Token Economy - Defined & explained

Token Economy - What is the Philosophy, Politics & Economics being the Token Economy, which is made possible by blockchain, and is a key component to web3 and the Metaverse?

Token Economy - A Philosophy, Politics & Economics

Token Economy - this is about the ownership of valuable data particularly that related to your identity such as health data or your interactions and behaviours in relation to all the other "things" (people, company or devices) on the internet. This data is far too valuable to trust to a central database. That's the problem we have with web 2.0. You are the product for these "free" services.

In web3, which is the Token Economy, we have a philosophy that you are a sovereign individual on the internet. We need the politics behind that to decide that as a society we want the "right" folks to own their data and to leave no one behind. Our DAO must be governed on fair & democratic rules. It is down to incentive design, which is part of the governance of the DAO, to decide what outcomes are important as a balance of financial, social & environmental.

We can change the behaviour of the economic actors in a shared process, at the level of the market, to incentivise collaborative solving of problems caused by data (or digital assets) like your healthcare data being stuck in the silos of each economic actor. We need the economic model to make this work and this needs to be decentralised, distributed and open and to allow permissionless pseudo-anonymity as well as fixing the issuer-holder-verifyer (KYC) problem Xchain. Identity must be "Diffused." on the internet. (Keith Guidry)

Token Economy - what is the problem solved?

Today there is no one place to go on the internet to see the change of state of important data objects that need to move across the organisations in the value chain in a shared process to ultimately serve you or me - the end consumer. The fact that this important data (like your health data) is often stuck in each organisation’s silo (GP, hospital, MRI dept., private healthcare, public healthcare, District nurse, DVLA driving medical license, Social security disability payments, Pharma drug trial, health insurance company, motability disabled driving, airline disabled passenger, supermarket disabled customer priority home delivery…) & the shared process to update and synchronise this data is done with paper, spreadsheets, phone calls & emails, causes no end of problems. It is ridiculous in a digital age that we still use paper. Why oh why, isnt this data on the internet accessable to all with the access rights to see it?

First everything is slow. Then we need to reconcile each trade or transaction. My order price & quantity must be checked against your sales price & quantity before payment can be made. We can only see one up & one down in the value chain (my supplier & my customer). We have no clue where this stuff utimately ends up or originally came from. Often we have to do things without knowing key data. Maybe we have to redo work that has already been done because we can’t see the data. Or maybe we make mistakes because we don’t know that something happened. Or that the data is inconsistent or different across silos. The left hand says this, and the right hand says that. Which is correct?

Maybe most important of all. If this data is training an AI/ML engine then where has this data come from? What is the quality of this data - is it all baloney? And who owns the data - or better - who is the rightful owner of the data? Is the rightful owner getting the financial reward if this data is being monetised by a big player in the market? You need to own the most valuable data of the graph of interactions or behaviours you have with all the other “things” you interact with on the internet/web3. So, we digitise this thin process layer of email etc. into the smart contracts across legacy pillars with you in control. The biggest problem solved by the Token Economy or web3 is to give you ownership of your data and stop you from becoming a digital slave.

Token Economy - Defined.

A blockchain is a behaviour machine. The economic incentives are captured in the code of the shared process at the level of the market. It is an economy in code. It is about money. About transactions. About trading - buying & selling. It is all about economic incentives governed by the community to be fair & democratic to all. Everyone wins. There is intent behind outcomes.

The Token Economy refers to: 1. Certainty of identity (who am I dealing with) 2. Certainty of provenance (what am I buying) and 3. Certainty of execution (if I do this I will get paid). (Source - Bettina Warburg https://lnkd.in/eDtnrdqG). Access to these digital capabilities are held as tokens in a wallet as identity and its credentials, NFT / security denoting ownership and money in the form of stablecoins and especially marketplace specific tokens.

In the token economy value and ownership (atomic swap of ownership and money tokens) are transfered at exactly the same time at great velocity (no post trade reconcilitation is needed and use of digital payment rails). Tokenisation supports fractionalisation and innovative new types of secondary market. The foundation to this new digital economy is digitisation of identity of person, thing or company (“things”) as a full member of web3 with full “agent”cy Linda Goetze or awareness and ownership of the digital trading relationship with all other “things” on the internet Charlie Northrup https://lnkd.in/eMaDPAiv - please read the comment thread on this post.

If you want to learn more about this thinking you can read or reference my whitepaper about all of this?which is published on SSRN.

Suggested Citation: "Martin, Andy, The Token Economy (October 16, 2021). Available at SSRN:?https://ssrn.com/abstract=3972111?or?https://dx.doi.org/10.2139/ssrn.3972111?"