Different methods can be used to create an tokenomics program for a particular game or project. In crypto assets such as coins and tokens, token mechanics come into play. With the tokenomics approach, it is possible to manage all these mechanics efficiently.
It would help if you leveraged tokenomics approaches at every process step, such as token creation, distribution, and issuance. Thus, you can ensure that your project progresses much healthier way. But first of all, you need to learn the most important token mechanics.
Most important token mechanics
If you are dealing with tokenomics, you should be familiar with all the tools you can use. Specific mechanics are required to create, redirect and exchange tokens. You must understand these mechanics and use them to create a functional system.
1. Tokens
The coin resides in a blockchain and acts as a store of value. BTC is a cryptocurrency native to the Bitcoin blockchain and ETH to the Ethereum blockchain. These types of coins are much more popular than others. They are earned as rewards when mining and can be staked as needed.
On the other hand, the token tries to behave like a coin while being transferred between addresses. The difference with a coin is that the token entity is user-defined. It is created using specific methods and has a different address. In addition, these methods are mainly programmatic.
ERC-20 in Ethereum is a token standard. You can think of it as a template. Thanks to the template, the token can move in a predefined way. Even if a particular token does not provide the information, the relevant token can be used for exchange.
- Securities and Governance: Token assets in this scope act as company shares to vote on specific issues and earn dividends.
- Utilities: Token assets in this scope can be modified with a utility. For example, operations such as calculation time can be given.
- Non-fungible (NFT): It is a token asset with unique metadata. The NFT-style token can also feature governance or utilities.
When it comes to a token, you should keep in mind that it covers all these token types unless additional explanations are provided. You can take a look at its functions before making any distinctions. Thus, you can define securities, governance, utilities, and NFT for a token.
2. Inflation
Inflation is a general problem that arises due to minting and issuance intensity. It occurs when the total circulation for the token starts to increase. Even if there are severe increases in circulation, token assets may not become liquid. There is a tremendous increase in the staking approach.
Inflation can be advantageous in some respects. The token becomes more accessible to other participants. Because the token may become cheaper, or its liquidity may increase. Developers start earning revenue through direct sales. If the token demand does not improve, the market value of the related asset decreases.
3. Fungibility
One of the essential concepts in tokenomics is known as fungibility. It defines the state of being exchanged between a token and another token. A token is considered fungible if it can be exchanged without losing value. If it is the only one of its kind, it is non-fungible.
Fungible-style token assets can be freely distributed, exchanged, and spent. For this reason, they are very suitable for use as currency for the game. However, non-fungible armors and weapons in the game are preferred since they are unchangeable.
Because fungible tokens are not unique, they can be valued dynamically and are quickly sold on exchanges. Non-fungible ones, on the other hand, have much more diverse values. For this reason, there is no dynamic pricing, and the token value is the price set by the seller.
4. Staking
Staking is locking a particular token asset in exchange for a specific reward. The reward awarded is often the same as the staked token asset. Sometimes additional prizes may be offered. Staking is primarily used in the Proof of Stake method, which is a type of verification process.
Staking is an approach to distributing token revenue through treasury in games. Staking can raise the set value for a particular token in two ways. A passive income can be created through staking. At the same time, the price can be increased by locking the token and reducing the supply.
5. Issuance
Issuance is a method by which new token assets are purchased, exchanged, or distributed. Different ways can be used while offering tokens. The most important among them is known as ICO. It is a process such as fixing the token price for a certain period and offering it for sale.
- Pre-sale: It means putting the token up for sale before it becomes available. It is a valuable method when users want to purchase tokens to fund their future development. It is pretty similar to crowdfunding campaigns.
- ICO: Initial coin offerings are very similar to initial public offering (IPO), which stands for a public offering on the stock market. It is the most critical way to pre-sell token assets. Many tokens manage to announce themselves to users using this method.
- User interactions: Users can buy tokens directly or get them in-game rewards. This method is highly convenient in allowing the game world to evolve spontaneously.
- Developer rewards: Developer rewards are paid for improving some features and making bug fixes. There may be the most rewards for detecting bugs. Token developers must have set all necessary standards.
