The Token Endgame

The Token Endgame

In the past decade, we’ve witnessed the renaissance of a new asset class: tokens.

  • The endgame for tokens is to become “equity-like”, but with more use-cases.
  • Tokens will become the digital-native asset, more seamless and interoperable than all existing asset classes.
  • The regulatory environment will catch up to this new reality, but it will take time.
  • Values can’t accrue to both tokens & equities effectively.
  • The next crypto bull cycle requires tokens to integrate with real economic activities.

What is a token?

The emergence and popularity of digital tokens started approximately a decade ago when Bitcoin showed the world the possibility of having an entirely digital, cryptographically secured, immutable form of money that can be utilized by any party and is free from centralized powers.

Muh governance token

Digital Currency

As the name suggests, a digital currency aims to become a form of money on the internet that people can use to transact with one another. It does not have any other features such as smart contracts functionality, nor does it represent any use-cases tied to a particular project.

Network/L1 Tokens

Ethereum pioneered the idea of using blockchain technology to write smart contracts, enabling the creation of decentralized applications. This unlocks an entirely new type of token that is used to power blockchain “networks”, often dubbed as “Layer 1 (L1) token”. L1 tokens are used to secure the underlying blockchain network it lives on, as well as being the de-facto currency that users and developers need to pay with when utilizing the blockchain and decentralized applications built on top of it.

Utility Tokens

As L1 tokens mature and multiple blockchain networks with smart contract capability emerge, the number of developers who are interested in building applications on top of these networks also increases. In 2017, we saw many projects raising funds via Initial Coin Offerings (ICOs) to build their own blockchain suited for specific use-cases. These ideas were often big and broad but without any detailed explanation of what sort of problems they are actually trying to solve. Sales pitches such as “the Ethereum of China”, and “blockchain for global supply chains” were being thrown around as people realized that it was extremely easy to raise capital via ICO. Alas, crypto projects circa the 2017 ICO boom era were often criticized for trying to find problems for an existing solution.

Governance Tokens

Fast forward to 2020, application layer projects found product-market fit and massive success via Decentralized Finance. The DeFi 1.0 generation projects such as MKR, UNI, AAVE, COMP, and SNX were not building their own blockchain, but instead, were building decentralized financial services on top of the Ethereum blockchain and issuing their own tokens for multiple reasons and with multiple use-cases.

“but much governance token”

Perhaps you’re familiar with the saying above that mocks governance token value, which was arguably made famous by DegenSpartan. In retrospect, the hentai enjoyer had more insights than most crypto fund managers and tweeted actionable insights for market participants.

Ride-to-Earn (R2E)

Uber and other ride-hailing firms subsidized ride costs in their early days by providing cheap rides at the expense of venture capital dollars to acquire users. This growth hacking strategy worked and has since been copied by many tech firms, hoping that the products combined with cheap costs will create a network effect and retain users when they eventually discover ways to be profitable.

Always listen to criticisms — but also check NYSE: BOX & ABNB

The Token Endgame is: Tokenized Equity

Surprise surprise.

Is anybody working on a database for projects that raise both equity & token?

So What’s The Conclusion?

I’m no securities or legal expert but web 3.0 founders need to balance:

  • how “equity-like” their token is while making sure it’s useful
  • where to market & sell their token
  • create a truly remarkable product that people love even without the token

Letting Go of Control

This past week, I caught Covid. I’ve been avoiding it like a ninja for the past two years but it eventually got a hold of me. I didn’t feel too much pain, but it still wasn’t enjoyable. As I was laying on my bed, I opened TikTok in an effort to stay relevant with the GenZ when I came across a beautiful post in which a guy responded to the question: “When have you felt your weakest?” with “when I started taking my current relationship seriously; if you’re trying to build a something with another person, you need to drop the belief that you have full control over everything”. Crypto people are some of the most driven, hardworking, and ambitious cohorts that I’ve ever met. Oftentimes, these traits tie closely with having the belief that you have total control in life.

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Marco Manoppo

Marco Manoppo

Research Director @DAR_crypto. Writing crypto, investing, venture building, strategy, and life musings. A pragmatic dreamer.