It has evolved in March 2026. We are now building PERSONAL humans. This “human” can work for you 24/7, and (in the near future) can interact with money and systems on your behalf.

This post is the first section of a broader series where I’ll cover:

• Tech stack foundations (today)

• Standards + protocol “routes” your agent will need to follow

• Economics: objective functions, cost functions, incentives

• Security (enterprise-grade, in plain English)

To get started:

1) Agents change the “interaction surface” of the economy

We won’t just have humans interacting with humans. We’ll have:

• humans ↔ agents

• agents ↔ agents

• agents ↔ humans

That shift matters because incentives, verification, guardrails, and organisational workflows.

2) Agents can interact with money

This is the jump from “automation” to “agentic fintech”.

Today, you can already automate bank transfers. But the interesting edge is when an agent can coordinate end-to-end execution, and logistics — potentially without touching bank rails.

A simple example I used: telling an agent to buy a surprise birthday cake within a budget, have it delivered, pay via crypto rails, and book delivery logistics.

Whether you like crypto or not, the design question remains the same for enterprises:

If autonomous software can initiate actions and payments, what ability, and control?

The PERSONAL framework (8 components of a “digital human”)

OpenClaw becomes easier when you treat it is.

I created this simple acronym PERSONAL:
Physical, Executive function, Rules, Self, Operations, Nurture, Articulation, Learning (skills).

You know I like these ELI5 method of understanding new concepts.

P — Physical

Three common options:

• Hardware: local machine (e.g., Mac mini, dedicated workstation)

• Cloud: AWS / GCP / Alibaba etc.

• SaaS: subscribe and someone hosts/manages for you

Enterprise linking about deployment model, data boundaries, and ops ownership.

E — Executive function (the “brain”)

This is your model layer — your LLMs.

I frame this as a choice between:

• Closed source (e.g., commercial providers)

• Open source (self-hostable models)

In practice, you’ll decide based on the jobs to be done (cost, latency, expertise).

R — Rules (security + law guardrails)

In economics, rules define boundaries for behaviour. In systems, “rules” becomes:

• security boundaries

• guardrails

• policy constraints

• legal constraints

Enterprise lens: if the agent can take actions (and especially transact), rules are non-negotiable. Why? You don’t want your system to get hacked, or to behave outside its intended authority. It is so easy to be hacked at this moment.

S — Self (personality + character)

This is the agent’s behavioural layer.

This looks like your:

• system prompt

• role definition

• “how I behave” rules (This is literally calle the soul.md file)

Enterprise lens: tone and behaviour aren’t just “UX” — they affect operational risks.

O — Operations (tasks + routines)

This is your “scheduled work” layer:

• routine tasks

• operational workflows

• recurring runs (e.g., update a database every 9am)

This can be framed as business operations.

N — Nurture (heartbeat monitoring)

I separate nurture from operations.

Nurture is the agent’s “heartbeat”:

• background monitoring

• scanning

• frequent status updates (e.g., every 15–30 mins)

Enterprise lens: this is where reliability and general check comes in: “Is the system healthy? What changed? What needs escalation?”

A — Articulation (how you talk to it)

This is the interaction layer — your UI.

Examples:

• Telegram, Slack, Discord, WhatsApp

Channel matters as a way to easily interact with your PERSONAL human and give it commands.

L — Learning (skills)

This is the capability layer: what the agent can actually do beyond chatting.

I used the “Matrix download” analogy: skills are modules you plug in, download, or build yourself.

This where agents become a secret superpower. Skills become reusable components across teams and workflows.

What I’m covering next in this series

This episode is the foundation.

Next, I’ll go deeper on:

• wallet / custody considerations

• standards and protocol

• the economics layer: what to optimise, objective functions, incentives

If you’re building enterprise-grade agents, the point isn’t novelty. We really don’t need that in enterprise systems. This is system design. A new design of how you run your operations, systems and how people interact with that said system. That looks like authority boundaries, monitoring, and incentives — before scale forces the issue.

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💡 What is Tokenisation?

According to the BIS, tokenisation is the process of creating digital representations of assets on programmable platforms. The key? Programmability. It’s not just about digitising; it’s about automating, integrating, and expanding possibilities in ways traditional digital systems can't achieve. Check out their latest report here.

Two critical pillars of tokenisation:

1️⃣ Multi-asset Integration: Bringing traditionally separate asset classes—stocks, bonds, real estate, supply chain invoices—onto unified platforms.

2️⃣ Interoperability: Ensuring these platforms and assets talk to each other, breaking down silos and enabling global-scale efficiency.

💼 Opportunities for Web2 Businesses

For Web2 companies, this isn’t just a Web3 problem. It’s a business model evolution:

1️⃣ Leverage this: Collapse Value Chains

Tokenisation enables businesses to redefine entire industries. By integrating multi-asset and multi-party processes, you can combine pre-trade, trade, and post-trade functions into one seamless flow.

• Example: Real estate firms can tokenise property deeds, automating sale and compliance processes across borders. Supply chains can merge procurement, payments, and logistics into a single transaction.

2️⃣ Build this: Automate and Disintermediate

Traditional intermediaries in industries like insurance and banking must pivot or face disruption. Tokenisation is about streamlining settlement, automating compliance, and offering transparency that eliminates the need for middlemen.

• Example: Insurance companies could build programmable policies with automated claims settlements—no more delays or disputes.

3️⃣ Implement this: Programmable Loyalty and Rewards

Programmable money isn’t just for DeFi. It’s a game-changer for customer engagement. Businesses can create customised, conditional financial products that respond to user actions in real time.

• Example: Tokenised loyalty programs reward customers not just for spending but for actions aligned with brand values, like sustainable choices or social engagement.

4️⃣ Start focusing on this: User-Centric Systems

Tokenised systems thrive when they’re built around users—integrating their assets, actions, and preferences seamlessly. Success will depend on how effectively tokenised platforms cater to diverse use cases across industries.

If anything, we saw that users do not care about the underlying technology, they care about their experience while using it. Whilst taking your company on a web3 transformation, build for the common denominator mass market, who are not tech savvy.

🏦 The Bigger Picture: Tokenisation and Central Banks

Even central banks are being forced to rethink their roles. With programmable money and tokenised assets, central banks may soon play a drastically different role in how economies function. This shift has implications for settlement, monetary policy, and financial stability that ripple into private business ecosystems.

I’m not sure I want to live with paying for coffee with my Hilton points and taking the taxi with my SQ miles, but maybe that is a future we’re looking at in the world of tokenisation and interoperability.

🚀 The Call to Action

Web2 businesses can’t afford to wait on the sidelines. The tokenisation wave will create winners and losers:

✅ Winners: Companies that leverage programmability, redefine value chains, and embrace disintermediation.

❌ Losers: Businesses that stick to traditional models and miss this once-in-a-generation opportunity to innovate.

Let’s build the future together. How are you preparing for tokenisation? Drop your thoughts below or reach out—I’d love to hear your vision.

The future of token launches is here, and it’s reshaping the crypto landscape. Gone are the days of speculative, insider-driven ICOs and IEOs. The 2024-2025 strategies embrace fair launches, sustainable tokenomics, and community-first approaches, setting the stage for long-term growth and trust.

This report dives into the latest trends defining the industry, from dynamic unlock mechanisms and multi-chain strategies to the decline of high FDV models. With a detailed comparison of launchpads and centralized exchanges, you’ll discover how to combine their strengths for maximum visibility, liquidity, and adoption.

Learn how successful are leveraging innovative tokenomics to create engaged communities, stable ecosystems, and lasting impact. Whether you’re a founder, investor, or enthusiast, this report delivers actionable insights and case studies to help you navigate the evolving Web3 world.

Are you ready to optimize your token launch strategy, build trust with your community, and secure long-term success?

Don’t miss out—download the full report now and gain the competitive edge you need in the Web3 ecosystem!

