This article discusses several aspects to consider when designing a sound token model.

Author: @dberenzon

Translation: Blockchain in Plain Language

The token model is a framework for designing and managing digital assets, aimed at generating long-term value through fair allocation and incentive mechanisms. Key elements include preventing Sybil attacks, designing effective incentive mechanisms (such as staking rewards, buyback and burn), managing circulation and fully diluted valuation (FDV), and ensuring the utility and flexibility of the token. Data-driven decisions can optimize token allocation, maximizing market value and user engagement.

Below are some reflections shared by @dberenzon on the design of a good token:

1) A good token model is one that can generate a wealth effect.

2) Even if your token has limited functionality, it can still have significant value if it is placed in the right hands early on.

3) The current problem is that Sybil attacks make projects very difficult, which is one of the biggest unresolved issues in our industry.

4) In response, more and more projects are using creative point systems to incentivize long-term holders and maintain network distribution.

5) Low circulation/high fully diluted valuation (FDV) is a real problem, as projects often cannot sustain enough buying pressure to counter token issuance, leading to price declines that affect community and team morale.

6) If token issuance can be allocated to suitable long-term holders, this problem can be alleviated, but currently few projects are so data-driven.

7) A simpler solution is to launch tokens with a lower fully diluted valuation and provide more equal access to the global secondary market.

8) It is worth emphasizing again that token allocation and issuance are crucial, and unlike token "utility," you only have one chance to get it right in this regard.

9) In terms of utility, the methods that have been most effective in large-scale applications today are essentially staking/locking and buyback and burn/redistribution (the latter carries regulatory risks and requires consultation with lawyers, etc.).

10) Staking/locking can be redefined as interest binding (thanks to @NTmoney for this concept - not only applicable to prediction markets!), which is a relatively powerful lever for incentivizing specific behaviors for both supply and demand sides.

11) In the past few years, there hasn't been anything truly novel apart from re-staking and lock-based distribution.

12) In addition, work tokens can facilitate digital resource provision (liquidity and hardware) and risk transfer (insurance/mitigation), which is a good way to consume them.

13) Payment tokens still offer a poor user experience, so please avoid doing this unless you are a gaming project and users are already accustomed to purchasing in-game currency.

14) Overall, token utility is effective in large-scale applications and over the long term, and it is a living thing that should be adjusted over time (unless you are Bitcoin).

Regarding the points "2) Even if your token has limited functionality, it can still have significant value if it is placed in the right hands early on" and "3) The current problem is that Sybil attacks make projects very difficult, which is one of the biggest unresolved issues in our industry," someone asked: "Assuming there is an identity + privacy solution that can solve the Sybil attack problem, what data attributes are needed to identify the 'right' people?"

The author responded: "I think the key is to identify those users who are active/frequent users and those who provide economic or other network-level utility to the protocol/platform, preferably on a long-term basis. This utility can be participation, liquidity, trading volume, content, hardware, economic security, etc."

In summary, a successful token model not only needs to be economically and technically feasible but also needs to focus on preventing Sybil attacks, designing effective incentive mechanisms, managing reasonable circulation and FDV, and ensuring the utility and flexibility of the token. Data-driven decisions can further optimize token allocation strategies, maximizing its market value and user engagement.

Source: Original Article

Source: Author's Post

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