- Advisory: It is the payment made to people experienced in tokenomics to make the necessary developments for the created token and provide for some external needs. Practical if your goal is to set a long-term strategy for the token.
- Faucets: It is a method that allows users to earn tokens for free. A certain amount of token rewards are given to users who perform tasks such as completing a survey, watching an ad, and signing up for a site.
- Airdrops: One of the most effective ways for token promotion. Users sign up for the airdrop and are eligible to win prizes to be distributed. Airdrop opportunities are generally offered to sites or social media channels with a large community.
When it comes to issuance, everything is not limited to these. Methods can change constantly. The reason for this is that different scenarios can occur within the blockchain. Pre-sale and airdrop can be used together, or much faster promotional steps can be taken.
6. Smart Contracts
Smart contracts are pieces of code created within the blockchain. These pieces of code structure the interactions between coins, tokens, and other external inputs. When a smart contract is made, it becomes possible to perform various operations within the system.
If there are XP tokens in the game, which were developed to upgrade the player’s equipment, their use is possible thanks to the smart contract. In addition, data can be extracted from an external source thanks to the smart contract. The result of the actions to be taken can be determined thanks to the data.
7. Bridging
Bridging is moving a token asset from one blockchain to another. Smart contracts are used when creating the bridge. Also, token assets are locked on a specific blockchain. In the other blockchain, a version called wrapped is created.
Thanks to this method, tokens or coins not included in a native blockchain such as Bitcoin or Ethereum can be created. For example, the blockchain owned by Axie Infinity is a Wrapped Ethereum (wETH) asset. Ronin Bridge acts as a bridge between these assets and Ethereum.
8. Voting
A voting system can be referenced when the token is created. Within the said system, various votes can be made on the management of the game, the use of treasury, and its community. The voting token is often referred to as the governance token. They are pretty similar to company stocks.
Token holders can vote through the assets they hold. In the systems created for this process, one token is seen as equal to one vote. When voting is done, whoever owns more tokens is not likely to get results in the direction they voted.
For this reason, investors may try to own more. Voting is valuable for communities to make future decisions. Thanks to the Voting method, token developers are kept from the decision-making mechanism, and the development can be sustained through the community.
9. Pegging
Pegging is the process of linking the value of one token asset to the value of another asset. Any time a token is pegged, it can be exchanged for a particular value. An ideal example of this is casino chip assets. Because they are pegged to a fiat value (USD, GBP, EUR, etc.).
To achieve this, the casino must maintain a cash reserve equal to the number of chips in circulation. For this reason, a 25-cent casino chip is always worth 25 cents. The blockchain has a coin and token assets that continue a similar approach.
Tether (USDT) is the most critical example of this. It is located on the Ethereum blockchain. 1 USDT is always equal to 1 USD. In other words, Tether is pegged to the USD value. It is a stable choice for trading and hence called a stablecoin.
The advantage of performing pegging is to be able to eliminate the volatility of assets over time. This way, it becomes possible to use coins and token assets in a trade. Crypto assets are made helpful by eliminating speculation to a large extent.
10. Treasury
Treasury aggregates token and coin holdings. The distribution of assets is done through the treasury. Assets in the treasury can be sunk. In this approach, revenue from other token sales comes into play, and certain transactions for the game reduce the value of the assets.
- Staking: Tokens can be created to obtain a share of all the assets in the treasury.
- Development: Awards can be given to people who will act as advisors, internal or external developers.
- Rewards: When it comes to games, players can be offered various rewards for their various in-game challenging achievements.
- Liquidity: Tokens can be offered to provide liquidity to create better economic conditions.
These methods and much more can automatically allocate assets within the treasury. Knowledge of tokenomics is vital for treasury management. Because thanks to tokenomics, it is possible to take much more efficient steps for token management.
11. Minting
Minting is the process of creating tokens from a blockchain. The generated token can be either fungible or non-fungible. Many different requirements must be met when minting tokens. These requirements include essential details such as the symbol and the total supply.
- Name: The name specified for the token. For example, “Apricot” can be chosen as a token name.
- Symbol: The short name specified for the token. For example, “APR” could be a short name for the name Apricot.
- Decimals: The decimal number specified for a token is the amount. It can be set to zero.
