Influencing behavior, making money – Cointelegraph Magazine

Economics is the study of human behavior involving scarce resources — and the effects those behaviors have on those resources, explains Roderick McKinley.

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 — and potentially much more problematic.

“In 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,” McKinley says. He explains the distribution of tokens and the outcomes of that distribution are key matters for investors and for how the business ends up operating.

McKinley has worked on a range of different projects, including ParallelChain, GBC AI, Avarta, Fluid, ShopX, Terona and Kasta. But what is it that a tokenomics expert provides to projects?

“I typically deliver a range of services to projects. These include a design of the token’s 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,” he says.

There are two parts to every token’s value equation: supply and demand. Yet an internet search for “tokenomics” 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.

A few examples

• Ethereum’s ETH token was designed to be the only way that users could pay miners for the computational resources supplied to run the blockchain — 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.
• Synthetix’s 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…