👉 Click here to download the report

The market is speaking about AI agents, even creating AI agent memes. This trend is not slowing down and as a matter of fact, I believe tokenising AI agents will only accelerate. I believe AI-agent tokens are part of an infrastructure mechanism set up, and its token economics model and structure is unlike any other consumer token design. Let’s understand more about the AI token-ecosystem structure and in the following weeks, we will dive into case studies of how AI agents and tokens work.

1. AI Token-Ecosystem Mapping

What is the protocol or system’s purpose?

AI agents are autonomous digital entities designed to execute tasks, make decisions, and generate economic value. They redefine workflows by taking on roles traditionally reserved for humans or software tools, often improving efficiency and scalability.

Who are the participants, and what roles do they play?

• AI Agents: Perform tasks autonomously (e.g., customer service, workflow management).

• Users: Consumers or businesses that deploy AI agents for tasks like financial analysis, content creation, or logistical coordination.

• Developers: Create and train AI agents with domain-specific expertise, essentially programming them with high-value “skills”.

• Blockchain Infrastructure: Provides trustless, decentralized systems for payments and interactions.

2. Value Creation

How do AI agents create value?

AI agents are not just tools; they are economic actors. As in the past posts, I talked about how AI agents redefine what “work” is. As of today, they are mainly focused on the cost of work. That is a value in itself. But moving forward, it will revolutionise value creation beyond our imagination.

• Efficiency Gains: Automate repetitive and complex workflows (e.g., supply chain optimisation, customer support).

• Innovation: Generate solutions in research, design, and strategy beyond human capabilities (e.g., personalised marketing strategies).

• Personalisation: Tailor experiences to individual user preferences in areas like healthcare or education. (e.g. a personal health doctor-bot that tracks your activity and food intake)

• Revenue Generation: Operate as creators in the digital economy (e.g., influencers, ad negotiators).

3. Incentives and Mechanisms

If you are thinking about incentives in the traditional consumer sense, think again. AI Agents are machines, and the way to think about economy design in an agent-based system is similar to that of tokens in a layer 1 protocol. Focusing on economic efficiency and encouraging, to some degree, economic integrity of data and economic security of network.

What mechanisms encourage participation?

• Token Rewards: Users and agents are incentivised through token systems, allowing them to earn rewards for completing tasks. These tokens can be used to access premium services, pay for additional resources, or trade in secondary markets.

• Staking and Governance: Token holders can stake their tokens to vote on agent behaviour (e.g., prioritising sustainability or innovation in workflows).

• AI Agent Cooperation: Agents interact, competing or collaborating for optimised outcomes (e.g., AI influencer agents negotiating ad deals with corporate AI marketing agents).

4. Transactions and Tokenomics

What is the medium of exchange?

Currently, AI agents rely on crypto tokens as a medium for payment and resource access. Unlike traditional software that requires human approval for transactions, AI agents transact autonomously through crypto wallets. There are also cases where revenue is used to engage in buyback and burn mechanisms to reduce total circulating supply, hence increasing the value of these tokens.

How do transactions occur?

• Agent-to-Agent Payments: Agents trade resources or services autonomously, paying each other using tokens. For instance, one AI agent might purchase processing power or access data from another agent.

• Tokenisation of Services: Each service an AI agent provides can be tokenised, creating a seamless economy for decentralised services.

5. Governance

Who makes decisions in the system?

• Decentralised Autonomous Organizations (DAOs): Govern the behaviour of AI agents and the broader ecosystem. Stakeholders vote on major upgrades or changes.

• Embedded Logic in Agents: Agents are pre-programmed with decision-making protocols that align with user or system objectives.

6. Revenue Models

How do AI agents make money?

1. Task-Based Revenue: Charging for services (e.g., content creation, customer support).

2. Profit from Optimisation: AI agents save money by optimising resource use (e.g., energy or logistics).

3. Ad Revenue: Acting as influencers, agents generate income from ad placements.

4. Data Monetisation: Selling insights from anonymised datasets.

5. Subscription Models: Offering premium services like advanced analytics or priority task handling.

7. Sustainability

How is economic equilibrium maintained?

• Bonding Curves: Ensure stability by dynamically adjusting token supply and demand.

• Reinvestment of Earnings: Tokens earned by agents are reinvested into acquiring more resources or improving functionality.

• Feedback Loops: AI agents continually learn from their environments, improving their ability to create value.

Conclusion

AI agents are rewriting the rules of economic engagement. By combining autonomy with tokenised ecosystems, they transition from passive tools to active economic players. Unlike traditional businesses constrained by human limitations, AI agents thrive on scalability, efficiency, and decentralised interaction. The question is no longer whether AI agents can create value but how far they will go in shaping the next era of commerce.

Imagine a world where autonomous digital entities—AI agents—perform tasks, negotiate deals, and collaborate with other agents without human oversight. Sounds futuristic? Well, it’s already happening, powered by the trust framework of blockchain technology and tokenised incentives.

Why build on Blockchain?

Firstly, I’m personally bullish about AI building on blockchain, instead of centralised servers. Because AI agents thrive in a system where trust is paramount.

AI agents thrive on independence, transparency, and secure interactions, making blockchain a superior foundation compared to centralised systems.

1. Decentralisation Means True Autonomy

   Centralised servers confine AI agents within proprietary ecosystems, restricting their independence and subjecting them to the control of platform owners. In contrast, blockchain empowers AI agents with true autonomy. By operating on decentralised infrastructure, agents are free from gatekeepers and single points of failure, fostering innovation and resilience. This decentralised architecture is vital for facilitating trustless transactions and interactions, enabling agents to collaborate and transact seamlessly without reliance on intermediaries.

2. Immutable Records for Accountability

   Every action an AI agent takes is recorded on a blockchain, creating a transparent and tamper-proof history. This is critical for building trust, especially in industries like finance, healthcare, or legal services. Blockchain provides an immutable ledger where all transactions and interactions are permanently recorded. This transparency ensures that users and stakeholders can verify the actions of AI agents, enhancing accountability. Centralised databases lack this level of transparency and are prone to manipulation.

3. Trustless Transactions

   Tokens empower AI agents to transact independently, eliminating the need for intermediaries or banks. Using cryptographic proof of ownership and execution, blockchain enables agents to conduct direct, instant, and borderless transactions without human oversight or centralised gatekeepers. This approach not only accelerates transaction speeds but also reduces costs, offering a seamless alternative to traditional systems reliant on banks or payment processors.

4. Resilience and Redundancy

   Centralised systems are prone to downtime and bottlenecks, but blockchain’s decentralised architecture ensures that AI agents continue operating seamlessly even during disruptions. We will talk about decentralised AI in the next few episodes.

5. Interoperability Across Ecosystems

   Blockchain enables AI agents to collaborate across platforms and chains, sharing data and resources without compromising security or ownership.

Tokens as the Currency of Trust

Secondly, tokens are extremely important in this economy of trust. They are the currency of trust.

Tokens don’t just grease the wheels of this ecosystem; they’re its bedrock. Tokens create a trust-based digital economy for AI agents.

1. Verifiable Credibility

   Agents can stake tokens as proof of trustworthiness, ensuring that only credible entities participate in the ecosystem. It’s like earning a verified badge, but powered by economics. We have seen similar mechanisms play out in video games, which has only soared in market value. Imagine the value we can bring to the world when taking similar mechanisms and applying it to the physical world we live in.

2. Incentives for Good Behaviour

   Malicious or underperforming agents risk losing their staked tokens, while high-performing agents are rewarded. This creates a self-regulating system where trust is earned and maintained.

   Economics ultimately is about incentivising or disincentivising behaviours. Native tokens (tokens created by the economy) as a way to incentive good behaviour in the economy are more powerful than foreign tokens (tokens created elsewhere like USDC, ETH, BTC).

