Web3 ecosystems, and their tokens.....

Tokenomics is, lets be honest, incredibly complex. Unless of course that is if a token is designed to be a security or equity, in which case people purchase it with the expectation to make a profit. I have heard the comment that in reality only the L1s (Ethereum, Avalanche, Polkadot etc.) can safely say that they provide a utility token, after all the whole system would simply not work without it. In addition to that we see protocols (for example the Nexera Protocol for tokenisation of Real World Assets, or Chainlink Labs CCIP) that are multi-chain and would also not be able to easily 'work' without the token. Though I do see that there is plenty of utility to be found for tokens of projects built on top of L1s, I think that a shift of thinking needs to happen from single-sided 'economies' (well, no economy is single sided) to true ecosystem and economy thinking.

Before I move on, I would recommend following Michal Bacia (my go-to token expert), Sabrina B. of NOMA Tokenomics or Vincent de Vos . Anyone who decides to start designing a token for their own Web3 project should definitely connect with them.

Single sided economies

Let me start with my very first frustration which is something that even today so many still do not seem to grasp. One sided economies do not exist, there is no economy where there is one party that releases a token to others for whatever purpose and where the only incentive after receiving the token is to get rid of it. Yet, effectively all X to Earn models have this basic principle (where X stands for whatever). Even the more advanced ones eventually drive away from the main goal and turn the whole spectacle into the unavoidable pyramid scheme.

Let me give an example; a Play 2 Earn game is a game where players are rewarded in tokens for playing the game. Yes, indeed, it exists and there has been a weird hype around this. The challenge? Players who earn tokens by playing a game will want to either use the token to buy in-game assets or they will want to sell the token for ETH or eventually $. In other words, the balance is skewed from the start as there will always be a large group of 'gamers' who play the game to sell the token and make some cash.

The project has the responsibility to provide liquidity (because if you can't sell that token then why play the game?), and consequently the sell pressure is almost always higher than the buy pressure. Worse, these game projects try to build in all sort of reasons for players not to leave the game, such as incentives where players need to buy and lock tokens in order to be able to earn. Guess what, game farms where rich people offer loans to poor people (often from the poorest countries in the world) arise, where the majority of the money is made by the rich people. Does this sound right to you? Of course it does not, yet this is a very well known principle.

X2E does almost never succeeds, because it destroys the very core of what the X stands for. Games should be played for fun, for relaxation, for the experience and if a token does not contribute to that, then it has no value. The same is for Create 2 Earn, Learn 2 Earn, Share 2 Earn and all variants.

So am I 'fiercely against' this kind of model? Well, no, not really. However I do have a suggestion for a different way of thinking, before a project starts going all out on business models.

Web3 economies need to create non monetary value first

I introduced the topic of 'economy thinking' purposely as I am convinced that the power of Web3 lies in building micro-economies and in connecting people and stakeholders in ways that were never before possible. What 'pains in the industry' are you solving? And how many stakeholders can you connect? What value do you create and how does the value (in token but also in solving pains) flow?

Lets casually stay with the game as an example, however we will take it a level up. The majority of the games have a limited life-span, so introducing a token for one single game makes very little sense. However a token for a game-economy might just work. Let make some assumptions so we have something to work with (can someone validate these please?)

1. A main pain of game brands is that they continuously scramble for $, the majority of the money goes to expensive marketing campaigns, next to that it is impossible to find and keep senior developers.
2. Senior developers too often see AAA games getting cancelled due to lack of funds, and there is a huge gap in skills and knowledge between junior and senior developers (nothing in between). AAA games get cancelled without any input from the actual audience, as they are never released.
3. Gamefluencers make money by reviewing and playing games on various social channels, however they struggle more and more as centralised platforms take big cuts. Despite their influence, they never get to add value to their favourite games, feedback loops are simply not happening.
4. Gamers want to see their influencers play (and get help from them), and they are very much interested in the longer-term games versus the short one-off games we see today (due to lack of funds).

So here we are, two pains per stakeholder. Can we now think of how value might flow?

• What if the game platform is managed or co-owned by those who hold tokens (game companies, gamefluencers etc.)?
• What if senior developers and junior game developers connect via training material and consultation sessions by the senior experts?
• What if gamefluencers get access to early AAA games and get to influence which game should be continued, even in a very early stage?
• What if gamers can get acces to special gamefluencer pages?
• What if advertisers can connect directly to the gamers in a decentralised way?

Try to ask yourself questions like these first. Why? Well now you are creating value, which is value that is not even monetary. This is value added to your stakeholders, reasons for them to come to the platform, stay and care for your your platform. And I am sure that you can think of many more questions to ask.

Create non monetary value first, this is the reason for your stakeholders to join, stay and care for the shared platform economy

It is only after there is a very clear image of the different stakeholders you can connect and their problems that you can solve, that you can start thinking about the role the token plays. In a Web3 game economy, it does not even have to be too complex some ideas might include:

• Advertising income is used to directly purchase tokens off the market, which in turn go back to the treasury and can be used to finance new games for example.
• Senior developers are rewarded in tokens and/or credibility points for sharing useful training material and consultation sessions. Credibility points then influence chances to decide on what game someone wants to work.
• Gamefluencers can give feedback and vote on games and in-game developments before the games are even launched. This generates a natural marketing platform, and excitement as they engage with games early on. Gamefluencers gain credibility scores for this, which in turn can give them early bragging rights.
• Gamers can connect with gamefluencers directly via special access tokens. When an advertiser is allowed (by the gamefluencer) to run an advertisement in the group, this is partly used to pay back the gamers for their special access badges.
• Decision making is partly or fully run by a 'DAO' where voting power depends on credibility points and/or token holdings.

You will probably have many more ideas that you would love to explore by now, or perhaps apply this way of thinking to your own Web3 project. Go for it! There is something quite powerful to this approach of connecting as many stakeholders as possible in one micro-economy, by creating value to them.

Small game companies or indie developers can never compete with the large AAA companies. However when they operate together in a way where everyone benefits from success of others, they will find themselves competing with the large players as a micro-economy. That is where the difference is made.

Principles

I did just casually drop some ideas, and give me another ten minutes of your time and I will be able to come up with a whole lot more for this use case. Interestingly one does not need to be brilliant to come up with possible token economy ideas (and I am surely not brilliant). Just follow the right steps solve real problems first, dive into basic principles of tokenomics and only then design your Web3 and token strategy.

I know, I cheated a bit as I did not introduce any token design principles to you first. Allow me to drop a few core principles here, and again, be sure to reach out to Sabrina, Vincent or Michal for a (much) deeper dive.

Micro-metering: pay or get paid for actual use. Do you watch a training video of a game developer for five minutes? Then pay for those only.

Credibility scores (because I do not like reputation scores): Enable people to build up non-transferable credibility in a platform economy (or lose it if they show bad behaviour).

Dynamic pricing: Most popular gamefluencer videos in a particular hour deserve the highest pay.

Power distribution: Governance is done by token holders

Rights management: The right to use a product, engage with others, vote, contribute, register your IP etc.

Token as toll: without owning a token one cannot enter the platform

Token as currency: to be used for financial transactions

Token as reward system: for contributing value to the economy

Feel free to connect with me if you find this interesting. Do you have more insights? Just share, we are all here to learn together!