Hi nerds -
I salute you from Panama, where we celebrated mother’s day yesterday. A nice reminder of unconditional love and collective care-taking.
As I gift my loved ones crypto-presents this season, the value of tokens within society becomes clearer. That's why this week we're focusing on money and tokenization ⚡️ - seeds for the brain, food for thought.
3 brain farts
🎤 Money as a language: We are used to thinking of money as a medium for transaction, when really money is a language.
Money is how we communicate value to each other, how we transmit worth.
This means that if we change how money works, then we can change incentives which impact output. By changing the architecture of money, we change the world.
This is why tokenomics matter.
💰 WTF is tokenomics: Simply put, the economics of a token.
Because crypto currencies are programmable money, they have value beyond transactional. Tokenomics studies the production, distribution, and quality of crypto currencies. Here’s an overview:
Production: how + why tokens are created defines their value.
- Inflationary: like the US dollar or ETH, these are tokens without a max supply and which will continue to be produced throughout time.
- Deflationary: like Bitcoin, have a max-supply and it’s value increases due to scarcity.
Distribution: tokens are pre-mined or released through a token launch.
- Pre-mined: tokens are generated and distributed to exclusive addresses before releasing them to the public. You can think of this as private equity vs public stocks.
- Token launch: tokens are mined, earned, owned, and governed by the entire community since its start. Bitcoin is a great example of this.
Quality: largely based on the token’s supply and utility.
- Max supply: maximum number of tokens ever to be generated.
- Circulating supply: number of tokens issued so far and currently in circulation.
- Market capitalization: the amount of funds invested in a given token/crypto project throughout time.
- Utility: what the token grants you access to. Examples: governance within a crypto project, an entry to a secret party, or access to a Discord community.
⚡️ Token power: Fiat money has three primary functions: medium of exchange, unit of account, and store of value. Cryptocurrencies add, at least, three more: governance, security, and utility.
- Governance: token-holders are able to vote on the future of a given project. This ownership layer is arguably the biggest change coming in Web3, allowing users to become members, contributors, and investors all at the same time.
- Security: the token is seen as an investment asset, very much like an organization’s public stock. These can also be ETFs like the ones Index Coop is creating, as well as other DeFi assets and protocols.
- Utility: you can imagine tokens as the combination between currency and an ID. Because we can check openly that a given address is the holder of x token, we can grant people a variety of perks beyond a transactional medium.
Some tokens have 1 or 2 of these attributes, others are all 3. They are born, evolve, and morph into something else.
2 intellectual goodies
“You’re not going to get rich renting out your time. You must own equity - a piece of a business - to gain your financial freedom.”
“Web3 fundamentally unlocks the ability for communities to create self-contained networked economies, and as a result we can now completely reinvent how value is created and assigned”
1 funky audio
Jazzy beats, jazzy thoughts, jazzy dreams - sounds that are chill for the body and inspiring for the mind.
Thank you Selim for the great compilation.
Thanks for reading.
As always, feel free to connect by hitting reply and sharing a juicy thought 💡.
We all help the curious community grow.