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What is Token Engineering? Discipline and Economic design

📖 Glossary of terms

What is Token Engineering,An industrial world, nuclear power plant and mountains in the background, satoshi Nakamoto, BitCoin (BTC),Token engineering, tokenomics

🪙 Specifically, token engineering refers to the creation of an economic system or network that incentivizes objectives between participants of the system/network using tokens, mainly for decentralized ledger technologies (blockchain); applications, and use cases. Token engineering can be used in the design of any system, which does not need to be blockchain-based as a key distinction. The network’s goals can be achieved by encouraging users to behave in a specific way to achieve a desired outcome.

This is in relation to the perceived economic value within a network or protocol determined based on the economic design of the network, which is often influenced by laws of supply and demand, as well as other social and political factors that can be influenced by, or even manipulated by behavior.

⚛️ Disciplines required for token engineering

The design of these often complex systems uses multi-disciplinary concepts from economics, cryptography, statistics, game theory, and systems design principles, among others, abstracted for the digital, token realm.

💼 Token Engineering: Business and Customer Goals

In token-based networks, specific behaviors are influenced within the network to achieve a specific business or customer goal, like buying and selling NFTs or other tokens, such as cryptocurrencies, or earning yield by closing a blockchain derivative position, for example. The utility can therefore be viewed as a key component of token engineering and token economics; In token-based systems, all variables point back to the token’s value proposition, utility=value.

🤝 Designing Value into a token-based system

BTC’s market value is determined by its perceived or assumed value, for example. Users will be incentivized to hold and purchase BTC in anticipation of its value growth if they believe the Bitcoin network has the potential to gain value over time.

🛡️ Token Engineering: Engineering Scarcity

The behavior of BTC is influenced by the fact that only a finite number of BTC will ever exist, which means it is intrinsically scarce, thereby making it fundamentally valuable when there is a demand for it. Furthermore, it prevents devaluation and debasement, a major problem for fiat currencies during the post-gold standard or Bretton Woods era, when central banks were granted the power to print more money to meet market demands, often leading to inflation and devaluation as a result.

🏛️ Economic Design for Token Engineering

Economic variables such as supply, intrinsic value, inflation, deflation, etc, are hard-coded into the logic for any specific token-based network, and therefore, determine the outcome devoid of the consideration of market forces such as demand, which can be viewed as an external factor because demand in and of itself can not be hard coded into the logic of a blockchain token-based network and is entirely influenced by behaviors, but the system can be designed to influence such behavior.

Furthermore, a value within a blockchain network can be distilled down to the network’s utility, per user group, from the end users buying and selling a cryptocurrency such as ETH (Ethereum) to the developers building dApps on the network. The utility of a new project or token ultimately determines its value per user group, and as such, each user group must be considered when thinking about the overall economic design and value propositions of a network.

Governance is one of the other key buckets when it comes to token engineering and tokenomics, and determines how a project or asset will be governed post-genesis, ie, once the token, network, etc, is live. Governance is hard coded into the logic of a blockchain network in the same way any other economic variable will be designed into the network. This is where token engineering diverges a bit into the realm of DAOs or decentralized ledger technologies.

A nuclear powerplant and industrial city, mountains in the background

📈 What is tokenomics?

Tokenomics is a portmanteau of the words token and economics and refers to the study of the economic design and use of tokens. It involves analyzing how the issuance, distribution, and circulation of tokens affect the behavior of their holders and the overall health of the network, ie blockchain. Tokenomics aims to create tokens that are sustainable, secure, and valuable, to create long-term benefits for all stakeholders.

✅ Difference Between Token engineering and tokenomics

Token engineering and tokenomics are two terms that are commonly used in the cryptocurrency and blockchain industries. While they might seem similar, they have distinct differences that are important to understand.

Token Engineering can be viewed as the process of engineering token-based systems, including the economic incentives being designed into the network, and involves a deep understanding of the underlying technology, market dynamics, and human behavior to create token systems, whereas tokenomics is the economics of the network or system itself, or can be viewed as the outcome of token engineering.

🌐 🎖️ Closing Thoughts

In conclusion, token engineering and tokenomics are two important concepts in the cryptocurrency and blockchain industries. While they have distinct differences, they both play critical roles in designing and implementing successful blockchain projects. By understanding their definitions and use cases, we can unlock the full potential of these technologies and create a more decentralized and equitable future.

One of the new approaches to designing complex systems falls into another nascent field of study, known as systems innovation. In a world where the abstract systems that we interact with are becoming infinitely more complex and ethereal, modern approaches to system design have emerged in response to the assumed challenges that society will continue to face. For anyone in the process of designing a token-based system, I highly recommend that you check out some of the resources provided by the systems innovation network, which is a community of systems innovators that are solving a wide scope of problems across multiple domains, both the private and the public sectors. They also have thorough references and educational content covering tokenomics and token engineering which can be found here.



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