- Total Supply: It refers to the total amount of tokens planned to be created.
You can limit the total supply as much as possible. Thus, a limit is placed on the number of tokens in circulation. The most important advantage of doing this is to create scarcity through supply limitation and to allow the price to increase naturally.
12. Burning
Burning is the opposite of the minting method. It is the process of burning a specified amount of token. In other words, this means that the token asset in question is permanently removed from circulation. There are two different approaches to the burning method. Which one to use depends on the conditions.
The first method is to reduce the total supply through smart contracts systematically. The second method is to send token assets to an unreachable address. Generally, the first method is preferred. Because there is no return in the second method.
Burning can be done during an exchange process. You can burn the token to be used in production when you want to create a new NFT using a double NFT. A certain amount of tokens are burned, and new tokens can be produced in the future.
When the burning process is done, there is a decrease in the general supply. As Scarcity increases, prices start to rise. People who hold tokens can benefit from it. When there is a specific limitation on token supply, token holders benefit the most.
Most important participant motivations for token mechanics
In systems created with tokenomics support, different from classical game economies, the motivations of the participants may differ from each other. Generally speaking, there are three high-level motivations. These are development, play, and investment.
1. Players
In the classical games of the modern era, entertainment and socialization are at the forefront. Games involving open economies have led to the emergence of a large industry. But a similar situation has created two different groups of players who play for fun and to earn.
- Play for fun (P4F) players: Players who play for fun spend their free time. They are economically negative because they prefer to invest money in the game. Some players play F2P games and try avoiding habits like paying cash.
- Play for earn (P4E) players: Players who play to win. They spend their time earning income from the game. They tend to earn revenue by selling the currencies or items they have obtained in the game to other players.
Most of the classic games do not have a place for P4E players. The system tries to exclude such players. The situation is slightly different in games developed with blockchain technology. Once they obtain certain items, the developers cannot control them, and the items gain real value.
However, there are two different types of players in P4E. Some players stay in the game all the time and try to reach valuable items by grinding. Players who focus on content production develop new narratives and try to profit from them.
2. Investors
Investing appeals to some of the participants. When participants choose to be investors, they deposit money into the game like P4F players. The deposited money may fall into the hands of the players in the game and get out of control. The goal of investors is for players to spend as much as possible.
- Backers: Backers take action early because they believe in the project. They may want to get their money’s worth. However, due to their motivation, they generally do not have such expectations. Their goal is to be more recognizable.
- Portfolio Enthusiasts: People who invest based on predictions for the future performance of the game. They can constitute the most important source of capital for the token. They are naturally knowledgeable about tokenomics.
- Governors: They invest believing in the long-term performance of the game. Thanks to their capital, they want to play an active role in the project. They can be real investors and players coming out of the game.
- Speculators: People who buy token assets early. Scarcity is their biggest motivation. Compared to others, they don’t bother much with investment analysis. Achieving value over time is their most important goal.
- Managers: People who buy assets such as NFT and lend them to P2E-style players. In general, they share in the earnings of the players with the investment they make. This is the reason why they offer them unique items.
It is not correct to expect the participants to have a single motivation. There may be differences in roles as motivations may change as the project progresses. Speculators may suddenly appear as governors. Tokenomics allows you to be prepared for these situations.
3. Developers
Developers try to build the current experience targeted for the game. They progress by making various additions and improvements. All operations such as integrating new features, fixing bugs, and fixing minor bugs are among their duties.
- Internal developers: Internal developers contribute directly to the project. Developers’ motivations vary widely. They generally earn income from their work. Their main goal is to gain as much as possible in line with their performance.
- External developers: Developers who do not officially exist within the project and have helpful features. Their motivations can be very different and complex. Some external developers may be involved in the project because they want to be recognized.
The motivations of the developers are different from the other participants. Because they are in a position to play a vital role in the project’s success. Depending on the community’s activity, developers may begin to move away from the center of the project over time.
Thanks to Tokenomics, token mechanics, and participant motivations, you get a different efficiency from your project. Suppose you do not consider the economic aspect of the project you will create. In that case, you cannot have a presence in blockchain technologies. Therefore, your priority should be to set economic standards.