Token ecosystems are complex financial subsystems that comprise the broader cryptocurrency markets. The economics of managing a token ecosystem are very similar to those of already established financial instruments such as stocks, gold, or fiat currencies. The same foundations in economic principles apply. Token ecosystems can suffer from runaway hyperinflation just like poorly managed world currencies like the Zimbabwe Dollar. Their secondary market values also respond to economic productivity measures such as company revenue, and perceptions of future success such as those experienced by stocks. And like gold, their perceived value given no other economic output or intrinsic value can result in actual fungible value – based purely on supply and demand.
Thus, the issuance of a token is more than just a vehicle to raise capital. New project founders looking to create a token economy should possess a strong background in finance and economics (or at least have an economist on board) before embarking on the issuance of a token to the public markets. They should seek to leverage the native features of a token and ensure their product makes proper use of them such that current and future utility is significant and ultimately benefits the project and end users alike. With over 22,000 currencies tracked by Coinmarketcap, the mere issuance of a token is no longer a novel or unique concept. Real-world innovation by founders with good economics will be the key to the sustained growth of token economies in the long run.
While this document may view many token ecosystems critically, the intent is not to discourage their use and creativity of application. Rather, it is our goal to encourage active discourse and evolution of their designs for the benefit of their projects and end users. Many token ecosystems are zero sum, and their issuance may largely be indexed toward the benefit of early investors and founders. Thus, some critique is warranted for the sake of protecting the public investor while building more sustainable ecosystems from both a price and project longevity standpoint.