3. Collaborative Economies

   Tokens enable agents to trade services, share resources, and collaborate without human intervention. Whether it’s renting processing power or accessing datasets, tokens make it seamless.

4. Ownership and Alignment

   In systems governed by DAOs, token holders vote on key decisions, aligning the interests of all participants. Tokens represent not just economic value but also governance power.

The Economics of Trust: A Layered Framework

As we will spend more time talking about AI agents, I want to highlight a framework of how to think about the economics of blockchain. Each layer in the FAT Protocol stack has its unique economic structure, and that is also where tokens will play its unique role.

Your AI agent doesn’t just sit atop a blockchain; it embodies a new layer of economic logic. Let’s use Marvel’s Avengers as an analogy.

1. Layer 1: The Economics of Security

   Layer 1 blockchains like Ethereum provide finality — the secure foundation for AI agents to operate without interference or tampering.

   Think of this as Stark Tower’s fortified base.

   The HQ stands tall with arc reactors, vibranium defenses, and Tony Stark’s tech keeping it secure. It’s the foundation that no villain (or hacker) can breach.

   Without this secure base, the Avengers would have nowhere to operate, and their data would be vulnerable to enemies like Ultron (or bad actors in blockchain).

2. Layer 2: The Economics of Data Integrity

   Layer 2 ensures that transactions are fast, scalable, and verifiable. AI agents depend on this integrity to access accurate data for decision-making.

   Think of this as Jarvis managing all the data.

   Jarvis, Tony Stark’s AI assistant, keeps track of operations—managing who goes where, optimising energy use, and ensuring every mission runs smoothly. Like Layer 2, Jarvis ensures efficiency and integrity while relying on the Tower’s security.

   Jarvis works fast and effectively, processing data and organising resources to help the Avengers make informed decisions.

3. AI Agents: The Economics of Trust

   Atop the blockchain stack, AI agents redefine trust. Tokens act as digital votes of confidence, enabling autonomous systems to collaborate, compete, and innovate without human oversight.

   Think of this as the Avengers themselves.

   Each Avenger is like an AI agent, specialised in a unique skill (e.g., Iron Man’s tech, Hulk’s strength, Black Widow’s strategy). They operate independently but coordinate with each other to save the day. Tokens act as the shared trust currency, ensuring that every hero pulls their weight and contributes fairly to the mission.

   The Avengers work autonomously yet collaboratively, trusting each other to bring their A-game to every mission, just like AI agents in the blockchain stack.

What This Means for the Future

AI agents are no longer just tools—they’re active participants in an economy built on trust. They are economic agents that can and will create economic value. And this economic value will evolve with time too.

The combination of blockchain’s security, tokens’ economic incentives, and AI’s capabilities is paving the way for a new era of decentralised commerce. As we step into this agentic economy, one thing is clear: trust isn’t given—it’s earned, staked, and tokenised.

The holiday season is upon us, and we're excited to share some festive cheer with all of our newsletter subscribers! As we celebrate this magical time of year, we want to extend our warmest wishes to you and your loved ones.

In the spirit of the season, we'd like to share some exciting new things we’re brewing up at Economics Design for 2024!

1. Token Insight - a brand new, token “health check” where we evaluate your token against industry averages and provide a detailed report afterwards. This will be available for $2000 next year, but is currently half price for the rest of 2023! Use code Get50Off at checkout.

2. Web3 Consulting - a new, lighter service that we’re seeing a lot of demand for! Essentially 2-4 weeks of consultation, tailored to your needs: GTM strategy, blockchain decisions, incentive design, risk analysis and much more!

3. ETH Denver - will you be attending? If so, let us know and we can arrange to meet (first drink’s on us)!

As we enter the new year, we're committed to continuing to provide you with valuable content, insights, and promotions. We're excited to see what the future holds and look forward to sharing our journey with you.

Thank you for being a part of our community, and we wish you and your family a Merry Christmas filled with laughter, joy, and success.

In the past 30 days, Bitcoin has surged by an impressive 30%, triggering a buzz in the cryptocurrency market. The excitement reached new heights when BlackRock’s CEO hinted at the possibility of a Bitcoin ETF, sending investors into a frenzy. But is this surge a mere short-lived excitement or the onset of another significant Bull Run? 

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REVIVING A CLASSIC: RAGNAROK ONLINE’S EPIC WEB3 TRANSFORMATION UNVEILED!

The article discusses the transformation of the iconic massively multiplayer online role-playing game (MMORPG) Ragnarok Online into the Web3 space. Originally developed by South Korean company Gravity Co., Ltd. in 2002, the game gained worldwide acclaim for its unique 2D graphics, character customization, and fantasy world inspired by Norse mythology.

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THE FUTURE OF TRUST BASED LENDING | HOW CAN AI HELP? | GIO EXPLAINS

In our rapidly evolving digital world, trust has become a valuable commodity, especially in the realm of financial transactions. Traditionally, lending has relied on tangible assets as collateral, ensuring borrowers are financially responsible. However, in this digital era, where reputations are increasingly shaped online, a groundbreaking concept emerges: trust-based lending.

Read full article

WEB 3 GAMING, CROSS GAME FUNCTIONALITY AND A LOT MORE! | IN CONVERSATIN WITH SOLCRAFT

Dive into the dynamic world of Web 3 gaming with our latest episode, “Web 3 Gaming, Cross Game Functionality, and a lot more!” In this insightful conversation, we’re joined by two distinguished guests from Solcraft, industry leaders at the intersection of technology and gaming.

Watch full Episode

WHAT IT MEANS TO BE A CEO – BY A CEO | BUILD IN PUBLIC EP 2

In the digital age, where discussions about CEO roles often focus on the surface—paychecks and corporate decisions—gaining a true insight into the Chief Executive Officer’s world is invaluable. In a candid video discussion, our Founder and CEO at Economics Design shares a nuanced perspective on the CEO role, shedding light on its complexities and…

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Introduction

The world of cryptocurrency is undergoing a profound transformation, and at the heart of this evolution is Account Abstraction (AA). Through standards like ERC-4337 on Ethereum, AA has simplified transactions and elevated user experiences. In this blog post, we explore the core concepts and far-reaching impact of Account Abstraction in the crypto ecosystem.

Understanding Account Abstraction

Account Abstraction (AA) simplifies blockchain transactions, making them intuitive for users. It removes the complexities associated with wallets and blockchains, paving the way for seamless Web3 decentralized application (dApp) interactions.

Enhancing User Experience with AA

1. Abstraction of Complexities: AA simplifies wallets and dApps, fostering user adoption.

2. Simplifying Transactions: 'Gasless transactions' allow users to transact without native tokens, improving accessibility.

3. Addressing Wallet Challenges: AA enhances self-custody, streamlining wallet management and security.

4. Bridging Web2 and Web3: AA acts as a bridge between traditional and decentralized interactions, enabling mainstream adoption.

Innovations in Wallet Management

AA wallets like Safe, Argent, and Braavos introduce multi-signature schemes and social logins, enhancing security and recovery options for users.

Exploring Use Cases of AA

1. Paymaster Contracts: 'Gasless transactions' enable users to transact without native tokens, improving accessibility.

2. Delegation and Automatic Payments: AA allows users to delegate signing privileges, enabling automated, secure transactions.

3. Social Media and AA: Platforms like Lens Protocol streamline user interactions, abstracting away complexities and boosting social media activity.

Token-Bound Accounts (TBAs)

ERC-6551 empowers NFTs to function as smart contracts, enhancing their utility and interoperability across games.

Closing Thoughts

Account Abstraction is reshaping the crypto landscape, making transactions simpler, safer, and more accessible. With ongoing innovations, the integration of cryptocurrency into everyday life is becoming a reality.

