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OCTOBER 2017

Token Economics and Design Across Industries New digital currencies are now coming out faster than one-hit wonders in the 80’s. At last count, we are ready to surpass more than 5,000 unique forms of digital coins or tokens — a long way from the days when bitcoin, Litecoin, and dogecoin were the only such operating protocols on the market. One aspect of the rapidly-progressing movement toward fluid, decentralized forms of value exchange is tokenization.

by JASON ENGLISH VP of Protocol Market at Sweetbridge

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rather than offering a centralized control mechanism or telling people what to do.

came a long-standing example of a traditional asset token. A dollar tokenized on the blockchain should have a value of about a dollar. But given the inFrom a supply chain perspective, a stantaneous rate of exchange possible crypto-economic incentive process that in a distributed network of servers, like positively changes the behavior of all blockchain, even minor fluctuations in players can solve system-wide problems price over time can create arbitrage opand benefit suppliers who have lowportunities between the value of a toer margins and more fragile businessken and the asset it represents. es. Incentives in our model include reducing the cost of capital and finance Tokenization has become a hot topic charges, enabling faster settlement of largely due to the recent phenomenon payments among partners and across of Initial Coin Offerings (ICOs) and Toborders, and eliminating intermediarken Generation Events (TGEs). In these ies who “tax” the supply chain and do events a company will issue a new crypTokenization is the process of defining not add value. tocurrency, digital coin, or token that a unit of value to represent a specific investors can purchase as an investasset. Within the blockchain and cryp- We believe if tokens are built responsi- ment in the company. Consequently, tocurrency space, tokens act as a combly into this system, it will increase the the company can raise millions of dolputing protocol in which developers quality of raw materials, resulting in lars in capital without using the concan digitally assign a token to become better finished goods and fairer prices ventional VC funding model. a medium for value exchange within a for end consumers. network of users. The rapid growth of the cryptocurrenThough tokenization has recently becy industry has been attracting more The critical differentiator for any tocome a buzzword, it’s far from a new and more investors and founders who kenization effort is designing a crypconcept. As recently as 1950, the U.S. want to be a part of the next big thing. to-economic reason for the token to was home to thousands of functioning It has also attracted the attention of exist and have real utility, beyond its forms of tokenized currency. Individu- more and more government regulatory speculative trading value. Crypto-ecoal banks would issue banknotes; indus- agencies around the world. There is still nomics is about aligning incentives of trial and agricultural trading companies a need for more clarity in how tokens using a token system to encourage ben- would issue “scrip” to help streamline should be designed and represented to eficial behaviors among all participants. transactions; and government, retail, potential buyers. and property brokers would offer alterUser adoption of any system — nate forms of currency to replace illiqIn this environment, it is more benefiwhether a national economy or a uid government-issued currency. cial to the industry for companies and blockchain-based token system — investors to focus on the value of the moves much faster when interests are For instance, the U.S. dollar, after mov- token within its network. Tokens that aligned with the outcomes you want, ing off a gold-backed standard, beare intrinsically designed to support

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