The Models and Practices of Token Economy: — White Paper for Implementing Blockchain into Businesses

The Models and Practices of Token Economy — White Paper for Implementing Blockchain into Businesses Version 0.1

The critical route of implementing blockchain to businesses is to establish Token

Economy, i.e., various token-applied business ecosystems. As value can be represented and transferred via blockchain, the token can be applied as an incentive or used for governance. It will encourage all users and partners to establish a shared, win-win and autonomous business ecosystem. The key form of implementing blockchain into businesses is to create new token

economy applications. They are the core application of every token economy. It means these applications can be built in the newly-established blockchain project, or tokenized from existing projects on the Internet, mobile internet and industry internet. The application integrates the internet of information and internet of value and comprehensively makes use of the Internet platform, online and offline-community, blockchain, and token. Applications of Token economies will put an end to the age of idle token, connecting user-end application and token trade to form a complete value circulation. The primary initiator of implementing blockchain into businesses is called

Decentralized Autonomous Company (DAC). DACs utilize blockchain technology and economic instruments to create new token economy applications and establish token-applied business ecosystems. Potential business areas to implement blockchain technology are online community, digital content, sharing economy, new retail, capital tokenization, etc. The objective of this white paper is to discuss and summarize the tokenized model of how to implement blockchain into businesses, and to provide a concise guide for the design of token economy and business tokenization. The white paper will

1

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exert its value if it could arouse more discussion, thinking and practice in the community. Keywords: Implementation of blockchain in businesses, Token economy, new token

economy

applications,

Company(DAC), business ecosystem.

tokenize,

Decentralized

Autonomous















Table of Content 1.

Rationale behind Tokenization

2.

Token Economy System Design: 5+1 Scenarios

3.

Four Steps of Tokenization

July 2018 Initiator: BUMO Publisher: Token Economy Practice Alliance The first group of Initiators for the Practice Alliance: BUMO, QF Capital, CYzone, BiShiJie.com, EnChain.Asia(Tokyo), KUAIZHI Lab, Astar Lab, Calypso Lab(Silicon Valley), Crypto Valley, Wenzhou Bopu Big Data Institute. Editorial Board: FANG Jun, JIANG Hai, GUO Qiang, ZHU Feng, GU Kai, LI Heng, WU Lingwei, YANG Xiaqing Academic Advisor: YU Jianing Authors: FANG Jun, GUO Qiang, ZHU Feng Co-Facilitators: BizKey, SLife, iVery.one, Saturn, Delink, BTXON, Utour, Bank of Hash Power Cash, Quantum Matrix, YUNCHUANG Life(Cloud Innovation for Life), AiFC, TAOTAO Games, MakeMountain, Wedive, HPPO, MI+, Flamefy, CodingFly, BitEDU, etc. Flagship cases will be added afterward.















This White Paper is published as 0.1 Version by Token Economy Practice Alliance. It is an open source publication licensed under a Creative Commons Attribution 4.0 International Licence.















Figure: General model for the design of token economy incentive system















1. Rationale Behind Tokenization As a brand new technology of decentralization, blockchain transfers the Internet of Information to the Internet of Value. Two functional characteristics brought by blockchain to the Internet and digital world: -

Technical blockchain trust layer applies to the “value transfer” in the digital world.

-

A value-based token represents the amount of value in the digital world;

With the emergence of Bitcoin since the end of 2008, blockchain has evolved for ten years and started to demonstrate a long-term potential in recent years. At present, blockchain technology and its economic growth can be divided into three phases 1: -

Blockchain 1.0: Currency;

-

Blockchain 2.0: Assets

-

Blockchain 3.0: Applications

Nowadays, blockchain technologies, especially public chain make great strides, and all industries extensively are exploring and trying to adopt blockchain applications. Thus, implementing blockchain technologies into businesses, in the real sense, becomes increasingly possible. This White Paper aims to envision the route of how blockchain could be implemented into business. To this respect, we believe: -

The critical course of implementing blockchain to business is to establish Token Economies, i.e., various token-applied business ecosystems. As value can be represented and transferred via blockchain, the token can be applied as an incentive or to governance. It will encourage all users and partners to establish shared, win-win and autonomous business ecosystems.

















-

The key form of implementing blockchain into businesses is to create new token economy applications. They are the core application of every token economy. It means these applications can be built in the newly-established blockchain project, or tokenized from existing projects on the Internet, mobile internet and industry internet. The application integrates the internet of information and internet of value and comprehensively makes use of the Internet platform, online-and offline-community, blockchain, and token. Applications of Token economies will put an end to the age of idle idle token, connecting user-end application and token trade to form a large value circulation.

