payments” / “fees for activities, professional services & foundation services” / “Store value in the market (tokens) + store experience & worth (Reputation Tokens) When a CEO is measured on EPS and the network DAO’s tokens performance
- Charlie Northrup’s multi-key and digital agent model will allow for that. My material applies to the Internet of Value, the metaverse, and any p2p implementation as well - none of which are limited to the Web.
- Charlie Northrup’s multi-key and digital agent model will allow for that. My material applies to the Internet of Value, the metaverse, and any p2p implementation as well - none of which are limited to the Web.
- *blockchain as a structural concept* for business models/processes. For this you need an economic model with a token that has to have value and liquidity in the real world. This has unfortunately proven to be the Achilles heel in recent times, when we see single individuals being able to influence and manipulate the value of the said tokens, to unacceptable degrees. Decentralization of network has, in effect, given rise a Centralization of influence. Also, this has become the convenient stick with which the regulators and governments, afraid to lose their power over their monetary systems, have been beating back this inevitable revolution. Incentives and disincentives are primarily for influencing behavior on-chain as well as off-chain. This behavior should promote multi-stakeholders collaboration on the network giving rise to opportunities for monetisation. So, incentives and disincentives are indirectly related to monetisation.
- In my view a neutral ground where data can freely interoperate, in a standardized format, be exchanged instantaneously and priced with real-time settlement, is a critical element to realize this vision. A real cloud so to say. Where users retain control and sovereignity over their data. As timestamp sever the blockchain provides the structuring of data and hierarchy in order to index, screen and audit the exponentially growing amounts of data more easily. Bottom line in is the blockchain is the missing piece for many visions we have, including AI, the datacosm and the metanet.
- Blockchain - rewrites and codifies the economics of trade but only when the cost and time required to establish that trust and ownership is at or below a tipping point per transaction. Imagine when central banks issue CBDC then all of the costs of commercial banks, to create credit, can be replaced by blockchain’s automated distributed, decentralized finance as a new service layer. That surely changes the economic model a lot in favour of blockchain. What then becomes critical is who owns the consumer facing wallet infrastructures? For example in an economy of intelligent “things” trading with other intelligent “things” this layer becomes a wallet held on hardware chip in the device.
- In my view a neutral ground where data can freely interoperate, in a standardized format, be exchanged instantaneously and priced with real-time settlement, is a critical element to realize this vision. A real cloud so to say. Where users retain control and sovereignity over their data. As timestamp sever the blockchain provides the structuring of data and hierarchy in order to index, screen and audit the exponentially growing amounts of data more easily. Bottom line in is the blockchain is the missing piece for many visions we have, including AI, the datacosm and the metanet.