Token Economic System: Three things you need to know before developing social tokens for the community

With the vigorous development of the token economy, we are seeing more and more individuals sharing creative content on the Internet and thus establishing a close-knit community. However, for these individual creators, there are still two main issues that need to be resolved: the dispute over the ownership of tokens and the issue of cooperation between creators.

How can we fight for more power for creators so that independent individuals can truly become builders of digital communities? How can we help creators unite to realize everyone’s vision?

In its current form, the most promising path for creators seems to be to withdraw from the online community. In recent months, we have seen more and more mainstream media talking about non-fungible tokens (NFT) and social tokens. Discussions on the issue of token ownership and the corresponding market changes are constantly being staged.

Platforms such as Coinvise provide creators with a place to develop virtual currencies, also known as social tokens. Social tokens are virtual currencies circulating on the blockchain. This type of currency has special advantages in specific economic industries.

Issuing social tokens is not difficult in itself. The difficulty lies in getting the issued social tokens to be recognized by the community. How to use the issued virtual currency as the salary of employees? What actions should creators take to develop the virtual economy? How to make the entire community accept digital currency?

The answer we give is-to establish a robust virtual currency economic system for your project. We call it the token economy system (token + economy). This can be explained as an economic system that allows all participants to actively participate in project activities through a robust token design scheme. In fact, a successful token economy system essentially solves the problem of “how to effectively plan and motivate community members to actively participate in project plans.”

Social tokens are effective in motivating individuals to share work skills with each other. Behind successful and prosperous community projects are supported by a powerful token economic system. The token economy system provides infinite power for the development and growth of the community. But for creators, designing a token economic system is not a small task, especially for those who have just entered the crypto world. How many tokens should the creator allocate to participating members? How much should be reserved in the community vault? What should the initial total supply of tokens be? Many questions will come to mind, but it is not easy to get the correct answer.

This article aims to further explore how creators can design a more robust token economy system for projects, and write it as an easy-to-read and step-by-step guide.

Written before:

Before delving into the token economy system, I need to clarify some matters.

Creation needs for the project build a strong community.

The project itself transcends the creator and requires strong collaboration. A singer can gather a large number of listeners, but to connect these listeners, they need a common bond. This link can be an album. As a result, audience fans can become one of the devotees of this album through the production and design of posters, publicity, and organization of crowdfunding. We can also imagine a fitness coach uploading a video on Youtube, which is a platform for disseminating information about healthy living. Under the leadership of the creator, token holders can create a platform to achieve more goals through internal rectification and collection of resources.

All the focus is on the project itself can not be limited to the creation by itself .

It is also important to clarify the position of the creator. We will treat creators as people who realize their ideas and visions through the Internet For example, Jeff Kauffman Jr. may not be a creator in the traditional sense, but he has built a prosperous community through Web3 advertising and marketing, and promoted his ideas through the promotion of articles and podcasts. Thus gathered a strong community to help him achieve his ambitious goals. Dom Hofmann, the founder of Vine, is also such a person. Through his project Loot, Dom has completely changed our thinking about NFT cooperation, and also gathered a community of win-win cooperation.

With the definition of creators and the premise of a decentralized community, let us delve into the three main aspects of the token economic system: token design-token issuance-financial issues.

Token design

Before issuing a token, what are the key factors that creators should consider? )

Token design is a key part of building a prosperous community. Because the design of the token (all related technologies of virtual currency) will serve as the basis for encouraging the community to participate in various projects. The first question that should come to mind when issuing tokens should be “How much initial total supply do we need?” Or in other words, “How many tokens should we issue?”

There is no single answer to the question “how many tokens should we issue?”, but we will summarize the main features that should be considered. First of all, there are two reference models for creating tokens, but you need to pay attention to their respective advantages and disadvantages when using them. Fixed supply model-In this model, you can pre-set the number of tokens you want to create (for example, 10M tokens), and then put them directly in your wallet.

Joint curve model-this model needs to be driven by a business model. The price of tokens increases with the supply or distribution of tokens. The more tokens distributed, the higher the price. Let us take an example to illustrate what is the joint curve model. You just published your tokens on the joint curve model, and your best friend John wants to buy some. For convenience, let us assume that your token is on a traditional (linear) joint curve, and the price of the first token is $1. John will pay $1 for the first token, $2 for the second token, $3 for the third token, and so on. In order to get the first 10 tokens, John must pay 1+ 2+ 3+ 4+ 5+…+10 dollars. A total of 55 dollars. Now, suppose your mom wants to buy 10 tokens. The starting price of your mother’s tokens is not $1, but $11 (because John has already bought the first 10 tokens). Every new buyer raises prices by increasing supply. On the other hand, when someone sells the token, the token itself will be destroyed, thereby reducing the supply and reducing the price of the token.