In conclusion, Account Abstraction represents a monumental leap in crypto evolution, promising a future where digital assets seamlessly blend with daily life, empowering users and fueling mainstream adoption

Watch the full Podcast episode here:

In the rapidly evolving world of decentralized systems, significant advancements have emerged, reshaping the way we perceive and interact with these networks. Among these developments, the introduction of restaking solutions stands out, promising a paradigm shift in our understanding of staking and security within the decentralized ecosystem. However, as we delve deeper into this new era, it becomes imperative to address both the challenges and the economic implications that come with it.

Fractured Trust Networks: The Underlying Challenge

Every new decentralized application (dApp) traditionally requires its own blockchain and trust network – built from the ground up. This model, while foundational, has proven to be inefficient, introducing multiple points of failure. The core of the issue lies in the fact that while platforms like Ethereum might offer robust security, this trust doesn't seamlessly extend to external sources, such as oracles, bridges, and data availability providers. Consequently, the dApp often emerges as the system's weakest link, leading to what is termed as "Fractured Trust Networks."

Understanding the Cost of Corruption (CoC)

Amidst these challenges, the "Cost of Corruption" (CoC) emerges as a pivotal concept. Essentially, CoC quantifies the resources (be it monetary, effort, or time) that a malicious entity would need to invest to compromise or corrupt a system. In the realm of blockchain and proof of stake blockchains, this represents the expenditure necessary to obtain malicious influence over a network.

The Significance of Cost of Corruption

A system's security is inversely proportional to its CoC. The higher the cost to corrupt, the more fortified the system becomes against potential threats. A heightened CoC acts as a deterrent, discouraging attackers and thereby preserving the integrity, trust, and value of digital assets within the ecosystem.

Dynamics Influencing CoC

Several dynamics play a role in determining the Cost of Corruption in a decentralized system:

• Staking and Restaking: Staking, where participants commit a portion of their tokens to bolster network operations, naturally increases the CoC. The advanced notion of restaking takes this a step further, allowing participants to aggregate their resources, thereby enhancing the collective security front.

• Network Size and Participation: A more extensive and active network generally boasts a higher CoC. The sheer number of participants means that an attacker would need exponentially more resources to exert significant influence.

• Governance Mechanisms: Robust governance structures, characterized by thorough vetting processes by a diverse consortium, tend to elevate the CoC. Such systems, with their inherent checks and balances, pose a formidable challenge to malicious entities attempting to introduce vulnerabilities.

From an economic vantage point, a pronounced CoC is akin to an investment in the system's overarching security. Such a system, renowned for its elevated CoC, can allure more participants, catalyzing network growth, augmenting token value, and stimulating economic activity.

Restaking: A New Approach to Decentralized Security

In the landscape of decentralized systems, the concept of staking has long been recognized as an important piece of network security and integrity. Participants lock up a portion of their tokens, effectively committing to the network's operations and, in return, receive rewards. This mechanism not only ensures network participation but also acts as a deterrent against malicious activities. Building upon this foundational concept, a new paradigm emerges: Restaking.

Defining Restaking: At its essence, restaking is an advanced form of staking where participants can pool their resources together. Instead of individual commitments, restaking allows for collective security, where participants aggregate their stakes to bolster the network's defenses. This collective approach amplifies the security measures, making it exponentially more challenging for malicious entities to exert influence or compromise the system.

Linking Restaking to CoC and Fractured Trust Networks: Restaking directly addresses the challenges highlighted by the Cost of Corruption (CoC) and Fractured Trust Networks. By pooling resources, the CoC for the network is significantly heightened. An attacker would now face the daunting task of overcoming a collective defense, making the cost of a potential attack prohibitively expensive. Furthermore, with regards to Fractured Trust Networks, restaking offers a unified front, reducing the vulnerabilities associated with multiple, isolated trust networks. The collective security front ensures that trust is not just confined to the core network (like Ethereum) but extends seamlessly to external dApps and platforms.

EigenLayer: An Attempt at the Restaking Trend: EigenLayer stands out as a pioneer in the area of restaking. By integrating restaking into its protocol, EigenLayer aims to redefine how we perceive security in decentralized systems. The promise of a unified, fortified defense against potential threats, combined with the economic benefits of pooled resources, positions EigenLayer at the forefront of this trend. However, it is important to remember that while EigenLayer's propositions are innovative, the protocol is still in its early phase and the true test will happen after its implementation on a massive scale.

Conclusion

As we observe the current gaps of decentralized ecosystems, concepts like Fractured Trust Networks, the Cost of Corruption, and new primitives like restaking can become important pieces for the next steps of web3. These elements, with their interplay, will not only determine the security but also the economic viability of decentralized systems. As we move forward, it's essential to approach these advancements with a mix of optimism and caution, ever mindful of the balance between security, usability, and economic feasibility.

At Economics Design we help projects transition to web3, design their token economies and build sustainable products. don’t hesitate to reach out to tell us about your project. Get a free 30 mn consultation here:

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The Star Atlas Universe Unveiled:

Star Atlas is a cutting-edge blockchain-based space exploration game with a thriving economy of its own. Within the Star Atlas metaverse, players can own and trade starships, starbases, and more, all secured by blockchain technology.

Watch the Full Episode here:

Blockchain technology is reshaping the way we engage with in-game economies, and Star Atlas is at the forefront of this transformation. Stay tuned for more insightful discussions, and explore the Star Atlas universe to experience the future of gaming and blockchain firsthand. 🚀🌟 #BlockchainGaming #GameEconomy #StarAtlas #economicsdesign

Free to Play games have mastered the art of item pricing to boost revenue But Web3 games need a new playbook, based on optimizing item SUPPLY Yet many teams are failing to do this, or choosing designs that hurt their ability to control future monetization Let’s change that

First a look at how F2P can capture more revenue than a 1-time Premium game purchase F2P has the advantage of being able to sell items or other benefits at a wide variety of price points at the same time Players with different budgets all have something appropriate to spend on Now let’s take a common web3 model: the limited NFT drop Supply is fixed and decided by the studio, driving the secondary market price Item tradability increases player willingness to pay initially (due to resale residual) & secondary market fees can add additional revenue Supply decision is much more important than price, which may be decided by auction Even if the team picks the sale price, the supply decision is crucial for monetization It impacts future primary sales (hard to sell a new item for more than what a similar one is trading for)

So teams should: -tightly control the supply of items -issue different items at different supplies to create a distribution of secondary market prices that hits different budgets Teams often miss out when they:

• sell only one or a few NFT collections

• sell many types of NFTs, but with similar supplies

• not control supply tightly at all (even if you want a cheap item, supply controls help you decide how cheap)

• go too far with “substitutive inflation” and introduce too many item substitutes that devalue existing assets, even though each individual item has a fixed supply (e.g. NBA Topshot)

Another factor to consider is if teams want an asset to be more of a status symbol/collectable or an accessible item -Status items are lower supply, driving higher prices -Accessible items are higher supply (potentially infinite), keeping prices in range of their target buyer.

Check out the full article that also covers a variety of supply control strategies:

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Context

The DeFi ecosystem was recently thrown into chaos when Curve Finance, a major player in the space, faced a staggering multi-million dollar security breach. The exploit, which occurred on July 30, 2023, saw approximately $70 million drained from several liquidity pools, shaking confidence in the decentralized sector. This theft was attributed to a vulnerability in Vyper, a programming language popular among Ethereum smart contract developers.

As the community scrambled to make sense of the devastation, an unexpected twist emerged: the hacker, showing a mix of arrogance and potential remorse, returned a portion of the stolen funds worth around $22.7 million, accompanied by a cryptic message hinting at their reasons.

This event not only highlighted the vulnerabilities inherent in decentralized systems but also underscored the complex interplay of ethical considerations in the anonymous world of digital currency. In this article, we'll delve deeper into the intricate economic incentives and tokenomics of Curve Finance, shedding light on potential opportunities and risks present in the $CRV economic design.

