You can't copy and paste tokenomics

You can’t copy and paste tokenomics

A founder has to worry about 3 things: product, marketing, and the token economy.

‘Token economy’ means the economic rules and actions surrounding the token, and we at Simplicity Group specifically use the term tokenomics to talk about the supply side - allocations, valuations, vestings, etc.

Fundamentally, this supply side needs to align with the demand side. Thus, tokenomics should always be done after the utilities and economy is designed, so you understand how much value the token can accrue and retain over what period of time, and create the supple side to match. This typically comes from cross-referencing user projections against other financials.

However, it is also crucial to factor in the market sentiment and your launch strategy, which includes everything from how the token is going to market to who you’re bringing onboard.

In short, these are some of the factors you need to consider when making your tokenomics:

• Token utilities

• Token economy functions - fees, rewards, treasuries, etc.

• Incentivisation - liquidity, B2B, usage, etc.

• Team & advisor value

• Expected revenues

• Burn rates

• Profit margins

• Assets within the company

• Product roadmap

• Community size

• Marketing strategy

• Who your marketer is

• Web2 market sentiment

• Macro crypto sentiment

• Investor sentiment

• What investors you’re targeting - VCs, angels, whales, retail, etc.

• When investors are investing in relation to roadmap

• How much you need to raise

• Token sale - ICO, Launchpad, Nodes, NFTs, Dutch Auction, IEO, etc.

• Launch strategy - DEXs or CEXs or one after the other?

• What launchpads are you going on

• What market maker are you using

• What DEXs are you launching on

• What CEXs are you listing on

• Liquidity allocations

• Legalities - token warrants, options, contracts with launchpads, etc.

A good token economist should factor in all of these things when designing the tokenomics of a project.

At the end of the day, each of them play a role, and you can read more about this topic here: https://thoughts.simplicitygroup.xyz/p/tokenomics. I’m writing this article merely to explain why you can’t copy and paste tokenomics of other projects.

Why you can’t copy and paste tokenomics

Look, I’m not obtuse. I understand that if you copy and paste tokenomics which release the token very slowly, and your product and marketing are very well covered, there is a chance that you will probably do fine.

The problem is that tokenomics isn’t a standalone thing. Tokenomics are designed in context, context that should be comprehensively understood and considered.

For example, imagine a project with 340k DAU and a carefully planned marketing strategy of releasing certain new features straight after launch, so their public valuation of $75M with a 10% airdrop allocation unlocked 100% at TGE can be completely absorbed by their users, especially given their listing on OKX and the use of a great market maker.

You, on the other hand, simply copied the $75M public valuation with 100% unlocked 10% airdrop allocation. You don’t have 340k DAU. You don’t have their marketing strategy. You aren’t getting listed on their CEXs. You don’t have their market maker.

Thus, your token price will look like this (Pic. 1).

The above project copied their tokenomics from another project with a huge airdrop allocation, severely overvalued and oversupplied their token, and came to us for help a couple weeks after they launched. We declined, as by this point they were finished.

Below is another example (Pic. 2). This project launched a sudden marketing campaign as an attempt to revive the token price a couple weeks after launch, but their marketer of choice wasn’t an expert in the type of guerrilla marketing they wanted. Their tokenomics simply kept oversupplying the market, sending the token price down. We were introduced a week after, but similarly, we declined.

The project below, (Pic. 3), did in fact try and think deeper about their tokenomics, with longer vesting and reasonable valuations given their low user count; alas, their launchpads and KOLs weren’t happy with the initial performance and requested refunds, draining the projects’ treasury and losing them valuable marketing. They also didn’t understand that their token economy did not retain any value. All the buy pressure they got, they lost due to their utility design - so whilst their tokenomics were somewhat aligned with user growth, they were not aligned with value retention, thus, once again, creating a surplus.

The project below simply didn’t understand how to launch a token (Pic. 4). They had a huge IMC with very low liquidity, and launched on a bad CEX - sizeable brand, but, as a lot of CEXs, with no actual users - just market makers wash trading fake volume, which, they only found out post factum. To make matters worse, their launchpad dumped all of their tokens shortly after launch. All of these things could’ve been avoided if they had the information about all of these actors before they launched.

You just can’t

There are so many factors to consider when creating tokenomics, from the endogenous token economy design, to the exogenous contextual parts that play a significant role in launching a successful token.

It’s not just a simple Excel table, unfortunately.

Good token price action is not only an incredible, if not the best, marketing tool for a project, but it also allows the project to build up its treasury which it can repurpose for more growth.

Without a solid product or marketing good tokenomics alone wont save your project from its eventual doom. But bad tokenomics can definitely kill anything good you have going.

Why spend millions of dollars on development and marketing, and cheap out on such a crucial element of your project? You wouldn’t hire someone to build your entire house, and then decide to wire up the electrics yourself, would you?

Unless you’re an electrician, I hope not.

But what do I know.