Thoughts on Token Models: How to Unlock Token Utility?
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Thoughts on Token Models: How to Unlock Token Utility?
This article discusses several aspects to consider when designing a well-structured token model.
Navigating Web3 tides with focused insightsAuthor: Dmitriy Berenzon
Translation: Baihua Blockchain
A token model is a framework for designing and managing digital assets, aiming to generate long-term value through rational allocation and incentive mechanisms. Key elements include Sybil attack prevention, designing effective incentives (such as staking rewards, buybacks and burns), managing circulating supply and fully diluted valuation (FDV), and ensuring the utility and flexibility of the token. Data-driven decisions can optimize token distribution, maximizing market value and user engagement.
Below are some thoughts shared by @dberenzon on good token design:
1) A good token model is one that generates a wealth effect.
2) Your token can still hold significant value even with limited functionality, as long as it reaches the right people early.
3) The current problem is that Sybil attacks make projects extremely difficult—this is one of the biggest unsolved issues in our industry.
4) In response, projects are increasingly using creative points programs to incentivize long-term holders and maintain network decentralization.
5) Low circulation/high fully diluted valuation (FDV) is a real issue, as projects often cannot sustain enough buying pressure to offset token emissions, leading to price declines that hurt community and team morale.
6) This issue could be mitigated if token emissions were allocated to the right long-term holders, but few projects today operate with such data-driven precision.
7) A simpler solution is to launch the token at a lower FDV and give global secondary markets a more equal opportunity to participate.
8) Again, token distribution and issuance are critically important—and unlike token "utility," you only get one chance to get this right.
9) Regarding utility, the approaches that have worked well at scale today are essentially staking/locking and buybacks/burns/redistribution (the latter carries regulatory risks—consult lawyers).
10) Staking/locking can be redefined as "skin in the game" (credit to @NTmoney for this concept—not just for prediction markets!). It’s a relatively powerful lever for incentivizing specific behaviors from both supply and demand sides.
11) Over the past few years, there hasn't been much truly novel beyond restaking and lockup-based distributions.
12) Beyond that, work tokens can facilitate digital resource provision (liquidity and hardware) and risk transfer (insurance/slashing), serving as solid use cases for token consumption.
13) Using tokens for payments still delivers a poor end-user experience, so avoid this unless you're a gaming project where users are already accustomed to purchasing in-game currency.
14) Overall, token utility works at scale and over long time horizons. It should be a living, evolving component—something adjusted over time (unless you're Bitcoin).
In response to point 2: “Your token can still hold significant value even with limited functionality, as long as it reaches the right people early,”
and point 3: “The current problem is that Sybil attacks make projects extremely difficult—this is clearly one of the biggest unsolved issues in our industry,”
someone asked: Assuming there is an identity + privacy solution that can solve the Sybil attack problem, what data attributes would be needed to identify the “right people”?
The author responded: “I think the key is identifying users who are frequent/active users, and those who provide economic or other network-level utility to the protocol/platform—ideally over the long term. These utilities could include engagement, liquidity, trading volume, content creation, hardware contribution, economic security, etc.”
In summary, a successful token model must not only be economically and technically viable but also emphasize Sybil attack prevention, effective incentive design, prudent management of circulating supply and FDV, and ensure token utility and adaptability. Data-driven decision-making can further optimize token distribution strategies, maximizing market value and user engagement.
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@dberenzon