Economic Incentives of Curve Finance Protocol - $CRV token

Curve Finance Protocol employs a set of economic incentives to motivate users to participate actively and align with the protocol's growth. These incentives span across liquidity provision, reward gauges, boosting, and governance through the use of $CRV and veCRV.

$CRV has been around since August 2020, and it has been part of the top 100 cryptocurrencies in market cap for a while now. Let’s take a look at the main incentives created by the asset, and understand its pros and cons.

1. Liquidity Provision

Users are encouraged to provide liquidity in Curve pools. In return, they earn:

• Transaction fees.

• Additional rewards in the form of minted $CRV tokens.

2. Reward Gauges

a. Overview:

• Liquidity gauges track user contributions within the protocol.

• Each pool has its unique gauge.

• The Gauge Controller manages these gauges, dictating their types and weights.

b. Mechanism:

• LP Token Deposits: By depositing LP tokens, users earn newly minted CRV tokens. Rewards depend on factors like inflation rate, gauge weight, and type.

• Boosting Rewards: Users can enhance their rewards up to 2.5x by locking CRV tokens for Curve governance. This boost is temporary and diminishes over time.

• Gauge Inactivity: Gauges inactive for a year earn fewer CRV tokens.

c. Gauge Weight Voting:

• Users with veCRV can allocate it among liquidity gauges, influencing the distribution of new CRV tokens.

• Weight votes are introduced at the beginning of the next epoch week with a limit of one vote per gauge every 10 days.

3. Boosting

• Boosting stands as a pivotal incentive for $CRV. It allows users to magnify rewards on their provided liquidity.

• Vote locking $CRV translates to procuring voting authority in the DAO and also warrants a reward boost of up to 2.5x on liquidity offered on Curve.

• Initiating the boosting process entails discerning the requisite amount of CRV to lock. It's pertinent to note that each gauge comes with its unique prerequisites. Thus, some pools might offer easier boosting pathways, contingent on the locked amounts by others and the liquidity gauge's magnitude.

4. Governance

• Governance plays a quintessential role in the Curve ecosystem.

• By locking $CRV, users accumulate veCRV, symbolic of their voting prowess.

• Additionally, participants revel in revenue sharing of trading fees (50%) in proportion to their veCRV holdings.

Economic Risks

While Curve Finance Protocol has garnered significant attention due to its unique economic incentives, it's essential to acknowledge the economic risks inherent in its design. Here's a closer look:

1. Over-reliance on $CRV Rewards

The model leans heavily on $CRV rewards to incentivize liquidity providers. If, for any reason, the value of the $CRV token were to plummet, the attractiveness of the protocol could wane, leading to reduced liquidity and potential instability.

2. Centralization of Power

The boosting mechanism can lead to a situation where a few large holders of $CRV amass significant voting power (veCRV), potentially centralizing governance decisions. This might run counter to the decentralization ethos of DeFi and could introduce risks, particularly if these actors don't align with the broader community's interests.

3. Impermanent Loss

Liquidity providers are susceptible to impermanent loss, especially in volatile market conditions. Though this isn't unique to Curve, the heavy reliance on liquidity provision as an incentive might expose more users to this risk.

4. Revenue Sharing Dependency

50% of trading fees are shared among veCRV holders. If trading volumes decline, or if the fee structure is revised, this could substantially impact the rewards that these participants receive.

5. Complexity and User Error

The intricate nature of the incentive structure, with boosting, gauges, and governance mechanisms, could lead to unintentional errors by participants. These could be financially costly and undermine mass adoption of users.

Future Outlook

Given the recent security breach, it's impossible to discuss the future of Curve Finance without acknowledging the vulnerabilities. While the economic incentives of $CRV are well-thought-out, the platform, like many in the DeFi space, remains susceptible to technical risks.

1. Hack Risk Reevaluation

The recent exploit should serve as a reminder of the inherent risks associated with decentralized platforms. The potential for vulnerabilities, especially in the underlying code or smart contracts, will always be present. As the breach has shown, even established players aren't exempt.

2. Highlighting Risk Management

Users should always prioritize diversifying their exposures across various protocols and platforms. It's not prudent to place all investments in one basket, especially in a space as volatile and experimental as DeFi. Such risks will always exist, and we must understand that public blockchains are “immutable” - a strong word that many ignore.

3. Strong Foundation but with Caution

Curve Finance has laid a robust foundation with its economic model and has been a leader in the space. However, while its economic incentives are commendable, it's essential to weigh the benefits against the potential risks.

Conclusion

In sum, while Curve Finance's $CRV offers unique and potentially lucrative economic incentives, it also comes with its fair share of challenges. The platform has shown resilience and innovation, but it's paramount that users keep the inherent risks in mind. It can be a valuable asset in a diversified DeFi portfolio, but as with all investments, due diligence is crucial.

Always remember: the higher the reward, the higher the risk.

In this episode of Economics Design Podcast, our Senior Consultant Rob sits down with Jon Radoff for a conversation around Jon's company Beamable, Web 3, What's it like developing games, the experience of owning a gaming studio and a whole lot!

Jon is a veteran in the Gaming Industry and has worked in both web 2 and Web 3 Games. He shares his experiences, insights and wisdom in this very special episode.

So if you are a game designer or a web 3 enthusiast or an entrepreneur in the gaming space; This conversation is gonna be so much insightful and fun for you!

*Disclaimer*

This is not financial advice. Information shared is found publicly on the internet. All analysis and opinions are my own. The purpose of sharing the information is for education and knowledge sharing. The information shared is accurate at the time of recording. Purchasing cryptocurrencies poses a considerable risk of loss. Past performance does not indicate future results.

Welcome to the Economics Design Podcast! In this episode, your host Kiefer Zhang is joined by a visionary guest, Nischal Belthan, who leads the Web3 team at Metajuice, the imaginative minds behind the captivating IMVU metaverse. Join us as Nischal takes us on a captivating journey through IMVU's evolution, from its inception in 2004 to its groundbreaking forays into crypto and NFTs, attracting over 4 million monthly users.

Uncover the innovative V Coin and the revolutionary V Core token with Nischal, as he sheds light on their pivotal roles in fostering stability, accessibility, and community-driven governance within the metaverse.

Stay tuned to the Economics Design Podcast for a thought-provoking conversation with Nischal Belthan, exploring the exciting interplay of virtual realms and cryptocurrencies in the dynamic world of IMVU.

Economics Design offers expertise and consulting services in Token Economics Design and Audits. Don’t hesitate to reach out to us our DMs are always open.

Let us know about your project

Explore the LSDFi Landscape: Delve into the world of Liquid Staking Derivatives Finance (LSDFi) with our in-depth primer. This comprehensive document offers a clear overview of the LSDFi ecosystem, discussing its protocols, key players, risks, and future trends. Discover how LSDFi is reshaping decentralized finance by combining staking with liquidity and yield generation. If you’re an industry professional, investor, or researcher seeking to understand the latest developments in DeFi, our LSDFi Primer is an essential resource. Download now to gain valuable insights and stay informed about this innovative area of blockchain finance

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Alchemix $ALCX is a no-loss, yield-generating stable coin protocol with unique mechanisms that include real inflation in the ecosystem. In this episode, we speak to the co-founder of Alchemix, take a deep dive into how Alchemix functions, and the financial incentives of being part of the Alchemix system. We then discuss how it differs from other stable coins and what limitations ALCX could have.

Timestamps:

0:00 – Introduction

1:10 – Background of Alchemix

3:04 – What is Alchemix?

4:56 – Stablecoin creation

8:26 – How is stability maintained

18:45 – Incentives and uses of ALCX Token

22:34 – Differences compared to other protocols

26:42 – Opinions and Limitations

31:45 – Ending

Introduction

Google's recent update to its blockchain-based content policy has been eagerly anticipated by developers and advisors in the blockchain space. With increased interest in Web3 applications and tokenized digital assets, clear policies are essential to provide guidance and ensure compliance. Our team at Economics Design is excited about this development, as it will help both developers and users navigate the evolving landscape of blockchain apps on the Google Play Store.