We will explore possible means to integrate the internet platform and token economy to build new token economy applications from the very start, and attempt to provide a model or framework for designing new token economy applications which is open for discussion and updating.















However, several problems occurred in these phases, such as high speculation and great fluctuation in its price. In addition to those, the major problem is that token, as a representation of digital asset, remains idle in the digital currency world. No any connections to the online users, let alone empower the real economy. Terminating the idleness is the crucial issue to solve regarding new applications of the token economy. The current token transaction is dominated by investors and speculators, while the dominator of its ecosystem is the token exchange. However, the purpose of new applications of the token economy is to launch applications for businesses. That is to say, a token will be utilized as the media to form a brand new business ecosystem where token exchange, the functions of the platform itself, industry function and user community are contained. Meanwhile, community and governance will be incentivized by the same logic of token and operated on blockchain technology. New applications connect the core businesses of internet platform and token economy, establishing a closed circulation. Thus, as a token is integrated into practical business procedures, there is no idle token anymore.















From internet platform to New Applications of Token Economy 1. Internet Platforms’ Traffic-Driven Logic and Accurate Matching Internet industry has evolved from desktop applications to mobile applications and from O2O to sharing economy. In recent years, the Internet has integrated into various industries as "Internet+". What remains unchanged is that the basic logic of the Internet of Information is "traffic-driven logic" and its core function "accurate matching". Centralized internet platforms demonstrate traffic-driven logic. At the same time, centralized internet platforms facilitate all parties to achieve accurate matching. Platform-based

internet

companies,

thus,

earn

profits

accordingly.

The

emergence of sharing-economy platform model brought the development of internet platforms into a new summit. However, with the development of sharing economy and the integration of online and offline, the deficiencies of this logic becomes evident. For instance, the data online mismatches the offline situation; interests equilibrium among business stakeholders cannot be achieved via accurate matching. Besides, people become aware that centralized platforms exert the enormous influence on industry ecosystem and acquire overwhelmingly amount of interests in doing so. When blockchain comes in, it provides technologies and economic instruments accordingly to complement these deficiencies. Blockchain offers solutions to the following two problems:

Value Representation and Transfer. The existing internet protocols lack the functions of value representation and value transfer. Therefore, a Trusted Third















Figure: From Traditional Corporates to Internet Platforms: Internet Platforms Connecting Corporates and Users

2. Existing Blockchain Projects: Prototype of Token Economy Through the Bitcoin to the token issued on top of Ethereum, from crypto exchange to various public chains for general use, specific functions or industries, the prototype of token economy gradually comes into being among trials. Bitcoin is a single-layer token that only has a single token, i.e., Bitcoin itself 2. Bitcoin system is a bitcoin-centered closed circulatory economic system circulating from competition, ledger to bonus. Ethereum is a typical double-layer token, of which, the bottom layer is Ether (ETH), the system fuel. At the early stage, Ethers initiated token crowdfunding. Later on, the distribution and incentivizing principles are similar to those of bitcoins. The upper layer encompasses various tokens created by various projects. They programmed smart contract following ERC20 Token Standards and corresponded to token issued over other assets. In doing so, those















As more digital assets are represented by the token and these tokens have been traded only in exchange, the contrast between the original cryptocurrencies such as Bitcoin, Ethers, and tokens issued over smart contract has been revealed. Regarding Ether and Bitcoins, the price discovery circulation and their businesses are achieved in the same circle, whereas the token issued over smart contract has a separate circulation for price discovery and token enabled applications. Nowadays, for most of the tokens issued in the market, their token trading and user-based vital functions are totally separated. That means that tokens and applications are not connected to each other, or only in a weak connection.

Figure: Token Projects VS Bitcoin System As tokens are used as the representation of value or medium of asset exchange at BlockChain 2.0, the separation of tokens and applications should be acceptable. However, when trying to implement blockchain into businesses, separation and idleness of tokens are urgent issues to address.

















constrained scenarios. Typically, exchanges did not incorporate the exchangebased tokens into their core businesses, i.e., trades in secondary markets. Therefore, the pricing for exchange-based tokens and the core business of exchanges are operated separately. Recently, an innovative exchange carried out a creative trial. The exchange rewards daily trading commissions to owners of tokens issued by the exchange, forming a circulation connecting coupling core business and token economy(shown in the figure below). This practice attracted extensive attention and inspired a series of new innovation trials.















Figure: New Application of Token Economy: A New Circulation The circulation to connect user applications and token trading might be the direction of how the Internet of Information is transformed into the Internet of Value. Through this transformation, the logic behind projects will witness a















Figure: From Traffic-Driven Logic to Value Logic Correspondingly, the core roles in the business ecosystem will also redefine themselves: from the companies that provide products and services, to the platforms at the Internet era, then to the builders of the ecosystem of new applications – Decentralized Autonomous Company(DAC). Regarding business functions, the internet platform is a connector, matchmaker and market mechanism designer. While as an ecosystem builder, DACs will need to complete three tasks at the same time: operating the platform; creating a token; managing the community.















