Guest: Robert Koschig, Researcher at 1kx
Robert Koschig is a token economics researcher at crypto venture 1k(x). At this year’s Decentralized Application Summit hosted by Gnosis in Berlin, Koschig summarized his token design for decentralized hardware networks. For example, he believes that Filecoin’s token issuance plan based on KPI index is more scientific than a time-based token issuance plan. At the same time, Koschig also pointed out that the current token rewards in the Depin network are unpredictable, challenging the predictability and stability of the Bitcoin model.
Outside of decentralized hardware networks, what does token design mean in general? As the industry has gradually evolved from the barbaric "Wild West" to today's imminent release of Ethereum ETFs, reasonable and scientific token design has become an indispensable part of most decentralized protocol products. In other words, the current token designers will be the product managers of the next generation Internet.
So is there a routine for token design? Is there a consistent set of token design models within the industry that projects can follow? Koschig pointed out the main thinking directions of supply-side token issuance (supply), governance (governance), demand-side subsidies (incentives), and venture capital (investment). The conversation also compared two classic token models in the industry: Bitcoin and Ethereum from the perspective of immutability and change, and how projects can extract appropriate design models from them according to local conditions.
Featured Takeaways:
Token design should focus on continuous improvement and not be limited to the concept of “Tokenomics” which carries the baggage of past practices.
The protocol does not necessarily require a token, but it is a very powerful tool if used effectively.
Unlike traditional coupons or rewards, tokens are yours forever.
The common points of token design are coordination, value capture and value transfer.
Centralized payment channels contradict the purpose of decentralized infrastructure.
Having your own token comes with additional benefits like controlling the issuance - how much you mint and who you distribute it to.
If you want broader community participation, governance tokens allow for this transition.
In terms of governance, tokens determine proposals and votes, but there are different entities responsible for executing decisions. This separation helps manage the economy, staking mechanism, and governance more efficiently.
Tokenomics doesn’t change much: the project designed it, launched it, and continues to run at a fixed inflation rate.
When you look at Ethereum’s approach, you see that there is a situation where they can think through code, adapt, and introduce endless possibilities in terms of economics.
TechFlow: Can you share why you chose to focus on token economics research?
Robert:
Tokenomics is still in the research stage. Typically, developers have expertise in technical aspects, but when it comes to economical design, the field is rife with opportunity.
This field fits my background very well. You'll need knowledge of mathematics, game theory, and economics, as well as data science, such as simulation and data analysis. Combining these two parts creates an emerging field full of potential, which is right in line with my main strengths.
TechFlow: Can you explain what Tokenomics is?
Robert:
Of course, if someone asked me: "What is Tokenomics?"
I would describe it as a preliminary attempt to explain how a protocol works in terms of the economics of its design.
You will always have technical questions, like: “What is this product?”
But once people understand the technical aspects, they will realize how powerful these economic coordination mechanisms are. They will focus on studying the powerful potential of tokens and what they can unlock, such as when you suddenly have an airdrop.
We’ve seen what happens when projects don’t issue tokens initially and then introduce them later. Tokenomics was the first term used to describe this process.
However, the term “Tokenomics” often comes with the burden of pie charts and vesting schedules.
True economic design is about the coordinated dynamics of your product. It's not just something you do before a token is released or included in your white paper; it's an ongoing effort, just like technology development. You start with a minimum viable product and gradually build and improve the technology - developers test it on testnet and mainnet. Economic design should follow the same iterative process.
Token design should focus on continuous improvement and not be limited to the concept of “Tokenomics” which carries the baggage of past practices.
We should think more about economic design and how it develops over time.
TechFlow: Does every Web3 project need its own Tokenomics
Robert:
I don’t think it’s necessary. If you don’t need to rely on an incentive mechanism, that’s naturally the best!
Even so, for projects that don’t rely on incentives, there may still be benefits in trying some experiments. Traditional economies use methods like cash back or Starbucks coupons, but tokens offer some new possibilities due to their immutability. For example, if I give you my token because you completed a specific task, I can't take it back. Unlike traditional coupons or rewards, once you own the tokens, they are yours forever.
This immutability makes the token a powerful tool within the protocol. They can provide significant incentives without the risk of revocation, unlike some miles or coupons that may come with strings attached.
Protocols are not required to own tokens, but tokens can be a very powerful tool indeed if used correctly.
TechFlow: Why do some protocols require token design while others do not?
Robert:
It all depends on what you want to achieve as a protocol.
Are you a consumer-facing app or a DeFi app?
Usually, common application scenarios of tokens involve coordination, value capture and value transfer. In these areas, tokens can be very effective tools. But the key always lies in Tokenomics and token design - how you implement it is up to you.
You may have goals to launch a specific token through your protocol. But if done incorrectly, the results can be completely different from expectations. This decision should be solid, ensuring that adding tokens to your protocol truly enhances your product. Once this decision is made, it needs to be given adequate attention because while tokens can bring benefits through economics and dynamics, they can also cause harm if not handled properly.