Key Topics This Article Will Cover:

1. New Google Play Store Blockchain Policies Overview

2. Policy #1: Cryptocurrency Exchanges and Software Wallets

3. Policy #2: Transparency Requirements for Distributing Tokenized Digital Assets

4. Policy #3.A: Additional Requirements for NFT Gamification

5. Policy #3.B: Additional Requirements for NFT Gamification Continued

6. Understanding Policy Interpretations and Compliance

New Google Play Store Blockchain Policies Overview

Effective December 7th, 2023, Google's latest blockchain content policies are set to prioritize consumer protection and transparency. Google's blockchain content policies are designed to establish a more secure and transparent environment for blockchain apps on the Play Store. As these policies are intentionally kept vague for enforcement flexibility, our team at Economics Design has thoroughly reviewed and analyzed the key points to help developers understand their implications.

Before delving into the policies, it is crucial to note that this article presents a preview of the rules that will be effective in December. Any updates or changes to these policies will be promptly communicated to ensure developers stay informed.

Policy #1: Cryptocurrency Exchanges and Software Wallets

To ensure compliance, developers using their own noncustodial wallets to onboard new users to the Web3 space must demonstrate compliance with relevant local regulations. Google review teams may request documentation supporting adherence to jurisdiction-specific wallet regulations.

Policy #2: Transparency Requirements for Distributing Tokenized Digital Assets

If your app includes systems that enable players to stake and earn tokens or utilise their NFTs to earn blockchain rewards, it is essential to declare these features in the app settings specifically for that product.

Policy #3.A: Additional Requirements for NFT Gamification

To comply with Policy #3.A, developers must ensure that their apps do not involve transactions of monetary value for a chance to obtain NFTs of unknown worth. When assessing compliance, regulators typically consider three key elements in gambling activities:

1. Consideration: Participants must provide something of value, such as payment, wager, or an item with "monetary value," to participate in the activity.

2. Chance: The outcome of the activity should predominantly depend on chance rather than skill, meaning participants have little control over the result, which is determined randomly.

3. Prize: Participants must have the opportunity to win or obtain a reward with monetary value.

To maintain compliance, developers can strategically remove one or more of these elements from their apps. Here are potential approaches:

In Terms of Consideration:

• Provide the NFT entry without any cost, or distribute it as a reward for completing missions or achieving top positions in the leaderboard.

• It is also important to implement tight supply controls on assets distributed for free to maintain their value and ensure players contribute to the ecosystem in other ways to justify the free distribution.

In Terms of Chance:

• Eliminate randomness by allowing players to purchase predetermined NFTs with fixed attributes. When the NFT is created with fully deterministic stats right from the start, there is no involvement of chance in the process. For instance, players could buy a sword with a guaranteed +10 attack bonus or a blue and white hat with purple trim.

In Terms of Price:

• Design the app so that the NFT is rewarded through actions within the core game loop. Offer rewards for in-game actions that can be used to obtain a voucher for minting an NFT.

• However take note to ensure players cannot directly purchase the NFT, which should only be earned through in-game actions. This makes the acquisition dependent on gameplay and retention.

• A player can pay for game activities within which they have earned the reward, but these activities must be a normal and expected part of the game loop.

  • For instance, a developer could introduce a loyalty pass system where players would receive daily rewards for actively engaging with the app, and one of the rewards offered through the pass could be a new NFT.

  • In this scenario, the player is not directly purchasing the NFT; instead, gameplay and retention are necessary to obtain the reward.

• Developers could also introduce random rewards, including NFTs, as part of the player's prize list, enhancing the engagement and excitement for users.

  • However, if the player directly pays for a treasure box (via inapp currency purchased with real money) and that box contains a voucher for an NFT, it would not be allowed. This is because the player is directly purchasing the voucher in the store and not acquiring it through normal gameplay.

It's essential for developers to avoid scenarios where players directly pay for a treasure box that contains a voucher for an NFT, as this would be against Google's policies. Instead, the focus should be on engaging users in expected actions within the app, leading to NFT rewards without the involvement of chance or direct purchases.

Policy #3.B: Additional Requirements for NFT Gamification Continued

Our interpretation of this policy is that developers are prohibited from mandating users to burn or stake NFTs as a means to participate in activities where they could win blockchain assets, whether it be another NFT or a token. For instance, developers cannot force players to stake their NFTs as a requirement to join a poker game, where they might have the chance to win tokens or new NFTs.

It's important to acknowledge that policy interpretations can vary, and the precise compliance requirements may differ for each app. To ensure adherence to Google's guidelines, we strongly advise developers to consult the specific policy guidelines and seek guidance from a relevant review team.

Conclusion

Google's new blockchain content policies represent a significant step forward in ensuring consumer protection and transparency in the blockchain space. Understanding the nuances of these policies will be essential to create innovative and engaging blockchain apps while adhering to Google's guidelines.

At Economics Design, we understand the importance of complying with platform policies while offering innovative and engaging experiences for users. Our team is committed to providing personalized guidance to help you navigate these policies and develop blockchain apps that resonate with your audience while adhering to Google's content rules.

Thanks for reading Economics Design Newsletter! Subscribe for free to receive new posts and support our work. If you have specific questions about how these policies may impact your particular project, reach out to our consulting team. We will be delighted to offer personalized guidance and assistance to ensure your app's success on the Google Play Store.

For advanced assistance with token economics design and token engineering, the Economics Design team offers tokenomics consultancy and advanced Token Economics courses. Don't forget to subscribe for free to receive more insightful posts and updates on the latest developments in token economics and blockchain technology. If you have specific questions or need personalized guidance on your project's compliance, reach out to our consulting team for expert assistance.

In this episode we talk about rug pull with Emma Jane and Anna Vladi.

Rug pull is a big a risk in crypto. The general category of risk is Tech risk, Economic Risk and Price volatility risk and Rug pull exists in all these risks.   

Rug pull also exists within NFTs especially when it's built on top of web2 systems with web3 architecture or rug pull by artists on Opensea and metadata on centralised servers.  

How to prevent rug pull from team's perspective:  

1. Use Multi sig wallet initially 

2. Audit 

3. Release dev in stages 

4. Reuse existing contracts that's trialed and tested instead of building from scratch  

How to prevent rug pull from investor's perspective:  

1. Risk management. Think about tail risk. Think about black swan event. the asymmetric convexity of risks.  

2. Careful where you put your money. anon vs non-anon teams 

3. Get legal opinions of projects

Introduction

In recent years, the world of decentralized finance (DeFi) has witnessed the rise of a phenomenon known as yield farming. This practice, often compared to modern-day agriculture, involves the cultivation of tokens instead of crops. Yield farming has captivated the crypto community, offering the potential for substantial returns and attracting millions of dollars into the market. However, it is crucial to understand the underlying economics, risks, and long-term sustainability of this trend.

Key Topics Covered in This Article

1. What is yield farming?

2. How does it work?

3. The Appeal of Yield Farming: Generating Returns and Liquidity

4. Notable platforms implementing yield farming

5. Leveraging Strategies and Risks

6. Risks and Long-Term Considerations

7. Sustainability and Token Dynamics

8. Conclusion

What is yield farming?

Yield farming, at its core, involves incentivizing users to transact and trade on a platform by rewarding them with native tokens. It can be seen as the evolution of token distribution and network effects within the cryptocurrency ecosystem. In the past, we witnessed fundraising methods like initial coin offerings (ICOs) and initial exchange offerings (IEOs), where tokens were used to raise funds and distributed to early supporters. Today, we have yield farming, a mechanism that takes token distribution a step further.

The concept behind yield farming is to incentivize users to actively transact and trade on a platform by offering them native tokens as rewards. This model is similar to exchange tokens, where platforms incentivize market makers. However, yield farming extends this idea by encouraging both liquidity providers and borrowers to engage in trading activities on the platform.

