Tokenomics (token economics) describes the mechanisms and principles that underlie the issuance, distribution, and management of digital tokens.
Tokens are at the heart of the digital currency revolution, able to serve as representation for many items, including utility tokens that can be used to access services within a certain community.
For enterprises or businesses, tokenomics enhances the user experience and provides incentives for active participation in the business or platform. Businesses that, for instance, integrate utility tokens into their operations can improve access to their products or services, increase user engagement, and build a loyal customer base.
One highlight of interesting tokenomics is by Orbeon Protocol which lets users own equity in companies and startups through fractionalized, equity-backed NFTs that start from $1. Businesses benefit from significantly reduced fundraising costs and increased contact with investors.
Tokenomics presents an interesting way for small and medium-sized enterprises to achieve growth and customer engagement.
Below, we highlight some common types of digital tokens being used today:
1.) Security Tokens
Security tokens are tokens that serve as direct, on-chain representations of real-world securities or tokens that are on-chain instruments serving a similar purpose for blockchain projects and/or digital assets.
In a case where a token represents ownership of an off-chain asset, such as real estate, equipment, payable invoices, or a business, similar to a share of stock, the security token’s value is directly tied to the asset’s valuation – the more valuable the asset, the more valuable the token.
2.) Utility Tokens
Utility tokens are integrated into an existing protocol on the blockchain and used to access the services of that protocol.
They are not created for direct investment like security tokens but can be used for payment of services within their specific ecosystems.
3.) Governance Tokens
Governance tokens fuel blockchain-based voting systems, as they are often used to signal support for proposed changes and to vote on new proposals. For example the Maker Protocol, has a governance token called MKR.
Governance tokens enhance community by providing a way for users of an application to contribute in decision making and benefit from rewards.
4.) Fan Tokens
Fan tokens are cryptocurrencies that permit their holders to access a variety of fan-related membership perks like voting on club decisions, rewards, merchandise designs, and unique experiences.
Fans can purchase digital tokens and trade them like other cryptocurrencies. When trading, the price of a fan token is generally set by the seller. It is also subject to change according to market movement and how popular the token is at the time.
In Conclusion…
All of the different types of cryptocurrency tokens explained above serve specific purposes that businesses can identify and integrate the technology.
However, tokenomics is not just limited to the examples highlighted above. The scope for application of digital currencies is wide and there is much room for innovation.
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