Tokenomics of the Tokenomics DAO: Why do we need a token?

Is there more to a token though?

Given our recent thoughts on how the principal-agent theory (listen to it here or here) applies to DAOs, we have seen that holding tokens can turn people from agents to principals, incentivising them to participate driven by their own self interest. This is a big differentiator for token ownership vs more traditional structures currently in use. Just think about how you treat your own car versus a rental car. That’s how contribution quality towards the goal of a project or a DAO changes with token ownership.

  • Raise time: A concept not as common in the traditional world, but many DAOs use it to pay contributors for the time they spend working for the DAO. The Tokenomics DAO could utilise this same concept to encourage members to create value.
  • Represent ownership: Ownership does not only move members from agents towards principals but would also give the Tokenomics DAO a marketing department. Members who have chosen to have skin in the game will tell others about why they do so and attract more talent and attention to the community and its mission.
  • Market valuation: For almost no cost, a token can be traded on exchanges like Uniswap where supply and demand will set a price for the token. This can turn into one of the disadvantages of using a token as live price action will make holders constantly evaluate their position. Price drops could lead holders to doubting their holding and their contributions in the project.
  • Coordination: In the manifesto, we’ve laid out our vision for where we want to take this tokenomics initiative. The token will help us coordinate members towards this vision.
  • Governance: Token based voting is not a must (read about it here), but it can be an easy way to make use of tokens and let the community decide on DAO related topics.
  • Community status: Status is important to people and owning a certain amount of tokens and holding them can create a sense of belonging that in combination with ownership can even enhance the incentive to bring an initiative forward (coinvise compare it to airline miles and lounge access).

How does a token accrue value?

To answer this question, we should first look at what value we want to create. In the manifesto, we talk about content to make tokenomics relevant for everyone. If we, as a community, achieve to demystify tokenomics and widen the knowledge in this field, we would assume that we would have created substantial value. After all, the success of a lot of web3 applications is partly due to their tokenomics. With the benefits listed above, we believe it is a fundamental building block of web3.

  • Expected value of the DAO / project: If we agree it’s valuable already, the Tokenomics DAO will be even more valuable with more content and more members. Giving all these like minded people a place to exchange ideas has the potential to create even more value — potentially quite unexpected value.
  • Ownership: The fact that owning the token could give owners a say in what we do and how we do things is valuable too, making a token worth holding or buying.
  • Stake for access to value: Tokens can have utility. A way to use a token of the Tokenomics DAO could be to encourage staking for access to the community or the content we produce. Many gated community DAOs do this and it makes their token more valuable.
  • Fee on value: Quantifying the value is hard because the content and discord is free for anyone, in the future the community might decide to raise a fee on certain pieces or monetize in other ways. Parts of these fees could (1) end up in the Tokenomics DAO treasury, (2) might be paid out to token holders or (3) buybacks and token burns could increase demand and scarcity of a potential token.
  • Reduced fee for holders: The newly raised fee could be waived or reduced for holders of the token.

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The Tokenomics DAO community is growing towards 500 members and the last 200 have joined in the last month. A distilled group of people that are interested in tokenomics, brought together, is something that did not exist before. Think of the network effects of bringing together people interested in a topic like tokenomics. There must be some value in that. It’s hard to measure and we don’t know how this will all play out, but with the right coordination tool and community ownership we might be able to utilise this network to create even more value.

So, do we need a token then?

As far as I can tell from my analysis, the benefits of having a social token outweigh its risks. The mechanism of ownership, raising time and the powerful coordination tool outweighs the volatility and risk of the token price dropping.

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Florian Strauf

Florian Strauf

tech guy curious about investing, crypto, decentralization and technology in general.