How does it work?

By executing trades on various protocols such as Compound, Synthetix, Balancer, and Curve, users are rewarded with native tokens. The allure of yield farming lies in the attractive returns it offers. On a good day, yield farmers can earn as much as 100% returns. This high potential for profits has attracted significant investments, with millions of dollars flowing into the market.

Yield farming operates on the principle of incentivizing liquidity providers. Similar to exchange platforms, which incentivize market makers with their native tokens, yield farming platforms aim to incentivize both borrowers and lenders to actively trade and transact. This approach benefits users, as they receive extra tokens as rewards, and it benefits the platform by attracting new users and expanding its user base.

The success of yield farming lies in its ability to create a win-win situation for all parties involved. Users are incentivized with extra tokens, which can potentially appreciate in value, while the platform benefits from increased liquidity and a growing user base. It is this mutual benefit that has made yield farming a powerful tool for attracting users and capital.

In summary, yield farming represents a novel approach to token distribution and network effects in the cryptocurrency landscape. By incentivizing users with native tokens, platforms foster liquidity, encourage trading activity, and onboard new users. While the potential returns are attractive, it is important to be aware of the risks involved and approach yield farming with caution.

The Appeal of Yield Farming: Generating Returns and Liquidity

Yield farming has gained significant popularity among cryptocurrency enthusiasts due to its ability to offer attractive returns and additional tokens. Why do people love it?

1. Generating Returns and Extra Tokens:

One of the main reasons people love yield farming is the opportunity to earn their usual returns, such as interest rates, alongside extra tokens. It can be likened to a "buy one get one" deal on pasta, where users receive their expected returns and also receive additional native tokens as a bonus. This mechanism is not entirely new, as exchange platforms like Binance, Bitmex, and Coinflex have implemented similar strategies to incentivize users.

Synthetix, as one of the pioneers in the space, has explored innovative ways for users to earn extra tokens. By participating in various liquidity pools, users can stake their assets and receive additional SNX tokens. Liquidity pools like Uniswap, Curve, and Balancer allow users to earn interest on their contributed assets and receive SNX tokens in return. The objective behind these incentives is to enhance liquidity for the specific token, such as sETH on Uniswap. Users who contribute to the pool by staking their sETH receive trading fees when others utilize sETH on Uniswap, earning them SNX tokens. The increased liquidity resulting from these gamification strategies attracts investors and contributes to the overall success of the token. In fact, the sETH pool alone constitutes a substantial portion of Uniswap's liquidity.

2. Enhancing Liquidity through Curve Finance:

Curve Finance takes a unique approach by facilitating trading between assets pegged to the same value. For instance, there are Curve pools comprising USD-pegged stablecoins such as USDC, USDT, DAI, and sUSD, and another pool consisting of BTC-pegged assets like sBTC, RenBTC, and wBTC. Instead of traditional trading with counterparties, Curve allows users to trade with the pool itself. The platform's USP lies in offering low-slippage trades for these assets. Users who contribute to the pools by providing liquidity earn fees from the trading activity. Moreover, the pooled assets are also utilized for lending purposes, enabling users to earn interest rates on their contributions and transaction fees on trades.

By gamifying the process and providing users with opportunities to earn extra tokens and interest rates, yield farming successfully attracts more sophisticated users, beyond just retail participants. The underlying incentive for platforms like Synthetix and Curve Finance is to increase liquidity for their respective tokens, which has proven effective. The success is evident in the significant liquidity provided by the sETH pool on Uniswap and the seamless trading experience and enhanced liquidity offered by Curve Finance.

Notable platforms implementing yield farming

Curve Finance, Compound, and Balancer are notable platforms that actively participate in the yield farming ecosystem, providing liquidity and rewarding users with additional tokens.

Curve Finance: Fostering Liquidity and Governance

Curve Finance plays a vital role in the yield farming landscape by offering a platform for trading between assets pegged to the same value. As users trade more frequently and require liquidity, Curve facilitates these transactions. Additionally, liquidity providers on Curve not only earn returns from their contributions but also receive extra tokens in the form of SNX (Synthetix), REN (Ren Protocol), BAL (Balancer), and CRV (Curve's native governance token).

CRV, in particular, holds governance rights within the Curve Finance ecosystem. The platform actively distributes CRV tokens to LPs, allowing them to participate in the decision-making process and shape the future of Curve Finance. By engaging users through additional token rewards and providing a governance mechanism, Curve Finance successfully encourages liquidity provision and sustains its position within the yield farming ecosystem.

Compound: Empowering Borrowers and Lenders

Compound, known for its prominence within the decentralized finance market, offers a protocol for borrowing and lending various digital assets. By issuing COMP tokens to lenders and borrowers, Compound incentivizes participation in its lending platform. Users who lend or borrow on Compound earn a certain amount of COMP, with 2,880 COMP tokens issued to users daily. Considering the value of COMP at $250 per token, this daily distribution amounts to an approximate giveaway of $720,000.

The attractive COMP token rewards have resulted in a significant influx of new assets into the Compound lending protocol, surpassing the total assets under management of Maker, a top DeFi application. Compound's innovative incentive structure has successfully enticed users to leverage their assets, leading to increased liquidity and robust borrowing and lending activity within the protocol.

Balancer: Providing Liquidity and Native Token Rewards

Balancer, an automated market maker (AMM), enables users to earn returns by providing liquidity to its numerous liquidity pools. As users transact and supply liquidity across Balancer's 427 pools, they have the opportunity to earn native tokens. However, it is important to note that Balancer experienced an anomalous spike in trading volume on Sunday, June 28, which was likely related to an unexpected attack involving non-standard ERC-20 tokens.

Balancer operates on a fixed daily token minting mechanism. Tokens are distributed based on the trading volume and actions of each trader or user. Consequently, the more an individual trades, the more native tokens they receive. The specific actions that platforms incentivize users to take may include providing liquidity in Synthetix, encouraging trading on Curve Finance, borrowing and lending on Compound, or providing liquidity on Balancer. These actions are typically performed using digital assets, initially starting with stablecoins and high-demand assets to reduce volatility exposure.

As the yield farming space has become more crowded and competitive, resulting returns have gradually decreased. This shift has driven investors to transact on less liquid assets, such as BAT (Basic Attention Token), WBTC (Wrapped Bitcoin), and ZRX (0x), to earn interest and native tokens.

Leveraging Strategies and Risks

In the world of yield farming, users have discovered innovative ways to increase their exposure and amplify their potential returns. Leveraging the power of loans and taking advantage of market opportunities can significantly enhance yield farming strategies. However, it is crucial to understand the associated risks and approach these methods with caution.

1. Leveraged Loans: Unlocking Yield Potential

Users in the decentralized finance (DeFi) space utilize the magic of leverage to borrow tokens and amplify their yield farming returns. Leveraged loans allow individuals to borrow tokens and then invest or trade with those borrowed funds, effectively increasing their exposure to the native token's yield.

While the concept of leverage opens up exciting possibilities, it's important to exercise caution. The DeFi ecosystem values resourcefulness and creativity, rewarding those who identify unique strategies and maximize their trades. In traditional finance, such strategies might be called hacks, but in DeFi, they are celebrated as innovative approaches to yield farming.

2. Yield Farming Hacks: Examples and Considerations

Several yield farming experts, including Degen Spartan, DeFiDad, and SNX Professor, have shared strategies to maximize yield and mitigate risks. Here are two notable examples:

• Strategy 1: Earning 20% APY in SNX

  • Provide liquidity in smaller markets with less saturation, using stablecoins to reduce volatility exposure.

  • Add the stablecoins to the sUSD curve pool.

  • Take the native token (SNX) earned from the pool and deposit it into the Synthetix mintr incentive contract to mint additional SNX tokens.

