Token Economy

Contextual Citation

Dick Bryan:

"Innovation of measurement in the crypto economy may actually hold the key to the measurement problems in the more established capital markets. The problem in the conventional markets is that they are being asked to measure things that don’t readily fit into the conventional accounting categories. But the crypto economy is not shackled by those conventional categories, and so can develop the devices to ‘measure the unmeasurable’. " (https://medium.com/econaut/valuation-crisis-and-crypto-economy-39c5b7e373af)

Discussion

What is the reason for building the Token Economy?

Akseli Virtanen:

"The idea that innovations in funding break open existing knowledge is not new. Myron Scholes, the co-founder of the Black Scholes options pricing formula, contends in his Nobel prize speech that debt and equity are historically specific modes of existence that enable least-cost means of funding activities and that, with time, new categories of funding would arise (along with new attributes).

The rise of joint stock company and stock markets in 1840s transformed capitalism. By then capitalist enterprise had reached a stage of growth that required large scale investment beyond the capacity of rich owners (private companies/partnerships). The revolution started in Britain, where the two-century-old legislation that had banned joint stock companies as purely speculative, disruptive ventures was repealed. With the change of law large quantities of investment capital could now be mobilised and ownership could be sold in small parcels, and those parcels traded in a secondary market — the stock exchange. This changed capitalism from being about the discretion of a rich elite into a calculative logic, with industry run by professional managers and where shareholders’ desire for financial returns impose a direct discipline on management strategy. This development was associated with the replacement in business of gold by paper money (credit) and, with investment in technology, came incorporation of labour into the logic of capital, in the creation of what Marx called ‘relative surplus value’. A whole new “mode of production” was born.

Cryptographically enabled distributed economic-organizational systems, aka “tokens”, are currently changing again the conventions of economic organization.

How is value created, captured, distributed and exchanged, what is money, how people incorporate into production, are changing as radically as the first generation internet changed the way we communicate and relate to the presence of others.

What are tokens? What is issued at an ICO, what becomes owned? Are tokens equity? Central bank money? Private bank debt? Or something else? Are they a gift, a bid, a gamble? If Scholes is right that financial instruments are historically specific, then are the categories of money and asset simply limited in their ability to give us paradigms through which to think about tokens? Perhaps tokens are more like derivatives (purchases of risk exposure, not just asset ownership), designable so that people risk together, not individually. Perhaps the issuance of tokens is best understood as crowdfunding, or investment banking, or building a collective. What are tokens? Why are they important? What can they do?

What, after all, is the reason for building the token economy? Finance is moving beyond a discretely delineated category of money as an ‘independent’ measure of the ‘real’ economy. With financial innovation, many assets acquire the liquidity of ‘money’, and as a consequence the distinction between money and other assets is breaking down. The sociality of money starts to reveal itself: fiat currency codifies a certain system of accounting, ownership and distribution. Money is a social relation, not only a technical mechanism. Cryptotokens are about exploring and re-engineering that sociality, building alternatives in service of a different economy. The question of how to do economy differently takes on new weight when it becomes possible to create answers; that is the fundamental value of token economy. Opening economy as a design question." (https://medium.com/econaut/cryptoeconomics-working-sessions-at-nyu-stern-24a60d99d243)

The long-term value of tokens

Dick Bryan:

"Long-term token values will be determined by three factors:

The current valuation of a token business Projections of the future positions of that business The level of ‘speculation’ on crypto assets and financial assets generally We know that the third factor is impossible to explain. It depends on what Keynes called ‘animal spirits’. It is likely that speculation will remain high, for this is an immature market with rapid new entry in a sector of the capital market with widely-appreciated potential but low levels of technical comprehension. It makes valuation difficult, but it is unavoidable.

The second factor is also impossible to know with certainty. We know that the emerging landscape of cryptographically enabled distributed economic and social systems is changing exponentially, and that there will be some extraordinary success stories and some dismal failures. But we cannot yet know which is which. There is a proposition that, in this dimension, tokens be equated with call options: the right to participate in/own an as yet unknown future. It is an important insight, although our capacity to value the option is also limited. Critical to pricing options is quantifying the volatility of the underlying asset and the time to maturity. We cannot yet model volatility, and we cannot know the time horizons of success.

But the first factor can potentially be known for crypto tokens that exist to produce something: an accountable, measurable value of some kind. This is an area where many token launches are vague, if not entirely silent. But it is the one domain in which current tokens can and should be critically valued. We face the danger that too many coin issuances are pitching an idea, but without nominating means to measure/validate its success.

A thought experiment: the ECSA economy proposes to define and measure value as it has never before been measured. We want to measure value in terms of social contribution, not contribution only to profit. We want to measure produced social benefits, and most of them do not make conventionally-defined profits. Recognising the existence of these contributions is not new. Measuring them in terms of a new unit of account is new. But is it possible?

The measurement process is important if we would like to report to the public, each year, estimates of the value of output created within ECSA. Our thinking right now is that financial markets place a value on this production. In combination with available data like the quantum of tokens in circulation and the balance sheets of ECSA, we believe that the ‘market’ will be able to assess the fundamental current value of ECSA. This is critical for the market needs this information to make clear evaluation of the current value of ECSA tokens." (https://medium.com/econaut/valuation-crisis-and-crypto-economy-39c5b7e373af)