Block Consult | Token Ecosystem Engineering

Table Of Contents 1. Objectives & Requirements Process Overview Workshop Contents Objective & Requirements Canvas 2. Value Accrual Process Overview Value Accrual Canvas 3. Lifecycle Patterns Process Overview A. Token Creation B. Token Transfers & Usage C. Token Destruction Token Lifecycle Canvas 4. Incentive Mechanisms Process Overview Incentive Mechanisms Framework 5. Supply Policy 6. Modeling & Optimization Economic Security Framework 7. Legal Opinion

This document provides a comprehensive overview of the process and steps involved in designing a token ecosystem. It covers various aspects such as the objectives and requirements of the project, value accrual mechanisms, lifecycle patterns of the token, incentive mechanisms, supply policy, modeling and optimization, and the importance of seeking legal advice. Each step is outlined and includes specific topics and considerations to be addressed. This document serves as a guide for understanding our process in implementing a well-designed token ecosystem.

The first step in designing token ecosystems is to answer the basic question of “Do i really need a token?”. We developed a basic framework that will help founders and teams ask themselves this crucial question.

Token Checklist

1. Objectives & Requirements

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This step involves identifying the high-level objectives and requirements of the project, including understanding the problem and solution, defining user personas, and determining the need for a token.

Process Overview

The initial aim is to understand the projects business and determine if there is a need for a token. To achieve this the high level objectives & requirements must be identified. This will be done in a joint workshop containing the following topics:

Workshop Contents

Problem & Solution being addressed

User Personas

Stakeholders

Defining the need for a token

To help define the objectives and requirements of the token the “Objectives & Requirements Canvas” will be used.

Objective & Requirements Canvas

(1A) Role	(1B) What Problem do Users in this Role Have?	(1C) How do Users Solve it Without Your Product?	(1D) How Does Your Product Help Users?	(1E) How do Users Benefit from Network Effects?	(1F) How does the Token the Increase these Benefits?	(1G) Why do Users Want to Hold the Token?
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2. Value Accrual

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In this step, the focus is on sharing the value created by the project with potential token holders. Various value accrual mechanisms, such as fee distribution and buyback & burn, are explored to determine how the project captures value from stakeholders and how that value accrues to the token.

Process Overview

Just because a product captures value does not necessarily mean that the value will be received by the token.

The goal of the "Value Accrual" stage is to determine how the value generated by the project can be shared with potential token holders. To accomplish this, the value for each stakeholder must be defined, and an appropriate value distribution mechanism must be established.

Potential value distribution mechanisms include:

Fee distribution

Buyback & burn

Buyback & build

Buyback & LP

Work tokens

Burn & mint

Fee discounts

To best map out the stakeholders and their actions within the ecosystem the “Value Accrual Canvas” will be used.

Value Accrual Canvas

(2A) Role	(2B) What Value Does Your Product Create for Them?	(2C) How Does Your Product Capture Value from Them?	(2D) What are the Frictions or Costs to Capturing this Value from Them?	(2E) How does this Captured Value Accrue to the Token?
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3. Lifecycle Patterns

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This step involves designing the lifecycle patterns of the token, including token creation, transfers & usage, and token destruction. Different mechanisms, such as time schedules based emissions and burn & mint, are considered to define how the token moves through the ecosystem.

Process Overview

Once there is a rough understanding of how the token moves through the ecosystem, as well as which aspects influence it, we can start designing the lifestyle patterns.

Within a token lifecycle there are four distinct stage, for each of them the corresponding methods should be explores and defined.

A. Token Creation

Regarding the token creation there are countless mechanisms which need to be assessed, these include:

Time schedules based emissions

Metric or KPI based emissions

Airdrops

Minted by users

Minted by protocol

Sales & pre-mine distributions

B. Token Transfers & Usage

Not every token should be traded.

The Tradability of the token must be linked back to its utility and intended outcomes. These can include:

Governance

Security

Community status

Permission

Membership

Reputation

Additionally the it is important to define the usage of the token within the ecosystem as well as for each stakeholder.

The aim is is to identify both desired and undesired ways in which the token might be used.