Token Economic System: Three things you need to know before developing social tokens for the community

 Three types of joint curve models: linearity, S-shaped curve, negative exponential curve

There are many advantages to developing tokens on the joint curve model. The joint curve model ensures the liquidity of tokens, allows unlimited supply, reduces the volatility of tokens and reduces the risk of hacker attacks. However, the more common model adopted by the community is the fixed supply model. Unless you are an industry expert and are bound to have a joint curve model, we generally recommend developing tokens on a fixed supply model. Because this model is more practical in actual use, it lowers the barrier to entry, and allows community participants to fully control the distribution of tokens, without the need for a large number of purchase groups to support it at the beginning. If you are still interested in the joint curve model, you can also read the full text to learn more about it.

Now that you have a certain understanding of these two models and decide to develop tokens on the fixed supply model, you can start to consider the total supply of tokens you want to create. The basic standard is generally 10 million, but some communities have also succeeded in thriving when the supply of tokens is small (Metafactory-420,000 supply) or more (Bankless DAO-1 billion supply).

When considering the creation of tokens, it is more important to consider the value ratio of the tokens (percentage of total supply). For example, suppose you decide to develop 100,000 tokens worth 100,000 USD. If a user buys 1,000 tokens, he will need to pay 1,000 dollars. If you decide to develop 1 million tokens worth $100,000, and the user pays the same $1,000, he will get 10,000 tokens. In both cases, the user ultimately holds the same proportion of tokens: 1% of the total supply of tokens. All in all, in addition to the total supply of tokens, you must also consider the value ratio of the tokens (percentage of total supply). When deciding on the supply of tokens to be put into the national treasury, it is better to use a percentage instead of a simple token number calculation.

When creating tokens on Coinvise, we first recommend that you develop 10 million tokens in accordance with industry standards, and then you need to name your tokens and choose a symbol. The name is uncertain, but usually community leaders will use their community’s name or their own name as the token name. For the token logo, it can be any logo symbol within 7 letters. In order to better distinguish between names and symbols, here are some examples: Ethereum ($ ETH ), forefront ($FF), Bitcoin ($ BTC ), Alex Masmej token ($Alex).

The token price is part of the token design, and the token price will be determined when community leaders create a liquidity pool. Token price and its volatility are an important part of the token economic system. We will discuss this part further in the following article.

Token design is the first step in developing tokens, and this task should not be underestimated. You need to carefully consider your actual token demand. If you realize that the number of tokens is insufficient after completing the design, it is very complicated to increase the total supply. After the tokens are developed and safely placed in their wallets, community leaders need to consider the issue of tokens.

Token issuance

(How should creators distribute tokens to incentivize more people to participate and promote the project?)

When the creators gather a small and close community (at least 20 people) and complete the token development, the second step is to consider how to reward these early contribution participants. Think about how to motivate these people to continue building and at the same time motivate more people to join the community. Promoting currency in the community is very important, and how to do this step correctly is very important.

The key to allocating tokens is to create an effective distribution mechanism to allow tokens to flow into the hands of members who are willing to work for the community network for a long time The task of a community leader is to build a healthy and long-term community. The first step to achieve this goal is to determine the proportion of tokens in the treasury and airdrops. In the community treasury, it is used as an established fund pool and allocated to users as a traceable airdrop. If you are interested in learning more about the distribution of tokens, we recommend that you read the announcement from Forefront, which explains the distribution of $FF tokens.

The $FF token issued by Forefront has been created according to a standard fixed supply model of 10 million. There can be several scenarios in your community to distribute tokens. For example, you can choose to airdrop part of the supply to other community members related to your project. Airdrops are an interesting way to attract talent. You can also allocate supplies to the core team to motivate them to build a greater community. You can also reserve some tokens in the treasury to distribute to community members to promote project development. You must carefully consider the amount of treasury tokens as a percentage of the total supply. There is no standard answer to this proportion. Some communities allocate 15% of the token supply to the treasury, some 20%, and some 45%. A good treasury building can help you effectively promote the implementation of the plan in the community.

When creating a decentralized community, there are two main ways for community members to allocate internal tokens: bonus and budget allocation. There is a fundamental difference between the short-term work group and the core work group (as described in this article), so there should be a distinction in the distribution of tokens.

Setting up a single mission bonus is a very useful way to expand the number of community members. Staff members who receive single-task bonuses usually participate in projects in a flexible way. They will not have a long-term vision for their work, nor will they participate in daily operations. They usually participate in project work selectively in a short period of time. If you want to make your community more active, a well-designed reward mechanism is very important.

The second way to distribute tokens is to create a guild or work group responsible for specific tasks in the community. The establishment of a work group will help community leaders to allocate funds to specific work groups, while also being more organized in community management. The members of the working group are the core members of the community, they are responsible for more complex tasks and long-term daily operations.

Social tokens are the driving force behind the work of these two types of work groups . It is very important to reward all active community members with sufficient funds.

The monetary value of tokens plays a huge role in encouraging members to participate in the project, but there are other rights and benefits that can be allocated to token holders.

In practice, once you start to distribute tokens, you should consider granting token holders the corresponding rights .

In some communities, the possession of tokens usually gives users the right to directly participate in product functions, community governance, and the right to participate in the product or the market, or the right to vote. For example, members who own the $GCR token issued by GlobalCoinResearch have governance rights, can own a pool of funds (purchase equity), earn more tokens by doing so, obtain more exclusive product content, and conduct transactions and activities.

