Tokenization as Business Model

Description

Trent McConaghy:

"Tokens are the new “new” thing in the blockchain space. Just when everyone thought that blockchains were hot enough, everyone realized that tokens *are* the business model for Web 3.0.

A decentralized system spreads control among many parties. It may or may not be tokenized. The key benefit of tokens is to align incentives among participants of the ecosystem. It’s a positive-sum game among the tribe of token holders.

...

“Tokenize the enterprise” is a new answer to the Innovator’s Dilemma. It allows the enterprise to embrace change, because the enterprise has become the community, and vice versa. The community can decide if it has the courage to embrace change. And, crucially, if some subgroup doesn’t agree, it can splinter off (yes, fork) to do its own thing. Then, a billion dollars doesn’t matter. Communities can self-organize around the original community or the new one, based on their beliefs. Just like ETC vs ETH. Put another way: for the tokenized enterprise, hard forks are the new spinoff. " (https://blog.bigchaindb.com/tokenize-the-enterprise-23d51bafb536)

Discussion

Albert Wagner of USV:

“Historically the only way to make money from a protocol was to create software that implemented it and then try to sell this software (or more recently to host it)… With [cryptographic] tokens, however, the creators of a protocol can ‘monetize’ it directly and will in fact benefit more as others build businesses on top of that protocol.”

Previously, the creators of open communication protocols for the Internet, largely DARPA researchers and non-profit contributors, could not align financial incentives with protocol development. In contrast, protocol creators today can issue “tokens”, like Bitcoin and Ethereum, that represent the value of their decentralized protocols.

Monegro believes that this paradigm shift affects the way that developers should think about their applications: “The combination of shared open data with an incentive system that prevents “winner-take-all” markets changes the game at the application layer and creates an entire new category of companies with fundamentally different business models at the protocol layer.” (http://blog.ycombinator.com/building-for-the-blockchain/)

Example

Ethereum: Capturing Value Through Protocol Innovation

By Vincent Chen and Ramon Recuero:

"We’ve come to the understanding that in the blockchain paradigm, developers can capture value through protocol innovation. To continue our discussion, we review how blockchain technologies evolved to eventually cater to developers. Eight years ago, Bitcoin was conceived as a virtual currency that removed the need for centralized financial systems. Initially, developers actually tried building applications upon the Bitcoin blockchain by storing data in the blockchain itself, but it turned out to be pretty inefficient (as described in another old Joel post!). One of these developers, Vitalik Buterin, was frustrated by Bitcoin’s immobilism and risk averse culture for adopting new developer-friendly features. So, he built his own platform, Ethereum.

While Bitcoin was originally intended to serve as a new medium for financial store of value, Ethereum was invented to serve as a Turing complete developer environment. In Ethereum, developers write smart contracts in the Solidity programming language, and those smart contracts are run in the Ethereum Virtual Machine (EVM). Here, we observe an opportunity for developers to fork and implement their own blockchains to serve different purposes. To do so, however, would require rekindling developer support and network effects that existing blockchain technologies had previously achieved. Today, building on top of existing networks like Ethereum allows developers to become stakeholders in not only their own applications, but also the underlying protocol." (http://blog.ycombinator.com/building-for-the-blockchain/)

Bancor: Tokens as a Model for Community Acquisition

Chance Barnett:

"In this way, a token sale represents a new model of crowdsourcing or crowdfunding, where the line between buyers and customers are blurred.

As an example, imagine if 1,000 new participants sign up and buy tokens in an ICO. This not only provides funding for futher development and expansion, it also jumpstarts the underlying service with a community of users as token holders. One example of this was the Bancor ICO, which took in over $153M at the time, while the sale also resulted in thousands of token-buyers. These early and first buyers of the Bancor token are the most likely future users and adopters of the core protocol and services that Bancor provides.

"We had one of the largest bounty programs in history with thousands of active participants working towards the success of the token launch, directly through our software's alpha demo," Galia Benartzi, CoFounder and VP of Business Development at Bancor explained.

"While we ourselves were a small team, we had ambassadors all over the world translating, explaining and creating great content about the Bancor protocol. These contributors remain more motivated than ever to see the project succeed, as they own a piece of the open source network via their tokens. Rather than paying marketing or PR firms, we can share these resources directly with end-users in a distributed and still orchestrated way. The reach is a step function larger and also feels much more authentically aligned. This is inline with blockchain's promise to decentralize every aspect of business, including growth itself." (https://www.forbes.com/sites/chancebarnett/2017/09/23/inside-the-meteoric-rise-of-icos/#2e010b515670)