“Why do you need your own token? Why not just use Ether?”

Anyone building a blockchain project that issues its own token has heard this question before.

The question is borne out of the prevailing narrative that no one needs to issue a token. If you’ve ever spoken with me before, you know I’m absolutely distrustful of narratives.

There are quite a few reasons why your project would benefit from its own token, and those reasons can be grouped as:

Token Issuance Reasons

Business and Product Reasons

Technical Reasons

If any one of the reasons in the numbered list below holds true for your project, then you need your own token.

Token Issuance Reasons

If you build your project on Ethereum and used ether as the token your platform runs on, you don’t control the issuance policy.

The token issuance policy encompasses these questions: Who is rewarded new tokens? How many tokens are there total? How frequently are new tokens generated? Who received the initial supply of tokens? How are tokens destroyed?

Any of the below are a valid token issuance related reason why you need your own token.

1. You want to control how users are rewarded new tokens

New ether is rewarded to users who “mine” on the Ethereum platform — meaning they are running special software on their computers which does useful work for the Ethereum platform in exchange for being rewarded new ether tokens.

For your project, you don’t care about miners. You probably want tokens to be rewarded to users who perform actions useful to your platform.

What kind of actions you’d want to incentivize depends entirely on your platform or product. As examples: you might want to reward users who produced new content if you have a content platform; or reward users who validate platform-specific data as part of a consensus mechanism.

2. You want to control how frequently new tokens are generated

Ethereum has an inflation rate — you might want a different one.

3. You want a finite supply of tokens

Ethereum has an inflationary supply. New tokens are being rewarded to miners every day. You might want a fixed supply of tokens for your project.

4. You want tokens in your platform to be scarce

Ethereum has over 90 million ether tokens in circulation. You might want your platform to have a more scarce supply of tokens to increase perceived rarity. As an example, perhaps you want to limit the number of token holders if your token entitles holders to membership benefits, access to your platform, feature usage, etc.

5. You want tokens in your platform to be abundant

Alternatively, you may want shallow and broad distribution of your tokens, and can better accomplish that through a token supply numbering in the billions!

6. You want to the initial supply of tokens to go to people likely to use your platform

Whether you distribute your initial supply of tokens via a token sale (ICO), airdrop, faucet, or any other means, you very likely want your token going to actual or potential users of your platform. By creating your own tokens along with an initial distribution event, you have much greater control over who gets your tokens at the launch of your platform.

7. You want to control how tokens are destroyed

Token rewards incentivize your users toward certain actions. You can also use token burning — the destruction of some amount of the user’s tokens — to disincentivize actions you consider harmful for your platform.

The “carrot and the stick” if you will.

Ether does not natively support the concept of token burning. When creating your own token, you can implement the ERC-777 standard to add proper support for token burning, including emitting events whenever tokens are burned.