As the last piece of advice on the distribution of tokens, it is important at the beginning stage to treat every user who owns the tokens as an investor. At the beginning, there was a very concentrated community (mainly composed of token creators or a small core management team), and everyone holding tokens would stimulate potential governance capabilities, which can have a huge impact on the long-term decision-making of the community.

In most new communities, the only way to earn tokens is to invest in the community and participate in some work. In fact, community leaders should gradually begin to open channels to markets outside the community, allowing everyone to buy tokens. This is called “funds flow”, and there will be fluctuations in the price of tokens in the process.

financial problem

(How can creators control the stability of tokens and promote market cooperation momentum?)

In every project, finance is a key component of the social token project. The tokens that obtain (social and economic) value will attract top talent and inspire community members to become contributors.

First, briefly explain what is assigned to token value. When the token is created on a fixed supply chain, the social token itself has no intrinsic value, because there is no actual currency in circulation to participate in it. You may have just created a token set at one million dollars, but you cannot use it to buy anything in real life. This is why, to various degrees, communities are seeking to increase the liquidity of tokens. These communities allow everyone to buy their tokens in exchange for some other cryptocurrencies that already have monetary value. Through the public sale of tokens in the market, tokens have gained market economic value, and community builders can use these funds to promote the development of the community.

Specifically, a liquidity pool means to create a pool where people can provide buyers with issued tokens and another value currency (medium) in the fund pool. When the liquidity pool is created, users can set the exact conversion value of two tokens in the pool (for example, a token worth 500 USD + a mortgage worth 500 USD is equivalent to the value of another token). The way to earn tokens is proportional to the transaction fee in the liquidity pool. To put it simply, these fund pool participants promote transactions to facilitate the flow of funds by buying and selling specific assets at any time, which saves the transaction the time cost of waiting for the appearance of downstream buyers. The price is directly determined by the decentralized automatic market maker of the liquidity pool you created (such as Uniswap ).

After Uniswap has a better understanding of the financial value of social tokens, how to manage the price stability of tokens is crucial. In fact, for a highly unstable token, users will not take the time to buy a token that may plummet the next day. Similarly, a token that doubles in value overnight will only attract speculators, that is, members who are not keen on letting the community grow and develop just to make money quickly.

There are many ways to control the volatility of tokens. The first is to lock in part of the token supply. Specifically, locked tokens means that users need to hold a certain number of tokens for a certain period of time. When exchanging modern coins, token holders need to wait until the end of the redemption period to withdraw these tokens. The smart contract of the blockchain mechanism makes it easy to lock a certain amount of token funds. In our case, when the redemption period ends, the smart contract running on the blockchain will allow holders to withdraw their tokens or bind the tokens with a relatively stable currency in the fund flow pool to ensure The token price is stable. In fact, when creating a liquidity pool, although it is not the only factor that causes price fluctuations, the medium currency tied to your tokens will have an impact on the price of your tokens. When the price of your token and collateral fluctuates, if the price of the token drops sharply, it will affect your token price to some extent.

Third, you can try to stabilize the price of tokens by creating a liquidity mining program. The concept of liquid mining is the same as that of savings. When you deposit money in the bank, you default to the bank’s savings interest rate. When establishing a liquidity pool on a decentralized exchange, you agree to automatically buy or sell specific assets at any given time to help the project grow in exchange for returns. This is a powerful way to incentivize users to hold cryptocurrency, and in return, these users will receive a share reward. Create a liquidity mining program to have more liquidity of funds, which will increase transaction depth. Transaction depth is the degree of market price stability. The greater the depth, the smaller the impact of individual transactions on prices. On the other hand, in the case of low liquidity of funds, individuals can reduce or increase the cost of tokens by buying or selling a large number of tokens. Community leaders need to use liquid mining procedures to ensure that there are enough liquid funds to develop projects to form community ownership. The liquidity mining program has shown its efficiency in adjusting the incentive mechanism and promoting the positive-sum game of the market.

Forefront flow mobility mining project landing page

As we have seen in the market, there are many financial tools available to community leaders to reduce the volatility of token prices.

Summarize:

As seen in this article, the above-mentioned various important factors play an important role in the cooperation of members in a decentralized community. Developers must carefully consider token design, token issuance, and token financial issues to achieve the long-term success of the community. There are already many examples to learn from, and community leaders can take specific actions to encourage the community to participate in the project, which is what we call the token economic system.

You will quickly notice that thriving communities usually have great token economies. A good mechanism will allow more people to join the community to actively participate in the project and create value. If you want to learn from the mature token economy system, we recommend that you join Forefront’s Discord, globalinresearch Discord and Jump Discord, you can notice the high activity of their community users.

Although there is no omnipotent solution to determine the token economic system of the project, this article should give you some basic knowledge to open your eyes and let you understand the value of tokens.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/token-economic-system-three-things-you-need-to-know-before-developing-social-tokens-for-the-community/
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