3 Best Practices - Tokenomics Design Course (Part 2)
Introduction to Tokenomics Design
Overview of the Video
- This video serves as an introduction to best practices in tokenomics design, emphasizing that it is for educational purposes only and not legal or financial advice.
Three Best Practices in Tokenomics Design
- The three key practices discussed are:
- Use comparables (comps)
- Innovate in the right areas
- Optimize for resiliency instead of just price increases.
Using Comparables in Tokenomics
Importance of Comparables
- Utilizing comparables from both traditional finance (TradFi) and technology sectors can guide market research, product strategy, and valuation. For instance, looking at Rivian and Tesla can inform how to build or value an electric car company.
- In DeFi protocols, platforms like DeFi Llama provide metrics such as market cap to total value locked (TVL), which helps in making informed comparisons. However, it's crucial to select appropriate comps based on similar revenue drivers.
Cautions with Comparables
- Mixing different types of products when selecting comps can lead to misleading conclusions; for example, comparing an automated market maker's TVL with a yield aggregator's revenue model may not be valid. Researching relevant papers and learning from past mistakes is essential.
Innovating in the Right Areas
Focused Innovation
- Innovation should target use cases, utility mechanisms, governance models, and technology that create user value while capturing protocol value simultaneously. Avoid overly unique approaches regarding legal structures that could attract regulatory scrutiny.
- Careful consideration must be given to how financial benefits are structured within tokens; unusual allocations or vesting schedules can deter investors and raise regulatory flags even if compliant with laws. Standard practices should be followed where possible.
Optimizing for Resiliency
Long-term Value Over Short-term Gains
- Many tokenomics models focused solely on short-term price increases often result in long-term failures; thus, protocols need resilience against market fluctuations and attacks while maintaining fundamental value over time. Examples include the Mango exploit highlighting poor economic security due to flawed tokenomics strategies.