Tokenomics: Three Foundations for Creating a Token Economy

  • The founders’ goals and desires.
  • What “the market/ investors” will invest in.
  • Sustainable and logical tokenomics that move the project forward.

What do you REALLY want?

Issuing a token seems to be a fast way to big money, and there’s also some stuff about freedom and democracy, so blockchain naturally attracts a huge crowd. Let’s assume that you do raise the money you want for your project.

  • To create a successful long-term business that contributes value to the world?
  • To expand or get a better valuation for an existing company?
  • To build a better form of democracy?
  • To build cool tech stuff?
  • To rescue the rain forests?
  • To prove yourself in the blockchain industry so you’ll have a future career?
  • To have enough money to buy an island and retire?
  • To provide a way for poor people to make a living in crypto?
  • To get rich and show everyone they were wrong about how crypto is a bubble?
  • To get out of the existing rat race before the economy completely collapses?
  • To save others from the collapse by getting everyone a bitcoin wallet and a few satoshis?
  • There are serious legal implications and potential repercussions to raising money through a token launch. If you have an existing, profitable business, you do have something to lose by getting it wrapped up in crypto.
  • Projects do need money and pretending you have a good tokenomics model can get you there.
  • If you have an idea for a blockchain project, chances are 98% that someone else has already done something similar. Ask yourself honestly why you aren’t just joining them. If you think you can do it better, ask yourself why you don’t just help them be better. Do your research to understand the challenges they are facing, because you are about to face them.
  • If your main inspiration is building a great business or getting career experience, joining a project that already raised money might get you there faster.
  • If you are doing a “social good” project, monetary incentives will corrupt the project.
  • If you love DeFi, yield farming, and all that stuff, and just want to make money, you probably will do better working hard and investing in the right projects rather than taking the legal and personal risks involved in your own token.

Investors, what’s an investor?

The second consideration is what the “investors” will perceive as a good tokenomics model. If you’ve gotten this far, you’ve already decided to raise money through a token sale. The only way to do that is to create tokenomics that investors will love.

  • It does not matter if the tokenomics model makes sense.
  • It does not matter if the tokenomics model works in practice.
  • It does not matter if the tokenomics model works in theory.

What would actually work?

As far as I can tell based on my experience working with more than 300 project, there is no empirical evidence that any of the tokenomics models work, other than Security Tokens where you really give investors equity in the project.

  • You create the BeanCoin which allows the holder to get a bushel of beans for 1 coin. You are successful and the BeanCoin is now worth $500, but nobody wants to spend $500 to for a bushel of beans. Investors are happy but the coin is useless.
  • You create the PollCoin, a governance token that allows the holder to vote for community proposals and elections. You are successful and the PollCoin is worth $500 and now it costs a minimum of $500 to become a citizen of the community and $2500 to submit a proposal to the community. The best companies/people to do the work don’t want to submit a proposal because the risk is too high of losing that money. Anyone who bought in early to PollCoin sells because they would rather have money than a vote in a community of elitist rich people with poor execution because nobody wants to submit proposals to do work.

A token for everyone

A surprising number of people who contact me have not thought deeply about what they want on a six-month, two-year, or ten-year scale when they launch these projects. Many people think a token is an easy way to raise money, which it is, relative to many other ways of raising money. But keep in mind that every step you take in your entrepreneurial journey is just a step closer to the next, usually bigger, problem. As you launch your token, make sure to check in with yourself and your other founders that you’re ready for the next challenge down the pike.



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Founder, and Author: "So you've got a DAO: Leadership for the 21st century"