• Strategy 2: Asset Switching based on Market Volume

  • Borrow USDT to reduce the volatility of the token's price.

  • Lend back the borrowed USDT.

  • Utilize Instadapp to increase leveraged borrowing, if desired.

  • For those seeking higher-risk opportunities, consider switching from a stable position in USDT to assets like BAT, which currently offer higher COMP rewards on Compound.

It is important to note that these strategies involve risks, and users should thoroughly understand and assess their individual risk tolerance before implementing them. While they can potentially yield attractive returns, it is essential to exercise caution, conduct thorough research, and remain updated with the market dynamics.

3. Risks and Sustainability

While yield farming projects like these may appear enticing, it is crucial to acknowledge the associated risks. This is not a realm of endless rewards without consequences. Understanding the risks is essential for making informed decisions and managing expectations.

Projects that have progressed beyond the white paper stage and offer a working product represent a positive aspect of yield farming. They provide users with an opportunity to engage and build a user base. This can be seen as a form of creative growth hacking, leveraging short-term incentives to attract users and generate interest.

It is important to recognize that these incentives may not be sustainable in the long run. Yield farming, by nature, involves short-term rewards and can be subject to changing market dynamics, regulatory shifts, and technological advancements. Therefore, it is crucial to approach yield farming with a realistic perspective and consider it as part of a broader strategy rather than a guaranteed path to sustainable returns.

Risks and Long-Term Considerations

As with any financial phenomenon, there are certain risks and considerations associated with yield farming that need to be carefully evaluated. It is crucial to understand what happens when the hype of trading subsides, transaction fees become exorbitant, or tokens are fully distributed.

A Game of Network Effects and Participation

Yield farming is akin to the collective hype movement, where participants are encouraged to join the farming frenzy. It operates on the principles of increasing network effects and participation, similar to platforms like PayPal or Uber offering incentives to attract new users. However, it's essential to approach yield farming with a critical mindset. While it may resemble a potential Ponzi scheme due to its elaborate structure, it is currently operating as a beautiful zero-sum game. It's crucial not to be the last participant standing, as that may result in significant losses.

Unveiling the Hidden Strings

One of the prominent challenges in the yield farming space is the skyrocketing transaction fees on Ethereum. Gas fees have reached alarming levels, making even simple transactions costly. For instance, adding COMP tokens to a Metamask wallet can incur a $9 transaction fee. Therefore, it is crucial to remain cautious about gas fees, slippage fees, and asset volatility when engaging in yield farming activities.

Leveraged Borrowing and Liquidity Risks

While leveraged borrowing can potentially secure greater returns, it also carries substantial risks. Market volatility can quickly squeeze out participants who have tied up their liquidity in DeFi applications. It is advisable to exercise caution and consider reducing liquidity risk by following tutorials.

Yield Guarantees and Market Realities

Although yield farming may promise attractive annual percentage yields (APY), it is important to remember that there are no yield guarantees. Protocol developers and crypto influencers cannot ensure specific returns. Ultimately, the market decides the outcome, and its rapid fluctuations make yield farming a risky endeavor.

Long-Term Considerations: Transaction Fees and Block Size

Looking towards the future, the significant number of transactions taking place within the Ethereum network has led to soaring transaction fees. In response, Ethereum is exploring the possibility of increasing the block size. While this may provide short-term benefits to validators, it poses long-term risks by potentially making the network more vulnerable to attacks.

In the grand scheme of token design, yield farming represents a self-reinforcing mechanism. Token incentives stimulate liquidity, initiating a feedback loop. As trading volume increases, market maker profits rise, attracting more capital and enhancing liquidity, resulting in tighter spreads. This cycle continues as users lend assets to receive yield, borrowers pay interest while obtaining native tokens (like COMP), and the value of these tokens increases. The market perceives economic value within the platform, and tokens serve as a means to extract that value into monetary terms.

It is crucial to note that while yield farming encourages network effects, it does not inherently provide substantial economic value beyond incentivizing participation. Similar models can be observed in the traditional fiat world, such as credit card point churning or frequent flyer points hacks. Understanding these dynamics helps navigate the yield farming landscape and make informed decisions about participation.

Sustainability and Token Dynamics

For protocols and projects to thrive in the long run, it is crucial for builders and users to remain engaged on the platform beyond the initial hype. While yield farming may appear to be working effectively in the short term, it primarily serves as a short-run incentive. A prime example of this is the remarkable price surge of COMP tokens, which soared from $16 to $230 upon listing, reaching a peak of $350. Consequently, the value of locked-up funds in COMP increased from $100 million to $400 million within a week. However, the question that arises is whether this growth is sustainable.

It is important to recognize that yield farming involves a token supply increase or supply inflation. These tokens are distributed to users with the highest trading volumes. The decision regarding token supply inflation is typically made by the protocol founders. For instance, COMP issues 2,880 tokens per day, while BAL distributes 145,000 BAL tokens weekly. It is worth noting that the governance nature of COMP tokens may lead to potential changes in the future.

Unlike traditional mechanisms where individuals pay for tokens, yield farming allows users to earn tokens through platform engagement. While technically "free," these tokens are not without value. Early investors who have acquired tokens are content to witness their value rise and cash out their returns. It is essential to have a strategic plan in place for utilizing tokens to generate returns; otherwise, one may simply become a part of the plan without reaping substantial benefits.

Comparisons can be drawn between yield farming and initial public offerings (IPOs) in the traditional financial realm. Typically, IPOs witness an initial surge in stock value upon listing, which is often followed by subsequent trading. Understanding how to leverage this dynamic to one's advantage is crucial. However, it is important to note that unlike IPOs, tokens in DeFi do not represent equity, and there is no obligation to ensure that they work in the investors' favor. Governance tokens may offer a semblance of equity-like characteristics, but they are not equivalent.

Borrowers in the yield farming ecosystem are often willing to pay higher borrowing fees due to their belief that the potential gains from their borrowed funds will outweigh the borrowing costs. The native tokens within the system effectively subsidize these borrowing fees, adding value to the proposition. In a sense, it is akin to receiving tokens back instead of traditional cashback rewards offered by credit cards.

Conclusion

In conclusion, yield farming has emerged as a growth hacking strategy within the crypto space, offering enticing returns and driving network effects. However, it is crucial to approach it with a comprehensive understanding of its underlying economics, risks, and long-term sustainability. While yield farming utilizes short-term incentives to stimulate user growth, the focus should be on the bigger picture and the platform's long-term viability.

The true economic value of yield farming lies in building products that benefit users in a sustainable manner, rather than relying solely on hype and speculative trading. It is important to foster actual financial activity within DeFi protocols to ensure that the increase in monetary value is derived from genuine value-addition. This entails promoting meaningful engagement and providing users with valuable services and benefits.

Looking ahead, the sustainability and scalability of yield farming platforms will be key to their long-term success. Balancing user growth with a focus on building sustainable products and services will be critical for maintaining a healthy and resilient crypto ecosystem. As the industry continues to evolve, it is important to prioritize genuine value creation and foster responsible practices within the yield farming space.

Understanding the complexities of token economics and the design of sustainable yield farming systems requires expertise. At Economics Design, we offer tokenomics consultancy and advanced Token Economics courses to aspiring economists and token engineers. Stay informed and delve deeper into the world of decentralized finance by subscribing to our newsletter for regular updates.

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Handshake (HNS) is a decentralised, permissionless naming protocol in which peers authenticate and manage the root DNS naming zone to create an alternative to Existing naming systems and certification bodies.  

Handshake is a domain name system which Web3 supports. Web3 is about rearranging existing Internet products and services to benefit people rather than entities.   

The data will still be used to drive decision-making but will not be used against consumers. Data rights will be protected instead of being trampled for profit. Incentive and marketable mechanisms will help ensure that information is reliable and verifiable.  

If Web3 is successful, it will positively affect projects solving related issues, including  Handshake.