2. Token Economy System Design: 5+1 Scenarios A token is a unit of account that represents value on the blockchain. It is decentralized, which makes it useful for ecosystem construction; it is priced to makes it more incentive; it has liquidity and can be used for saving and is more practical to use. From the perspective of the blockchain implementation, the token is the core hub, and only the practical design of the token model can simulate and manage a business ecosystem.















on the value of resources. Tokenization scenarios focus on smart applications of the asset.

Reference of Tokenization Scenario: Crypto Exchange

!

Crypto Exchange / Case: FCoin / Reference: Stock Dividend The crypto exchange can be regarded as a typical internet application. It is closely related to the blockchain and up to now, various token scenarios have been in operation, which provides a good reference for practical application of the token economy. FCoin is an innovative exchange that creatively combines platform currency transactions with user applications (which are secondary market transactions) to form a closed loop. Now it is in the stage of "transaction is mining", distributing its own token FT in the form of sharing commissions with users. The specific approaches are: -

Users will be rewarded by daily commission distribution if purchasing and holding FT.

-

As an exchange itself, and the price of the FT will be determined by secondary market transactions.

















The First typical scenario of blockchain commercialization: an online community that does not involve fiat currency transactions !

Internet Content Community / Case: Steemit / Reference: Currency















-

Content contributors (who write contents or like the content) can get a token reward (half of SP and half of SBD).

-

A pricing mechanism is set up on the blockchain, and the witnesses determine the exchange rate of SBD and STEEM tokens, which determines the price of STEEM.

When the Steem blockchain and the Steemit blog platform are in a completely independent parallel world, their logic is self-consistent, and STEEM prices are growing steadily while SBD is anchored at $1USD. However, when STEEM, SBD, and the entire crypto world are linked, that is, when they are traded on the exchange, both prices fluctuate significantly following the whole market, also with some occasional price fluctuations. fluctuations.

The Second Typical Scenario of Commercialization: Digital Content Partially Involved in Fiat Currency Trading !















Therefore, a knowledge paid service platform can be transformed by tokenization. The practice can be added with points function in addition to the















specific rules. (To make it straightforward, the team and early investors also hold the token which is locked to be traded.) -

Example of a token-releasing rule for drivers: o

The total amount released on the same day will be distributed by 720 days to complete the average issuance;

o

The amount of token obtained by a driver = total amount released on the day * driver's ride-hailing income / total ride-hailing income of the platform on the day.















Therefore, the model can be established according to the net income forecast of the ride-hailing business and the distribution mechanism of the token, and the value corresponding to each token can be me asured. Regarding the sharing economy, the discussion above is a token that represents the rights but not the functional token that ordinary ride-hailing users use. Generally speaking, the sharing economy can also adopt the equity token and functional token to form a dual token mechanism. However, it is worthy of discussing that how utility token can work more powerful or develop new features, as fiat works effectively in payment at present. Now, in the ride-hailing application, there are already common tools such as topping up credit from the user side. Also, there are various incentives such as "get extra 150 when you top up 100" and "inviting friends to get cash back".

















The Forth Typical Scenario of Commercialization: New Retail Combining Online and Offline Approaches !

New Retail / Case: New Retail Service Provider / Reference: Shareholding of Distributors Suppose a scenario that a new retail technology service company provides a software platform for retailers with the offline approach. In general, to convince





























Tokenization of asset on the blockchain, we can learn much from ABS ideas and form the philosophy of ABT (Asset-Backed Tokenization). Asset securitization usually refers to the packaging of a specific portfolio of assets, with the cash flow generated in the future as repayment support, issuing bonds to raise funds. When applying the blockchain and the token to this field, the resulting ABT has some new features: -

Empowering investors with greater control over property by digitizing assets















3. Four Steps of Tokenization The core promoter of tokenization is DAC, who plays a decentralized role in the ecosystem, and promotes the transformation of the Internet platform, the implementation of blockchain technology, the issuance management of the token and set-up of the business ecosystem. It will be a new legal entity and organizational entity, coordinating coordinating all parties to promote three core issues:















The commercialization of blockchain is based on the establishment of a token economy by DAC. Here, the role of DAC is distributed in four layers: governance, incentives, adjudication, and the DACs.

















Set rules of the crypto exchange





























Four Steps of Tokenization















expand and govern ecosystem. Rewards thus come along.















Compliance of all tokens















The Models and Practices of Token Economy: — White Paper for Implementing Blockchain into Businesses

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