Notes on Introduction to Token Engineering

Foundations of Cryptoeconomic Systems (Voshmgir, Zargham 2020)

I recently took Token Engineering Academy's Introduction to Token Engineering. I enjoyed the course's content – a set of essays and videos from some of the top builders and thinkers in crypto. It gave me some great mental frameworks for thinking about an industry I've been involved with for a decade.

My detailed notes from the course are here. Here's a brief summary of the course content.

Towards a Practice of Token Engineering

Section one is based on a series of articles written by Trent McConaghy, an electrical engineer who founded the Ocean Protocol.

Trent states that the core feature of public blockchains is "getting people to do stuff by rewarding them with tokens." Blockchains are a form of "super stupid AI" which must be carefully designed if we want to safely and effectively use them to accomplish our goals.

We can draw inspiration from traditional engineering fields in order to design the new field of token engineering which is needed for the successful deployment of blockchain networks. Bitcoin and the Ocean Protocol are used as case studies demonstrating how a practice of token engineering can help with the analysis and design of tokenized ecosystems.

Foundations of Cryptoeconomic Systems

Section two is based on a paper written by Michael Zargham (systems/electrical engineer and founder of Blockscience) and Shermin Voshmgir (former director of the Research Institute for Cryptoeconomics.)

The authors argue that the dominant approach to cryptoeconomics which is based in microeconomics and computer science is limiting. Blockchain networks are best understood as complex systems. Effectively designing and understanding them them requires a complex systems approach, interdisciplinary research, and economic systems engineering.

They synthesize research from various academic disciplines such as complexity science, network science, and institutional economics in order to develop complementary micro, meso, and macro definitions of the term cryptoeconomics.

They conclude by outlining specific research questions and methodologies for future research in the field.

The Web 3 Sustainability Loop

Section three is based on another article from Trent.

He explains how we can use concepts from businesses and the economies of nation states to design self-sustaining Web3 ecosystems.

Businesses generate revenue by providing services. They issue stock to get the business off the ground, and to raise additional cash in times of trouble. Nation states generate revenue by taxing citizens. They issue fiat money to boost the economy in times of need.  

Cryptonetworks can use revenue models inspired by traditional web businesses, but with less extractive rates. They issue tokens to raise the initial cash to build their networks, and to provide ongoing income for the founding team. Tokens should be engineered in a way that ensures the token value increases as network usage goes up.

Cryptonetworks as Governance Capital

Section four is based on an essay and lecture by Joel Monegro, a partner at Placeholder, a VC firm focused on cryptonetworks.

Joel argues that capital is the power to organize the economic resources of a social system. Capital offers governance over pools of resources.

  • Human capital influences what goods and services are offered in the economy
  • Equity capital presides over how a company’s resources are used.
  • Social capital drives human attention (and thus behavior)

Capital's worth is determined by how much of those resources can be directed to the holder’s benefit. Capital = governance, and capital has intrinsic value.

Tokens with governance rights in cryptonetworks are a new kind of capital asset. "Power tokens" which combine the functions of currency and capital are an important new form of network capital that is natively digital and cheap to distribute.

Engineering and Ethics in Web3

Section five is based on an essay by Michael Zargham.

Zargham argues that Web3 enabled systems are deeply entangled with existing social and economic systems. They could have a significant impact on our social institutions.

We need institutions like the Token Engineering Commons that are dedicated to safeguarding the public in the face of complex technologies they don't understand. This work requires looking beyond the boundaries of technical fields, and towards experts in the humanities and the social sciences. Especially those who have studied ethics law and governance.

The content in this course might feel too theoretical and academic for people without much direct experience using crypto. Still, I'd highly recommend it to any founders or builders working on new cryptonetworks.

Shingai Thornton

Shingai Thornton