TechFlow: Can you elaborate on the advantages and rationale for using digital tokens in decentralized infrastructure compared to traditional fiat currencies?
Robert:
Of course. There are many levels to why a digital token is needed, and it can even be used to experiment with different hardware. The typical argument for tokens is to incentivize supply chains.
Someone needs to buy these tokens and provide storage services. Technically, you can have users pay in USDC or other fiat currencies and operate outside of the crypto world, even if it's running on decentralized crypto infrastructure, and you can use centralized payment methods.
However, this is often illogical as a centralized payment method goes against the original intention of decentralized infrastructure.
That’s why it’s best to stick to decentralized payment methods, such as using stablecoins. This doesn’t necessarily mean you have to use your own token; there are other excellent payment tokens on the market. However, owning your own token comes with additional benefits, such as control over issuance – how many tokens you mint and to whom you distribute them.
The beauty of token design is that it offers a lot of freedom. You can make any decision and even change those decisions over time. This is a powerful tool for growing your community and engagement. A simple mechanism is a governance token. Initially, it might be the team driving things, but as you grow you'll want the wider community to get involved. Governance tokens allow this transition. Of course, you can also build more advanced features on top of this.
TechFlow: Can projects adopt a modular approach when designing their Tokenomics?
Robert:
Yes, ideally you could achieve modularity. This is the ideal goal. You can set up, "Okay, the supply-side incentives are a module, the governance is a module, the demand-side incentives are a module, and the investment speculation part is also a module."
In the end, you only have one token, and then you need to get Be clear about how all of these relate to each other. This is why governance in DeFi becomes very interesting. For example, in the early stages, governance decisions may be needed to cover actual costs. Investors want to know that if they invest in your protocol, from a rational perspective, they will receive a better return.
This means you need to allocate them a significant share of your network. However, when this is combined with governance, rewards become dependencies. For example, if you allocate a certain amount to the supply side and leave the remainder to be determined by governance, those operators that do not sell their tokens will accumulate more voting power over time. This can lead to internal problems as they may decide their own rewards, which game theory predicts could lead to power struggles.
You also need to consider the governance aspect, as managing different interest groups is crucial. Relying solely on token-based governance may not be enough. This is why many well-known protocols like MakerDAO have independent governance committees. Tokens are used to finalize proposals and vote, but there are different entities responsible for executing the decisions. This separation helps manage the economy, staking mechanism, and governance more efficiently.
TechFlow: Have you observed the evolution of Tokenomics? How have different projects adapted their Tokenomics models, and what changes have been made?
Robert:
Token rewards always make sense, right?
Early-stage projects like Bitcoin demonstrate their power as network effects and economic incentives. Bitcoin’s fixed issuance schedule has inspired many platforms to adopt similar strategies. They often stress the importance of a fixed issuance schedule.
However, some people realize that this approach may be too restrictive. Therefore, they added a second layer of logic that was more dynamic, although still fixed. From this perspective, Tokenomics doesn’t change much: the project designs it, launches it, and continues to run at a fixed inflation rate.
But there have been adjustments. For example, The Graph has improved its design over time. Initially, it provided curation capabilities for data indexing via join curves. Over time, they discovered inefficiencies and tweaked the model.
This shows that while the initial design may be fixed, learning and adjustments are necessary. Complex token economies like DeFi require iterative learning and modification.
It’s important to allow for experimentation and learning rather than rigidly sticking to the initial design. While this approach appears more flexible than traditional crypto narratives, it avoids getting bogged down by inefficient models. The industry is growing rapidly and new technologies are emerging. Leveraging simulations, data science, and continuous adjustments can help in designing tokens correctly.
TechFlow: What fundamental components of Tokenomics design remain the same over time?
Robert:
What I think has not changed is that the underlying economic principles have been consistent since the field of economics evolved. Your token and its issuance incentivize contributions, similar to how early Bitcoin incentivized miners. This method is more efficient than starting from scratch. The issuance volume of Bitcoin in the early days was much higher than it is now.
The basic concept remains that if you have a well-functioning supply system, your protocol works as expected and provides a good user experience, the revenue will naturally come. These revenues can then support the system. This principle is fundamental and always relevant.
You can cover certain reward amounts by issuing additional incentives or adjusting revenue streams to ensure that the overall reward is sustainable even if the reward does not decrease.
TechFlow: Cryptocurrencies other than Bitcoin seem to be more complex in some aspects. Do you think Tokenomics or Web3 protocols will become as composable as smart contracts, given the complexity involved? Is there a way to simplify these theories?
Robert:
It’s true, it’s difficult, but that’s also the beauty of Bitcoin. It uses a simple mechanism. On the other hand, when you look at Ethereum's approach, you see that there is a situation where they can think through the code, adapt, and introduce endless possibilities in terms of economics.
