Tokenomics refers to the economics of blockchain-based tokens and cryptocurrencies. It involves determining parameters for initial coin offerings (ICOs) like the total number of tokens and allocation percentages. Key considerations include incentivizing token value appreciation and controlling inflation/volatility. A good tokenomics model provides protection from speculation while establishing the right incentive structures to support the business model and usability. Agent-based modeling can help evaluate different tokenomic designs by simulating user and business behaviors.

1. Tokenomics
AND WHY THEY ARE NEEDED

2. Blockchain
One of the hotest buzzwords in tech
◦ Alongside AI and big data
Bitcoin ledger started in 2009
Ethereum in 2015
And now ICOs have raised billions of $
https://coinmarketcap.com/

3. What is an ICO?
Sell tokens in exchange for bitcoin and ether
Allows the creation of artificial economies
◦ Arbitrary incentives
Filecoin
◦ Tokens represent MB in hard drive space
Environmental tech startups
◦ Rewarded with tokens for producing clean energy
Health apps
◦ Rewarded with tokens for healthy activities

4. Types of tokens
Security tokens
◦ Assets such as participation in
◦ real physical underlyings,
◦ dividends.
◦ Analogous to equities, bonds or derivatives.
Utility tokens
◦ This category provides access to the goods & services provided by the project
◦ Discount or premium access to the goods & services of the project.

5. Tokenomics
Or cryptoeconomics
What numbers to use for the ICO?
◦ E.g. number of tokens issued
◦ % spent on a bounty program
Will a token appreciate in value?
◦ Incentive for investors
Controlling the economy
◦ Inflation
◦ Volatility
User incentives
◦ Is my coin just a replacement for fiat?

6. Common fallacies
Using tokens as a replacement for fiat
◦ E.g. e-commerce
Burning tokens permanently
◦ Long-term viability?
◦ Maybe re-buy or re-issue tokens?
Wrong auction mechanism
◦ GNOSIS (https://vitalik.ca/general/2017/06/09/sales.html)
◦ 90% of the tokens were not sold

7. Other considerations
ICOs
◦ Hard cap or soft cap
◦ 100 million or 1 billion tokens
◦ Reserve around 20-25% for the founders
◦ Bounty programs (e.g. 5%)
◦ ERC20 compliant (can be exchanged on Ethereum)
Legal issues
◦ SEC
◦ Security tokens are not allowed in the US

8. Agent based modelling
Model individual agents and their interactions
E.g. each user is an agent
Agents can buy and sell services/tokens
The business is an agent
◦ Can issue tokens
◦ Control the provision of services
http://thedatascientist.com/agent-based-modelling-tokenomics/

9. So, what makes a good tokenomics
model?
The following:
1. ICO parameters
◦ Important but not the critical factor
2. Protection against incidents
◦ Wild speculation
◦ Volatility (e.g. what happens if Ethereum or Bitcoin crash?)
3. Right incentive structure
◦ Very important (usability and business model)

10. Summary
Tokenomics is new as a discipline
Economics v2.0
◦ Easier to collect data
◦ Easier to manipulate the business
◦ Less critical
Green-field
◦ No standards
◦ No example of ICO business that are around for 10 years!
◦ Tools such as as agent based modelling can mitigate some of the risk

11. Learn more
Tesseract Academy
◦ http://tesseract.academy
◦ https://youtu.be/XzFwzP5VpTM
◦ Data science, big data and blockchain for executives and managers.
The Data scientist
◦ Personal blog
◦ Covers data science, analytics, blockchain, tokenomics and many more subjects
◦ http://thedatascientist.com/tokenomics/
◦ http://thedatascientist.com/agent-based-modelling-tokenomics/