Home Technology What is tokenomics, the cryptocurrency-based economy

What is tokenomics, the cryptocurrency-based economy

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What is tokenomics, the cryptocurrency-based economy

If in recent months you have happened to exchange NFTs, invest in high-yield (and risk) loans through cryptocurrencies and maybe even play on some GameFi platform (blockchain-based video game finance), then you are already part of the nascent “Tokenomics”. It is the token economy (cryptocurrencies linked to a specific platform or project) that according to the supporters of the world linked to the blockchain will transform the world of business, investments and gradually the whole traditional economy.

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A few practical examples allow us to better understand the mechanism underlying tokenomics. The newborn social network Appics, for example, promises to distribute its tokens (APX) to the users of the social network who most participate in the activities of the online community, mainly through the publication of posts and other quality content appreciated by other subscribers.

And how are these tokens used? On the one hand, owning them allows you to have a say in the management of the platform (in proportion to the tokens owned); on the other hand, tokens can be transformed into a real investment tool. Since these digital tokens, like all cryptocurrencies, are freely salable and purchasable, the greater the success of the project to which these tokens are linked and the more, theoretically, they should rise in value, allowing those who have previously bet on certain reality or more has participated in the requested activities. Not only niche social networks are focusing on a model of this type: even a reality with more than 15 years of life like Reddit is introducing a similar system, based on tokens called Community Points.

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Another example concerns the aforementioned GameFi: the Axie Infinity video game is based on the sale of some monsters called Axies, which are bought, raised and then made to fight each other (in a similar way to Pokémon games), allowing the owner to earn , in case of victory, a specific token and also in this case to be able to participate directly in the management of the platform. All transactions, votes and other operations are automated via blockchain and smart contracts (smart contracts that go into execution as soon as the agreements between the parties are fulfilled), thus reducing the risk of scams.

When, for example, it is necessary to decide the moderation policies of a social network, all those who own a share of tokens can participate, with a voting power proportional to the share owned. Similar tools are being tested almost everywhere: real estate companies, communication agencies, publishing companies, digital art trading platforms and even pharmaceutical companies. These realities have one thing in common: they promise to democratically distribute earnings to all their users, making the web economy more distributed, inclusive and fair.

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The companies that adopt this type of structure in the most radical way – in which each element is therefore decided by the members of the community – are called Dao (decentralized autonomous organization). The goal is in fact to exploit the potential of the blockchain to decentralize the management of the platforms and distribute the profits, where these are now concentrated in the hands of a few. Ultimately, tokenomics can be defined as the economic model underlying the web3: the third evolution of the network (still in the embryonic stage) under which all the online projects based on blockchain and cryptocurrencies fall.

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So far we have mentioned companies that provide traditional products (social networks, video games and others) but exploiting blockchain and cryptocurrencies. But tokenomics goes much further and could radically transform some processes: Royal, for example, is a platform that allows you to invest in music, buying the shares of a song through the blockchain and winning a portion of the copyright that accrues. over time (imagine if fifty years ago you had bought a small share of “Mi ritorni in mente” by Lucio Battisti or “Smoke on the water” by Deep Purple). For users it can therefore be a form of investment, while for artists it is a way to finance themselves independently thanks to the support of fans.

Something similar has also been done by sportsmen, artists and influencers using the so-called “social tokens”, which in most cases allow them to have access to exclusive events, unpublished material or perhaps to communicate directly with the celebrity in question. For example, Jaylen Clark is a college basketball player in the UCLA Bruins. Bruins fans can buy, as Coindesk says, the social token $ JROCK and get various types of benefits. By spreading these cryptocurrencies, Clark can potentially monetize his business even though college basketball players are not allowed any form of traditional income. What if Jaylen Clark, currently in his third year, were to be selected in the NBA? How much would his tokens increase in value?

It is obviously not guaranteed that tokenomics will prove to be a success and in any case it will still take a long time. “The issuance of tokens alone is not enough to build a fully functional economy,” writes the Nasdaq website, for example. “What is also needed is an ecosystem of exchanges (platforms for the trading of tokens), wallet providers (digital wallets in which to keep the tokens), entities that manage technology standards and insurance agencies integrated with each other. , in order to facilitate the different needs of the participants. Advances in blockchain interoperability will be the basis of this market, allowing token issuers to integrate seamlessly into the decentralized economy “.

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Beyond the technical limits, there is another aspect to consider: is it really desirable that every aspect of our life – including video games, music, sports and more – becomes the object of investment and speculation? As programmer Stephen Diehl (a fierce critic of everything to do with cryptocurrencies) wrote on his blog, tokenomics “is the apotheosis of a capitalism in which the market provides a financial token for every meme, every celebrity. , every political movement and every bit of art and culture. It is the hyper-financialization of all human existence. Is this really the world we want to live in? ”.

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