Tokenomics

A consistent and sustain cryptotoken price rise is best for a blockchain loyalty program, which means carefully managing the tokenomics of the program. So what can be done to help deliver a measured and consistent cryptotoken price rise?

The first step is getting the tokenomics right. According to Ennis et al,[1] tokenomics covers ‘the set of all economic activity that has been generated through the creation of cryptotokens.’

The biggest challenges many blockchain companies face regarding the value of their cryptotoken is that they don’t have an eco-system which is effective in generating sufficient demand for all the tokens in circulation. This is exacerbated by the fact they likely sold too many tokens at ICO in order to raise as much money as possible. As a result, most of the buy and sell activity for their cryptotoken takes place on exchanges which means the value of their token is almost entirely dependent on market sentiment. With a market as volatile as cryptocurrency trading, price swings can be considerable. In early 2018, many cryptocurrencies and tokens lost 90% of their market value.

The recommended strategy for a blockchain loyalty company is to limit the amount of tokens held by investors, and aim for the majority of buy and sell behaviour to occur within the program via earn and redemption transactions. Thus, if the speculative market pumps or dumps, the loyalty program token value is somewhat insulated because the average member isn’t trading but accumulating for a future reward. A blockchain loyalty company has a greater chance of survival if most of the buy/sell behaviour happens within the program, not as speculative trading on exchanges, and if the demand for tokens within the program is greater than the supply held by traders.

Quality commercial modelling will allow the loyalty company to ascertain the minimum amount of  cash they need to raise via ICO to survive the first couple of years, how many members they need to acquire, how much each member needs to spend per annum and what percentage of revenue retailers need to return to members in order to generate enough demand for tokens within the program than the supply available for sale by traders. This will lead to a sustained and sustainable cryptotoken price rise, and one which is resistant to downward price pressure from speculative selling.

The outcome from this should be a decision by the loyalty company to aim for a much smaller ICO raise.


This is an excerpt from Blockchain Loyalty: Disrupting loyalty and reinventing marketing using cryptocurrencies (1st Edition) by Philip Shelper.

Blockchain Loyalty is available at all good book stores. Buy it now.

[1] https://www.coindesk.com/three-definitions-tokenomics/