C. Token Destruction

Tokens do not need to be permanent. Token can be destroyed as part of the value accrual mechanisms. Furthermore, token destruction can also be a crucial part of a protocols operations, such as for rebasing or slashing collateral. To help define the token lifecycle pattern as well as identify which mechanisms might be suitable the “Token Lifecycle Canvas” will be used.

Token Lifecycle Canvas

(3A) How is the Token Created? List all sources of token issuance Ex. mining, farming, staking, airdrops, etc	ㅤ
(3B) Is the Token Transferrable? Not all tokens should be tradeable or transferable Ex. reputation or social status tokens	ㅤ
(3C) How is the Token Used? List all ways the token is used Ex. pay for access, discount, collateral, etc	ㅤ
(3D) How is the Token Destroyed? List all ways in which the token is burned or destroyed Ex. burn to mint, burn as payment, expires, etc

4. Incentive Mechanisms

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In this step, incentives are balanced to manage desired and undesired behaviors. Stakeholders' roles, desired and undesired behaviors, and corresponding incentive and disincentive mechanisms are mapped out to ensure a well-balanced design.

Process Overview

Through carefully balancing incentives, desired as well as undesired behaviours can be managed.

The specifics of a well balanced incentive mechanisms require nuanced qualitative design as well as quantitative parameter allowing for performance monitoring.

Once defined the incentives must be simplified and optimise as much as possible allowing for easy communication and maximum efficiency

To achieve this the role of each stakeholder ,as well as their desired/undesired actions must be mapped out here the “Incentives Mechanisms Framework” will be used

Incentive Mechanisms Framework

(4A) Role

(4B) Desired Behaviors

(4C) Frictions to Desired Behaviors

(4D) Undesired Behaviors

(4E) Motivations for Undesired Behaviors

(4F) Incentive Mechanisms

(4G) Disincentive Mechanisms

(4H) Mechanism Conflicts

(4I) Possible Resolutions & Open Questions

5. Supply Policy

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This step focuses on determining the supply side policy of the token, including token supply, emission rate, allocation buckets, vesting & cliff schedule, and token sinks. The findings from previous steps are taken into consideration to make informed decisions.

At this stage it is time to determine the supply side policy of the token. This is what most people associate when thinking of tokenomics.

In order to determine the correct supply side policy, the findings of the previous steps will be taken as a basis for discussion.

In this stage all supply side mechanisms are discussed and elected, these include:

Spply & Demand Sinks

Emission rate

Allocation buckets

Vesting & Cliff schedule

6. Modeling & Optimization

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Modeling the token design helps identify risks, play out different scenarios, and optimize the design. Parameters are tested, emission rates are assessed, and risk controls are defined using various modelling approaches.

In order to optimise the token design modelling is required.

Modeling the token design will help identifying risks, playing out different scenarios, and assessing the tokens sensitivity, it does not help in predicting price action.

This is where all aspects of the token design will be put to the test and help make informed decisions about emission rates, system architecture, parameter settings, risk controls, balanced incentives and more.

Depending on the exact ecosystem design the right modelling approach must be chosen, these can range from deterministic, stochastic to agent based modeling method. To help with analysing the tokenomics assumptions and define which parameters to test, the “Economic Secuirty Framework” will be used.

Economic Security Framework

(6A) Role

(6B) What Action are they Performing?

(6C) What Assumption does this Make?

(6D) What Confidence Measures can Assure It's True?

(6E) If It's False, what Damage Controls Limit Impact?

7. Legal Opinion

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Before launching a token, it is crucial to seek legal advice. This step involves consulting with legal experts to ensure compliance with regulations, address corporate structure, taxes, and banking considerations.

Before launching a token it is imperative to consult with a legal expert.

Not only should the implications of the tokenomics design be cleared but other important factors need to be considered. These include:

Project Corporate Structure

Ecosystem Foundation Entity
Token Seller Entity
Development Entity
DAO Legal Entity

Taxes

Project Taxes
Personal Taxes

Banking

Money Transmission Compliance
KYC/AML Compliance