Economics and physics can explain the foundation of life. Economics with why we do what we do, our behaviors, our actions, our incentives, our outcomes. Physics explains the metaphysical world that we live in. Both economics and physics, although sciences, are different in their application but equally important in how we shape the world.
With economics, technology has changed the way we apply economics. The good news though, is that principles in economics do not change. They remain and same, and now are just used differently. Just like in physics, gravity is a fact. It doesn’t change be it on Earth or the Moon, just different intensity and use-cases.
So how is this related to token economics?
We used to be in traditional physical economics: producing, consuming and distributing mostly physical products.
Then we moved to digital centralized worlds with new variables like digital assets. The production, consumption and distribution of this new class of asset has changed drastically. We need to account for that in our little ecosystems like how Amazon, Airbnb, Uber runs. These companies are not always producing physical products, and that changes the dynamic of business and business plans.
And next, we are going towards digital decentralised worlds, with the same sets of economic foundation as the worlds before, but now we have to consider more about governance and other variables.
So why foundational economic blocks need to exist?
Because they are the structure for us to build this new digital decentralized worlds on. We apply the learnings of “ordinary” economics to make ecosystems, digital assets (information, computer engineering, systems design) to amplify our objectives, do useful things and coordinate in all directions.
Not A Recipe Cookbook
It is not a cookbook. I would even argue that many things might not even apply. But it is the basic economic concept that is the most important. A cookbook says to add flour, butter, egg and baking soda into the cookie and bake it at 180C. The concept is to mix ingredients and cook it. For a person that can’t take gluten, you have to change the flour. For a vegetarian, you have to change the egg and butter. But the concept remains, to mix ingredients and cook it.
Similarly, the foundational economic blocks are the main ingredients to bake this cookie. You change it according to your constraints (permission vs permission-less, stable coin vs cryptocurrency, etc).
Impossible Task of Possibility
I will be honest here. It is impossible to build a completely holistic model, but hey, Rome isn’t built in a day. We take baby steps in building a nation and building a new field in economics. In my model and research so far, it is to combine market, mechanism and aspects of monetary + other macro economics fields and concepts into token economics. It is absolutely more than just the design of the token, aka how to value the token. It includes the decentralised governance, the coordination of people, allocation of resources, etc.