if not now, wen?
“If nothing changes, nothing changes. If you keep doing what you're doing, you're going to keep getting what you're getting. You want change, make some.”
The overwhelming majority of crypto projects continue to face a timeless question. From the brightest minds of our time to the darkest corners of the degen CT swamp, the question remains. Everyday…discords are flooded, testnets are joined & sybil attacks are carried out, all with one incessant request, nay demand:
But well before this question can be answered, some other more pertinent ones should be picked over by founding teams. A few of these might include:
Does our project need a token?
Are there legitimate benefits to introducing one? What is the highest order, no-brainer benefit?
Do our users all derive value from our project in the same way, or is there a bifurcation of uses?
Does the addition of a token actually add friction to the existing UX? How big of a problem would this be?
Would participants (outside of MM’s) be incentivized to hold our token beyond the time they’re interacting with it on our network/protocol (i.e. token velocity concept)?
What is the true purpose for why we’re exploring a token at this specific time?
This is clearly not an exhaustive list, and yet it still feels to me that not enough projects are entertaining this surface level discussion. We can go much deeper but there’s plenty of other first-order questions to mull over. I also maintain that experimentation should be encouraged at this stage of development – there’s far too much talk about making crypto an analog to traditional equities or bonds. Comping crypto primitives to these highly developed markets isn’t particularly compelling to me at this point, especially when it comes to *sigh* valuation.
“If you think about the token burn as stock buybacks, and the staking rewards as dividends, then you can back into a modified DCF-like value…”
I understand the temptation to carry out these types of exercises (I do them myself on occasion) but it’s mostly just valuation theatre in my mind. A bit of mental gymnastics to reinforce our existing premonitions on projects. My personal view is that adding these types of valuation techniques to crypto is destructive at this point in its life, but that’s a blog for another time. Having a basis for why something can/will accrue value is one thing, but attaching a “fair value” is something quite different.
Back to tokens.
We all know about the typical buy-and-burn or burn-and-mint concepts. I’m not going to rehash those here. Most projects used these as the core mechanism for a while – the lack of ingenuity around most of those can be explained by the bull run we were in. When everything is going parabolic, better to copypasta your token design & launch the damn thing so yours too can follow suit. No need to worry about long-term incentives, flows or other structural considerations. This is sad but inevitable behavior that will repeat again next cycle no doubt. But now that everything *checks the charts* isn’t going parabolic anymore, my hope is more thought will be put into this area. By the same token (😉) this is hopefully a time when founding teams will feel more freedom to experiment with their design. I’ve tweeted a bit about this in the past, but we should see token class splits, voting rights innovation, time-decay implementation, staking eligibility design (more on this later), dividend optionality, etc. There is so much white space (much of which I am too smooth-brained to think of myself) to create cool mechanisms that haven’t been tried yet. We should collectively be looking to grow the toolbox for future founders because this is still nascent technology. Part of exploring frontier tech is a willingness to experiment, combine primitives, push the envelope, and operate in grey areas.
I mentioned staking above but the only thing I’d like to say here is that there’s a clear case where staking provides utility: putting tokens up, doing some work (block validation) and being rewarded for the inherent risk you’re taking to secure the network/protocol. This is very different from a lot of the “staking” we’ve seen over the last 12-18 months. The pinnacle of this theatre was likely Cobie’s apt description of “modern staking” in his ApeCoin piece:
“These modern staking mechanisms do not have any function in the ecosystem to which they belong. They don’t do anything in any practical or technical sense. They don’t make an ecosystem more robust. They are a shell game, using the name of a different thing to obfuscate their actual purpose, which is to encourage less selling.”
Staking is certainly useful when implemented with purpose, but it’s been bastardized to a large extent by projects using the term when in fact the act of “locking” tokens does nothing. There are projects for which a staking design makes sense, but many more which would benefit from deeper thought into the second & third order effects of this decision. Happy to share some further opinions on useful exercises to evaluate token design if you’d like.
I wasn’t planning to write anything this week to be honest so will cut it here but suffice it to say I’m curious to hear from others where they’re seeing the most interesting (or weird) ingenuity when it comes to token design. Even if you’re not implementing anything but rather thinking through concepts or talking ideas through, would love to hear them. Hit me up on twitter (@0xsmac)
enjoy the wknd
tysm for reading Semi-Lucid Thoughts! if you enjoyed feel free to subscribe (it’s always free) to receive new posts