Designing Tokenomics checklist
So you want to launch a token and are lost on where to start? Here’s the checklist for designing your tokenomics from start to finish
- Figuring out your business
- Understanding why you need a token
- Building your token model
- Tuning the supply and demand dynamics of your token
- Token and business review
- Token liquidity
- Token listing
Figuring out your business
This stage, just like every other business planning stage, comes down to having a good business plan. What problem are you solving? Who are your customers, what segments do they belong to? What's your go to market strategy and your acquisition channels? What is the system of your business, as in what is your value chain. Where does your stock or inventory come from and where does it go?
These questions must be answered, and this is not unique to web three. Without understanding these factors in depth you'll never know what you need a token for which is our next step.
- Market Analysis: An analysis of the target market, including market size, demographics, and competition.
- Products and Services: A description of the products or services offered by the business, including their features and benefits.
- Marketing and Sales Strategy: A plan for promoting and selling the products or services, including pricing, advertising, and distribution channels.
- Operations Plan: A description of the business's day-to-day operations, including production processes, management structure, and staffing needs.
- Financial Plan: A detailed financial plan, including projected income statements, balance sheets, and cash flow statements.
Once you know what your business plan is, it’s time to understand what purpose your token serves. Honesty is the best policy here.
There are seven main reasons projects incorporate a token, ask yourself which one yours is serving, these are:
- Bootstrapping funds
- Fundraising from investors (VC)
- Democratizing governance
- Minimizing governance
- Utility: Coordinating decentralized actors towards a common goal
- Access or community benefits
Understanding why you want a token and what purpose it serves is the most important step in building your tokenomics.
Building your token model
The next step is fleshing out your token model, there are a few steps here:
- List all the stakeholders in the ecosystem. Include their incentives, purpose and goals.
- Chart out the relationship and interactions between different stakeholders.
- Plug your token in, based on its purpose. Make sure that your token serves its purpose and relates properly to the different entities in your ecosystem.
- Sketch the inputs and outputs to your tokenomics in your ecosystem. Where do tokens come from, how are they used and where do they sink? This is a stock to flow model.
- Regulatory concerns: make sure you’re not breaking any laws and that your token isn’t in fact a security.
Throughout these four steps you’re basically walking through the demand driver for your token: what utility it brings or why someone wants to hold it. Here’s an example from the $CODE token breakdown of why someone will want to hold $CODE.
Once you finish these steps you’ll have a basic tokenomics design, including what token your purpose serves, how it interacts with different stakeholders in the system and what actions cause what reactions.
Tuning the supply and demand dynamics of your token
Now that you have your tokenomics roughly sketched out, it’s time to go back and fine tune your supply and demand dynamics. This is where you’ll want to review everything you’ve sketched out holistically.
- What causes demand?
- How does demand change over time? Is there seasonality? A different growth rate?
- What is the growth curve for your token and product?
- What are the sources of supply?
- How does the supply change over time?
- Who will have an outsized affect on your tokens and when?
- Cross reference the supply and demand characteristics to pinpoint tricky periods of imbalance.
- Make sure your token has enough supply to match forecasted demand but avoids a supply glut.
Token and business review
Review all your tokenomics in light of your business needs. Does your token design fit in and augment what you’re working on? Some example questions to ask yourself:
- Does your token help your growth loops?
- What business objectives need to occur to help the token to succeed and vice versa?
- Are there business constraints that will damage your tokenomics? These could be forcing a launch that’s too early, selling too many tokens to investors, committing to too many objectives.
Making sure your token has enough liquidity and in the right places is as important to tokenomics as every other part - it’s your tokenomics’ “go to market”. Here’s a primer on this topic.
- How much liquidity will you need to provide?
- Where will your token be listed? What DEXs or CEXs? Each have different advantages and disadvantages.
- Who will provide liquidity and why?
- Will you need to incentivize your liquidity providers?
Now that you have this figured out you can list your tokens!
I design tokenomics for crypto protocols (all still in launch phase) and am putting everything I’m learning into a super in depth course on Tokenomics. If you’re interested in my free email course on tokenomics, sign up here!
Designing Tokenomics by Yosh Zlotogorski