If a mistake is made, offline discussions come into play. New dynamics were understood and different committees emerged, leading to proposals for separation or collaboration. This is a challenging process, but it allows for adaptation and optimization.
Complexity is a huge challenge and even the brightest minds in the industry are solving these problems without seeing every movement. Predicting behavior is extremely difficult.
Long story short, yes it is complicated and will probably never get simpler. The simplest and most effective models already exist and can be replicated. Today, new projects tend to be more complex and adaptable, rather than static and rigid. This is often the way technology evolves.
Think about bicycles: they have been around for a long time and were once the fastest form of transportation. The basic concepts remain the same, but they are no longer the best option for all modern needs. People are constantly adding new features, creating new problems and solving them. This evolution makes Tokenomics more complex but also more reliable.
The goal is to reach a stage where people can understand what is going on. If understanding is lost, trust is also lost. Balancing the need for immutability with adaptability is key, ensuring a majority of owners can vote to make necessary changes while maintaining stability.
TechFlow: What common pitfalls in Tokenomics design have you observed that could hurt a project? Does Tokenomics design help or hinder project growth?
Robert:
It’s easy to fall into the trap of treating tokens like candy. When you use the token pool, it's like getting a reward. People can get addicted to it, not realizing that the more they do it, the more the project becomes focused solely on the token. This is why we now have issues like misleading metrics, high total value locked (TVL), and low market cap.
We have lost sight of the fundamental purpose of tokens. Tokens are more than just rewards; they are powerful tools for coordinating, growing, and accelerating the development of your project. However, tokens should not overshadow the core product. At the end of the day, you still need to build a solid product. The token will eventually become part of your product, but it shouldn’t be the only focus.
In the beginning, you may feel like you have a certain budget and standards, but eventually you will find that without real revenue, usage or commercialization, you have spent all your incentives on short-term appeal and hype . This often results in rapid collapse when market conditions change.
그래서 나는 간단한 시뮬레이션을 실행하고 공급 및 판매 압력의 기본 메커니즘을 분석하고 내러티브 내용을 무시하는 데 많은 시간을 보냅니다. 저는 "이 참가자들이 토큰을 보유하거나 판매할 것이라고 생각합니까?"라는 질문을 던지고 싶습니다. 토큰이 잠금 해제되면 이것이 시장에 어떤 영향을 미칠까요? 단기 인센티브의 함정을 피하고 지속 가능한 프로젝트를 구축하려면 이러한 역학을 이해하는 것이 중요합니다.
TechFlow: 저는 Safe의 토큰공학 디자인에 대해 이야기하고 싶습니다. Safe의 디자인과 발전에 대한 통찰력을 갖고 계십니까? (참고: Safe는 1KX 투자 회사입니다.)
Robert:
Safe는 2년 전에 토큰을 출시했는데, 처음에는 양도할 수 없는 순수 거버넌스 토큰이었습니다. 커뮤니티 측면에 정말 감사드립니다. 당시에는 아직 1KX에 참여하지 않았기 때문에 크게 관심을 기울이지 않았습니다. 거버넌스가 너무 원활하게 작동하기 때문에 제가 할 수 있는 일이 별로 없습니다.
그들은 좋은 거버넌스 구조를 갖추고 있으며 이와 관련하여 도움을 주는 다른 팀원이 있습니다. 그들은 토큰을 양도 가능하게 만드는 데 필요한 단계를 자세히 설명하는 명확한 의사소통 계획을 가지고 있습니다. 주요 단계 중 하나는 정부가 토큰의 유용성을 인정받는 것이었습니다. 이제 토큰을 거래할 준비가 되었습니다.
이는 좋은 거버넌스 토큰 설계를 보여줍니다. 처음에는 양도할 수 없어 목적에 잘 부합했습니다. 그들은 토큰을 대상 그룹에 배포하고 그렇게 유지했습니다. 그러나 커뮤니티는 결국 이를 양도 가능하게 만들기로 결정했습니다.
이 일이 어떻게 전개되는지 보는 것은 흥미로울 것입니다. Safe는 추진력이 뛰어나며 가치 포착과 잠재적인 협업에 대한 명확한 비전을 가지고 있습니다. 그들은 최근 성공을 현금화하고 이를 중심으로 경제 모델을 구축하려는 계획에 대해 이야기했습니다. 안전은 훌륭한 제품이며 우리가 이에 투자한 데에는 이유가 있습니다.
지금은 포인트 프로그램도 있는데 이게 트렌드인 것 같고 앞으로도 비슷한 프로그램이 더 많아질 것 같아요. 예를 들어, 저는 DeFi 분야에서도 유사한 계획에 대해 들었습니다. 이러한 프로그램은 순수한 채굴 활동에서 벗어나 실제 제품 참여에 더 중점을 두고 있습니다. 사용자는 단순히 보상을 받기 위해서가 아니라 제품을 진심으로 사랑하기 때문에 피드백을 제공합니다.
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