Crypto Tokens Don’t Thrive Without Ecosystems

Anyone who wants to create a healthy cryptoasset needs to build an ecosystem too.

Photo by Clint Adair on Unsplash

Because of the great success that many had with ICOs during the cryptoasset bubble, a lot of people saw a token as a way to generate capital to start up their project, or as a marketing tool to promote that project. But that’s not what a cryptoasset is, or at least that’s not what it should be.

I’m very interested in economics, including tokenomics, and I think I’m getting closer to understanding them, at least as much as anyone does right now. I’ve become quite concerned about the number of tokens that are being produced for every single crypto related project, just for the sake of having a token and funding the project. I’ve been focused on BELA for a while, because I think it is a token that has, or at least had, a lot of potential, but which was mismanaged.

A cryptocurrency should be created when we’re monetizing something. Non-fungible tokens should be created when there is an asset of real value that needs to be controlled in a distributed and decentralized way. Creating virtual assets on a blockchain, just for the sake of making something a “dapp” just isn’t healthy for the ecosystem.

I’m a huge fan of the idea of monetizing our daily activities. When an activity or asset has a lot of apparent social value, but is difficult to monetize in traditional ways, cryptoassets may be the perfect solution. A lot of what we do, especially online, generates useful content and information that people use. A good example is Q&A platforms. I like the idea of platforms like Quora, Stack Exchange, and others, but right now the only platform that rewards people in any way is Quora, and Quora only rewards a few select people in the QPP and only for questions.

Even if one or more of the platforms I mentioned create a token, it still likely won’t be successful. That’s because tokens need an ecosystem in which to thrive. I’ve touched on this idea before, with my discussion on TERN and BELA’s lack of community support. But part of the problem I think comes from their creators. Neither see the need for a broader ecosystem. Moreover, since both are focused on their own projects, they cannot focus their attention on building that ecosystem.

Take BELA. What is BELA? It’s just one of many ERC-20 tokens, that expands its supply at a certain rate, and could be used for anything, but is only used to tip posts on Belacam. Tipping is all well and good, but what can you do with that tip? Nothing, except perhaps trade it on an exchange. There are two issues there. First, BELA isn’t listed on many exchanges. That’s certainly a problem. But it’s not the biggest issue.

Most people don’t use exchanges and most people don’t want to use exchanges to convert to a usable form of currency. This issue leaves Belacam the only place to use BELA. And even for people who can access exchanges, it’s not much better. That’s where the ecosystem comes in.

If BELA is the monetization of visual art, then BELA should have a visual art ecosystem. What other activities are related to visual art? Buying and selling of artwork is one example. Access to art supplies is another example. I’m sure there are plenty more. The point is that BELA needs an ecosystem in which it makes sense.

If one were to look at the most successful tokens, they are not attached to a single project. They are managed by non-profit, often fairly community oriented consortiums. These non-profit entities can focus on building the ecosystem for the token, while individual companies can focus on building their own products. I’m not opposed to consortiums having a heavy hand in many of those projects, but the core focus of the consortium should be the development of the ecosystem.

In general, anyone who wants to create a new crytoasset should think about what I’ve said. They should ask themselves whether the token represents something of material value, whether it is traditionally easy or difficult to monetize. They should then ask themselves if they are prepared to build an ecosystem rather than a single project. If they’re not, then creating a new cryptoasset is not for them. If a person or group of people really believe that there is the need for a new token, then they should focus on building a consortium.

Originally published on the BCU Times blog on publish0x

Navigation: Master Index | Economics and Blockchain

One way to build use cases for a token is to create mini-games and other mini dapps right out of the gate, which is exactly what World Builder did in its “IGO.”

Ecosystems for individual tokens are important, but an ecosystem for a broad range of cryptoassets is necessary as well. Stellar helps create such an ecosystem.

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