The Economics behind Token Ecosystems Tokenomics is a colloquial term for Token Economics. It sounds deceptively simple, but with everything going on under the hood, it is anything but. Creating a token economy includes decisions on token supply levels, supply caps, supply reduction (i.e., [[Token Burn]]), [[Mining]] and [[Staking]] rewards, [[Transaction Fee Mechanisms]], fee burning, game theory (i.e., collusion resistance), and deflationary versus inflationary design. Perhaps most importantly, the creators aim for an appropriately fair and equitable mechanism for _both initial and perpetual_ distributions of token rewards and fees. That is, the key design principle is the [[Decentralization]] of money: preventing the concentration of wealth into the hands of few while giving access to as many as possible. Indeed, the success of a blockchain protocol, and its ethos among the crypto community, relies heavily upon how this native asset (or "token") is used to incentivize people to join the ecosystem. Of perhaps greater importance, how initial tokens are distributed to early adopters and creators of the network is paramount. Quite literally, when a token model is decided on, a new economy is being architected which allows for true, sovereign, individual ownership of digital property. The key differentiator in crypto is that tokenomics is the **_design of a monetary market ecosystem with lower barriers to entry relative to traditional money markets_**. The hurdle that many seem to struggle with in crypto is the volatility of asset valuations. More pointedly, many wonder why any of it should have value to begin with. Let's look at a relatable example. Venture capitalists have subjectively valued start-up companies with no revenue or clear utility for decades; many of these were early technology networking platforms built on the Internet. VCs project the future value of these networks as a future good and service. Per Metcalf's Law, as the number of nodes in a network grows, so does its value. Valuing the underlying asset of any blockchain is indeed subjective _until_ network activity reaches a point where there is a trusted historical precedent. This is where valuations can become relatively _more_ objective and earn _increasing_ acceptance. Overnight sensations excluded, this trajectory is the path towards adoption taken by nearly every technology to ever exist, including every social media network. This includes one of the oldest technologies known to mankind: fiat money. And so, money is a technology, a means of exchange, of ownership, of value, and of virtue. The ability to freely exchange goods and services is analogous to the free exchange of money, and this is precisely what is enabled by blockchain ecosystems and their token model designs. Multi-sided markets are born _not because they are forced_ but because a group of people perceived its value and used it accordingly. And so, implicit in this new wave of demand is greater perceived value, which is a good in and of itself. That good is then invested in and improved upon, with added value and uses, all as a result of its tokenomics.