a16z: Tokenomics is outdated — redefining token science
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a16z: Tokenomics is outdated — redefining token science
Tokens represent not only monetary value but also social, reputational, and other forms of value.
Navigating Web3 tides with focused insightsWritten by: Guy Wuollet
Compiled by: TechFlow
"Tokens" are a hot topic in cryptocurrency and Web3. Even beyond Web3, tokens are of interest to those engaged with art, cryptography, design, economics, gaming, mathematics, psychology, and more. That’s why we need a more comprehensive term to describe the study and design of tokens.
In this article, a16z investing partner Guy Wuollet argues that using the new term "Tokenology" better captures and conveys the full dimensions and richness of the design space than "Tokenomics."
We can often define tokens as “internet-native units of value,” but here’s a key point: Tokens represent not only monetary value, but also social identity, reputation, and other forms—value comes in many forms.
Tokens represent multidimensional value—they are vectors, not scalars. Scalars have magnitude only; vectors have both magnitude and direction. A specific token can represent ownership, membership, identity, and more. Crucially, tokens matter because they allow builders to preserve the high dimensionality inherent in any representation of value, opening up a rich new design space.
This is why I believe the term “tokenomics,” used to describe the study and design of tokens, is very limited and inherently constraining. It fails to capture and convey the full breadth of this rich design space. Tokens can operate not only within purely economic contexts, but also outside them.
Token design is still in its infancy, so reducing tokens to purely economic frameworks limits what can be built here. That’s why I believe we need another term—“Tokenology”—to designate the “study” of how to coordinate people, organizations, and/or computation through cryptography and mechanism design toward shared goals.
First, let’s gain a more comprehensive understanding of tokens, and why they matter.
Placing tokens within the broader context of blockchains and cryptocurrencies: blockchains represent a new computing paradigm, creating new ways to organize people, society, and capital. The two key advantages of blockchains are composability and tokenization. This article focuses primarily on tokens.
Terms used in the crypto industry also include “token model,” “token mechanics,” or “token design.” But all refer to how tokens interact with their associated protocols, systems, or mechanisms. For example: Ethereum’s token model defines how ether functions within the protocol; the token model is a subset of the entire protocol.
So more specifically, how can we use tokens? There are many ways, but to summarize some current use cases, we can use tokens:
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For ownership. Blockchains enable scalable, user-owned and operated open-source services; Ethereum is an excellent example of a user-owned and operated “world computer.” Tokens also grant users digital “property rights,” another important concept. Finally, tokens enable ownership of hyperstructures—defined as “cryptographic protocols that can run freely and forever without maintenance, interruption, or intermediaries.” In this case, they create value that only owners can access and disrupt; but this value isn’t necessarily monetary—it can exist in highly valuable non-monetary ways.
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For coordination. Creator tokens, social tokens, and NFTs allow fans to directly engage with their favorite artists and prove their fandom—whether as early adopters, strong supporters, or for community and meaning. For instance, Dogecoin is powerful because of the meme, community, and “belief” it represents. Tokens can extend beyond mere community membership to establishing digital cultural identities; in such cases, token holders may also vote on creative decisions within decentralized collaborations between creators and communities.
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For incentives. Incentive design is often described as key to understanding and motivating human behavior, but it can also align systems, organizations, and networks. Tokens help coordinate validators and miners in Ethereum and Bitcoin. They enable decentralized governance in DeFi protocols like Uniswap and Compound. Tokens assist NFT projects (like BAYC) in member growth and derivative creation, as well as digital-native DAOs and communities like FWB.
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For access to goods and services. Smart contract platforms like Ethereum sell computational services; Helium allows anyone to purchase LoRaWAN and 5G connectivity; Filecoin enables payment for data storage—just a few examples. Many NFTs also serve as “gates” to digital and physical experiences. Token-gating can prioritize early or more active community members, differentiate casual from dedicated participants via other criteria, and ensure a richer overall experience.
Of course, this list of token use cases is far from exhaustive—it’s just a start. But as you can see, it represents an extremely rich design space spanning art, economics, and beyond.
Tokens clearly matter—not just to the crypto industry, but far beyond. When combined with another key feature and advantage of blockchains—composability—one can gain deeper insight into the directional nature of what tokens represent, not just scale.
Again, tokens represent value as vectors, not scalars. Only when we recognize tokens as natively representing value vectors can we begin to convey the richness of this design space.
"Value" is an abstract concept, and most people conflate "value" with "money." Tokens allow you to explicitly represent value without being money. I believe that because modern Western economies almost exclusively price value in dollars, reducing high-dimensional vectors to scalars results in information loss. Today, value is mostly either 1) implicit, or 2) explicitly denominated in dollars. Value can be represented in many other ways—all interactions actually transfer value, most easily seen in the form of time and information.
The key is that developers should be able to use new token designs to make implicit value explicit.
Therefore, whether we call it “Tokenology,” simply borrowing from the study of tokens, or something else—we need to move beyond equating tokenomics solely with tokens + economics. It’s Tokenology = tokens × economics × art × …… A new term can also help usher in a richer era of token design.
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