How To: Tokenomics Development & Architecture

Published in

Aegis Studio

6 min readJan 12, 2022

Tokenomics is a business plan for a cryptocurrency (token). A good tokenomics thesis should include a balanced economic model of a token(s) that takes into account the interests of all participants; investors, users, coin founders, developers, etc… Tokenomics is the science of shaping the economy and value of tokens and the term “tokenomics” refers to all factors that can shape that value.

Quick Intro

Aegis Studio works with companies and projects that want to get a fundamental analysis of any token or cryptocurrency. From the data obtained from the project during the discovery phase, Aegis will be able to conduct a comprehensive assessment of the attractiveness of the tokens involved. Aegis also provides architectural solutions, execution strategies and product roadmaps for new decentralized projects that need to build a tokenomics model from scratch.

Aegis studies the relationship and interaction of tokens within blockchain networks, third-party companies, exchanges, and the properties of a single token within its ecosystem. Aegis defines this as the process of finding the economic meaning of a token. How the token will be in demand by different groups of people determines its liquidity, cost and popularity. Our technical knowledge in the fields of economics, cryptocurrencies, blockchain technology and smart contracts offers a unique perspective for developing tokenomics.

Aegis develops detailed descriptions of the tokenomics by creating white papers for these projects. When designing and issuing tokens, Aegis ensures that each project has the opportunity to create unique tokenomics that can ensure the success of the project.

The economic model of the token is built on the basis of a business model that has a mathematical representation and has been tested for applicability and internal consistency. The development of tokenomics is closely related to the vision of business goals by the founders of tokens and/or cryptocurrencies.

Tokenomics needs to be developed at a very early stage in a project so that it shows business problems and helps avoid negative consequences. Strategic stakeholders always study the tokenomics of a project and very often double-check the calculations and the economic model of the token.

Tokenomics Allocation Table

Most projects start with representing their Tokenomics through the allocation table prior to their initial TGE (Token Generation Event). This table always has a Max Supply, i.e., the maximum number of coins coded to exist in the lifetime of the cryptocurrency. It is comparable to the maximum number of issuable shares in the stock market, Max Supply = Theoretical maximum as coded.

Here is a typical token allocation table

5% Seed Round
11% Private Round
2% IDO Round
30% Community
21% Treasury
10% Liquidity
16% Team
5% Advisors

This table can be adjusted and modified as needed. Once the token is “In Play” the following metrics are used:

Circulating Supply — The amount of coins that are circulating in the market and are tradable by the public. It is comparable to looking at shares readily available in the market (not held & locked by insiders, governments).

Total Supply/Fully Diluted Value — This accounts for tokens are currently not in circulation due to investor vesting schedules, team vesting schedules, mining emission schedules, tokens set aside by protocol for staking and/or liquidity provider rewards. One could use the analogy of outstanding shares in the stock market.

Max Supply as Defined above.

Tokenomics Mechanics

Since token value is based on supply and demand then inflation and deflation come into play for tokenomics. Deflation occurs when the token is “burned” and total/max supply decreases. Inflation occurs when the circulation supply and total supply increases. By regulating these two economic mechanics the project can maintain an increasing price and volume for the sales of its tokens. Aegis can provide guidance on how to implement both deflationary and inflationary models to produce the best outcome for the token.

The market cap of a token is equal to the Current Price x Circulating Supply. This Refers to the total market value of a cryptocurrency’s circulating supply. It is similar to the stock market’s measurement of multiplying price per share by shares readily available in the market (not held & locked by insiders, governments).

The token price is also driven by the utility of the token. A good example of utility is ETH on the Ethereum network. Without ETH you cannot do anything on the Ethereum network. For example if you want to send someone USDC tokens you must spend ETH to do so, or if you want to use any of the DEXs such as UniSwap you must spend ETH to do so. This utility for the ETH token drives its demand. There are success cases for tokens with no utility but the demand for this is defined by pure speculation and PR such as DogeCoin.

On the other side of the coin, we must take into account token price is also driven by sell pressure. This pressure can come from a few different places. Vesting unlocks, liquidity providers selling rewards and stakers selling rewards. Something many protocols have fallen prone to within their given ecosystems and many cannot recover.

Gaming Tokenomics

Gaming Tokenomics presents a new dynamic of features to be considered which combines the use of NFTs (non-fungible tokens) and fungible tokens. The leading-edge games use a combination of these token types. Games such as Axie Infinity uses their native fungible token ($AXS) as the currency standard for all economic activity in the world of Axie, similar to how one uses GIL in Final Fantasy or Rupees in The Legend of Zelda. Decisions for the development of Axie Infinity are currently made by the Sky Mavis team (the founding group), but holders of $AXS will eventually have voting rights as to how funds are allocated and which features to prioritize within the game via a DAO (decentralized autonomous organization) structure. $AXS currently provides utility by rewarding users for staking their tokens (staking is a means of committing your tokens to support a blockchain network and confirm transactions), playing various games within Axie infinity through user generated content initiatives. The second fungible Axie in-game token, ($SLP), is used to purchase in-game assets. Assets in the game are represented by NFTs. $SLP provides utility by allowing players to “breed” assets (the production of new NFTs by combining two or more existing NFTs). These tokens use sophisticated tokenomics models with both inflationary and deflationary mechanisms involved that are designed to stabilize the in-game economy.

Aegis Tokenomics Consulting

Aegis has skilled of tokenomics specialists, business development managers, mathematicians, economists, marketers and, most importantly, web3 architects and blockchain experts — people who can transfer the meaning and logic of tokenomics into code that runs on the blockchain. Aegis develops an effective, comprehensive economic model for cryptocurrency tokens. During the process of creating tokenomics, the principles of its functioning are developed and a smart contract suite architecture for working with project tokens. Aegis can then develop the smart contracts that enables the technical implementation of the tokenomics model of the project. Aegis also does the audit and correction of existing tokenomics models by conducting an audit of existing tokenomics models, conducting stress tests, and optimizing processes and eliminating the problems found.

By creating a project and product description Aegis determines the value and consumer characteristics of the project and product, creating the most accurate description of all the results of the project’s activities and concluding what part of these results needs to be tokenized. We identify all stakeholders, i.e. persons potentially interested in the project, their interests, as well as parties that may have an impact on the project. Which type of tokens tokens to be used and which blockchain platforms to launch the tokens on are all considerations we take and provide the facts needed for clients to make a fully educated decision. Determining the type of tokens, compliance with legal procedure in regards to the technical model of the coin ensures the interconnection of the interests of all stakeholders. The main mechanics of token movement within the ecosystem will ensure the motivation of tokenholders and stakeholders, and verification of the token model for compliance with the jurisdiction of the countries of its circulation. We also consider the opportunities for business development with various amounts of attracted funds. The structure and amount of costs should correspond to the roadmap of the project by calculating the real costs of the project and the infrastructure.

Aegis produces a predictive tokenomics model by the development of a whitepaper, execution strategy and project roadmap through detailed preliminary calculations and a comprehensive understanding of the functions and mechanics of the token in the ecosystem and its real or digital utility.

Authors:

Lawrence Hutson — CTO @ Aegis Studio
Devin Bandara — CEO @ Aegis Studio