Justin
@justinzhang
Fascinating talks by @eddy on Tokenomics Design at @a16zcrypto CSX. Here are my notes: Network Effect * Tokenomics is all about defining and reinforcing network effects. It’s crucial to outline core metrics tied to the network’s primary behaviors—where value is truly created. These metrics guide the incentives. * For example, in Uber’s case, core metrics might include rider wait times and driver utilization. Enhancing these metrics draws more participants, thereby strengthening the network effect. * Network effects differ from reflexive effects (e.g., price increases leading to further price increases), which are self-reinforcing but less sustainable. ⤵️
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Justin
@justinzhang
Faucets and Sinks * Faucets expand the network effect; sinks defend it. * Faucets should directly incentivize the core metrics, not proxies. Subsidizing proxies may lead to wasting resources as they’re easily faked. * Never subsidize demand; it creates low-quality growth. Subsidize supply through verified mechanisms, such as staking or using web2 identities. * Sinks should preserve the token’s value and be linked to value creation events. Avoid simplistic sinks like buy-and-burn during the early stages when all resources should be spent on strengthening the network effect. ⤵️
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Justin
@justinzhang
Governance * Introduce governance only when absolutely necessary (e.g., for emergency fallbacks). Governance adds complexity and costs, including tax implications. Summary Token design is about aligning incentives with core network metrics and using faucets and sinks to maintain network health. Governance should only be included when absolutely necessary.
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