{"id":24221,"date":"2022-07-28T14:00:21","date_gmt":"2022-07-28T14:00:21","guid":{"rendered":"http:\/\/egrowonline.com\/?p=24221"},"modified":"2022-07-28T14:00:21","modified_gmt":"2022-07-28T14:00:21","slug":"influencing-behavior-making-money-cointelegraph-magazine","status":"publish","type":"post","link":"http:\/\/egrowonline.com\/?p=24221","title":{"rendered":"Influencing behavior, making money \u2013 Cointelegraph Magazine"},"content":{"rendered":"
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Economics is the study of human behavior involving scarce resources \u2014 and the effects those behaviors have on those resources, explains Roderick McKinley. <\/strong><\/p>\n
Tokenomics in crypto is a related but different field. Tokens are a way for projects to raise funds and build communities, and designing the way they work can be much more complex than traditional equity raises \u2014 and potentially much more problematic.<\/p>\n
\u201cIn tokenomics, the token or digital asset is the scarce resource. But we can now design features for these programmable digital assets, influencing how people behave and interact with each other, often creating new possibilities for exchange altogether,\u201d McKinley says.<\/span>\u00a0He explains the distribution of tokens and the outcomes of that distribution are key matters for investors and for how the business ends up operating.<\/span><\/p>\nRoderick McKinley<\/em><\/figcaption><\/figure>\n
McKinley has worked on a range of different projects, including <\/span>ParallelChain<\/span>, <\/span>GBC AI<\/span>, <\/span>Avarta, <\/span>Fluid, <\/span>ShopX<\/span>, <\/span>Terona<\/span> and <\/span>Kasta<\/span>. But what is it that a tokenomics expert provides to projects?<\/span><\/p>\n
\u201cI typically deliver a range of services to projects. These include a design of the token\u2019s supply alongside other economic features that make the token useful, so it attracts demand, helping clients to understand how to use the technology in ways that fit their business and, finally, how to make a compelling fundraising case,\u201d he says. <\/span><\/p>\n
There are two parts to every token\u2019s value equation: supply and demand. Yet an internet search for \u201ctokenomics\u201d is likely to take you to colorful fan charts that only deal with the supply side of that equation: describing how a project plans to release its supply of tokens to stakeholders, over time. Making sense of how tokenomics is applied on the demand side is harder because each case is different and potentially unique.<\/p>\n
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\u00a0<\/p>\nThe dark art of tokenomics underpins the entire crypto economy.<\/em><\/figcaption><\/figure>\n
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A few examples<\/h4>\n
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Ethereum\u2019s ETH token was designed to be the only way that users could pay miners for the computational resources supplied to run the blockchain \u2014 aka gas fees. As long as there is demand for computation to be performed on the Ethereum blockchain, a finite supply of ETH has value.<\/span><\/span><\/li>\n
Synthetix\u2019s SNX token was designed to make up the collateral that backed the issuance of synthetic digital asset derivatives (tokens that follow the price movements of other known financial assets). Stakers receive SNX token rewards while the project is in the early stages, as well as all of the trading fees collected. Synthetix also popularized \u201cyield farming\u201d by giving users SNX rewards to provide liquidity on Curve and Uniswap. As long as there is demand for the synthetic assets that Synthetix builds, a finite supply of SNX has value. <\/span><\/li>\n
Helium\u2019s HNT token is used as a reward payment paid to users who provide wireless coverage capacity to support Helium\u2019s decentralized wireless connectivity platform, and the token is burned for every dollar fee paid by users who connect to this network. As long as there is demand to connect to this decentralized wireless network, a finite supply of HNT has value.<\/span><\/li>\n<\/ul>\n
None of these examples describes a fully automated process. In every case, humans are making free choices in response to incentives, and that is why the consideration of human behavior is fundamental to tokenomic design.<\/span><\/p>\n
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\u00a0<\/p>\nInfluencing people\u2019s behavior has always been the holy grail for economists. Source: Pexels<\/em><\/figcaption><\/figure>\n
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Human behavior<\/h4>\n
But real-world facts often diverge in surprising ways from classic economic theory. For example, numerous experiments and papers point to the fact that people will not always work harder for more pay. So, how can incentives reliably work to alter people\u2019s behavior?<\/span><\/p>\n
\u201cWhen designing tokenomics for a project that then goes live, it\u2019s like conducting mini experiments into people\u2019s behavior. We can learn from what people actually do instead of what theory tells us they will do,\u201d he explains. <\/span><\/p>\n
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\u201cWe\u2019re not into manipulation. People join these communities on a voluntary basis, and they can choose to opt in or out of the project. If the project has collectivized governance, they may be choosing these rules for themselves.\u201d\u00a0<\/span><\/p>\n<\/blockquote>\n
\u201cThis is very different to what we get with something like China\u2019s social credit system,\u201d he adds. \u201cThis is dystopian, as there is no choice \u2014 everyone must take part whether they want to or not.\u201d<\/p>\n
Instead, McKinley compares behavioral change directed by tokenomics as little nudges, like putting the cookie jar out of sight when you want to eat fewer calories.<\/span> \u201cInfluencing behavior does not have to be malicious,\u201d he says.<\/span>\u00a0All these incentives and interactions are built from freely programmable and endlessly configurable code. That poses a dilemma of choice when the possibilities are so open-ended.<\/span><\/p>\n
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Tokenomics is one of the most important aspects of Crypto<\/p>\n
If you don’t understand tokenomics, you’re not gonna make it.<\/p>\n
Here\u2019s everything you need to know about Tokenomics🧵<\/p>\n
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