Modelling Zonafide Tokenomics

There isn’t much written yet about Tokenomics. We aren’t in the business of investing in crypto assets so cannot say we have read many white papers but the ones that we have did not show a model for how their business works around a token. If there was one it might have been the Basic Attention Token (BAT). The main reason we care is that we do not want a token to be counter productive to our business goal. We do not want it to mean people cannot actually use our software for the purpose it was intended. With this in mind we spent a lot of time thinking about the role of a token and discovered that, not only could early adopters of a token benefit financially as we created demand for it, but that with a sound model we had other benefits such as helping us prioritise our development.

Zonafide is all about people working together to secure their activities so we call our token the Together Token or TOG for short. Some people like it and some feel it is “a bit lame”, preferring something more Star Trek. However, this has been the least of our worries. We secured agreements to roll out our product in a first authoritative use case early in 2017 but we did need funds to go operational. We were approached about an ICO, Initial Coin Offering, in the spring and since then our time has been dominated by understanding what an ICO means to us and how we would engineer its core concept, the Token, into our business model.

I am a software architect and engineer not an academic, economist or quant. I am lucky to have a friend of 30 years, Bernd Fleischmann, who has spent almost all his time working with financial products and data. He was the architect of a portfolio management system in the 1990’s that, as a little company of a few people, competed with leaders in portfolio management software such as Reuters and Temenos. I first met Bernd when I lived in Geneva in the early 1990’s. He was working at CERN developing software to analyse the particle collisions produced by a forerunner of the Large Hadron Collider — probably the world’s first Big Data problem. Bernd designed his system around Harry Markowitz Modern Portfolio Theory and the concept of the Efficient Frontier for determining investors risk return profile. Bernd was someone who I felt could help us build a model for how a token might work in a Zonafide ecosystem.

Bernd’s immediate reaction was that I had fallen victim to some libertarian propaganda about how the world’s economy needed to change. A couple of weeks later he got back to me and said “Hmmm..Yaaaa….ok…..I’ll take a look but I can’t promise anything”. I knew he would not be able to resist googling the topic. At least to prove I was misguided and that his initial conclusion was correct. It has been a few weeks now and Bernd is still working on it but in our last update there was some reserved humour, a few chuckles, head scratching and finally: “I feel like I am back at college and anything is possible. I really don’t know what I am doing. It’s great.”

Both Bernd and I are going back to basics. We are trying to shake of stereotypical, closed world, interpretations of how we think things should work and attempt to be more open world, evidence based. After years of experience we are admitting we don’t know. We are benefitting from some hindsight because there has been many amazing new technologies over our lifetime and we have participated first hand in their hype cycles. We know what it is like to be in the trough of disillusionment and we recognised the part luck played in the notoriety of those that enjoyed success. So although despondent about our bad luck, maybe better than no luck at all, we don’t blame ourselves for it.

“So what do we want from this model?” That is the first question Bernd asked. Well, TOG is a genuine utility token. As we are all from an investment banking background we never fell into the trap of a token behaving like a financial security. This was one cognitive bias we did benefit from. So we immediately envisaged TOG being exchanged between users of Zonafide as a reward for the roles they played for each other. All the roles were very well defined apart from one. This was the role of a token holder.

Although all of the original roles would now acquire and hold a balance of TOG to benefit from peer to peer services enabled by Zonafide, now we had a new role. This role was analogous to the role of a speculator in capitalism (https://en.wikipedia.org/wiki/Speculation). In capitalism the speculator is considered to be a crucial role. They find inconsistencies that when exploited cause the market to correct. They place excess capital back into the system and, most importantly, they take risks. This role is pre-purchasing the means by which everyone can benefit from Zonafide and, in so doing so, providing the resources to build the ecosystem for everyone’s benefit.

In exchange for taking on this role of speculator we have to create a product that has sufficient utility to create demand for the token. For TOG. Of course this is what our white paper, our MVP and the opportunity we have built to-date attempts to prove to them. However, what will this demand do? It should make the TOG worth more to the other roles so that they are willing to acquire it at a price higher than the speculators bought. So the most important requirement of our tokenomics model for the Zonafide ecosystem is how to ensure that the price of TOG is not more than the other roles are prepared to pay for its utility. While still providing token holders, speculators, with the return commensurate with the risk they have taken.

We are only at the beginning of developing our model and we expect it to constantly evolve. In considering it we have not only identified that we need to model the dynamics between this new role, the speculator, in our business model but that the tokenomics themselves might give us a completely new type of tool to optimise the value and utility of Zonafide to all its users. We do not expect to arrive at a model that is a magic formulae or anything like that but, a methodology over which we can iterate. We hope to find a way to express the model in the white paper when it is made generally available to the public.

If you would like to know more about the Zonafide tokenomics modelling and methodology as it develops show some love on the page or tweet, @interition and @ZOnafideWallet, the article. Thanks.