None of the following should be taken as financial advice, but rather an inquiry into some of the economic theory for the blockchain space.

Back in 2009 and 2010 I was a member of the UMass Entrepreneurship Initiative, a weekly meetup in the Pioneer Valley of Western Massachusetts. This community was my introduction to business model planning and analysis, pitching, fundraising, and the world of startups. It was during this time that I had my first startup experience, helping a local political engagement application called Localocracy, which was later acquired by the Huffington Post.

In the summer of 2010 I attended the Second National Gathering of Slow Money (local food-system investment), and joined the founding steering committee of the Western Mass’ Slow Money group, PVGrows. This happened to be when my friendship and collaboration with our CEO, Gregory Landua, began. For as long as I can remember, I’ve had a fascination with the social technology we call money. It was likely around this time that I first heard of BitCoin and blockchain, although I was dismissive of it at the time, opting instead to focus on local food and local economy rather than global or hi-tech systems of money.

Last summer Regen Network was starting to gain some momentum. That’s when I joined the team, and started exploring blockchain and cryptocurrency in earnest.

One of the aspects of the cryptocurrency space that I find most exciting is the ability to create not only a business, but an entire economy. Businesses inherit the operating system of the economy of which they are a part. But cryptocurrency projects have the ability to define new agreements, frameworks, and paradigms within which they operate.

When it comes to analyzing the investment case of a crypto project, there is much in common with the textbook fundamentals of startup assessment: team, idea, potential market, and risks. But there is one striking difference: token economies are fundamentally different than businesses. This may seem obvious to those coming from a crypto background, but it’s quite a leap for traditional investors. Where businesses have intellectual property, revenues, and stock, crypto projects often have an open-source protocol upon which others can build, token economics, some governance mechanism, and the token itself. Instead of valuation, the focus is on market capitalization.

Whereas in the traditional business world, a potential investor might consider stock dilution through future rounds, token investors consider the the factors that manage token supply. In the second and third-generation of tokens that we’re currently experiencing through Initial Coin Offerings, a genesis token supply is generally created through a Token Generation Event (TGE) — some percentage of which is sold to investors — at which point the supply may be set in a variety of ways. Bitcoin’s token economy is likely the best known, with a ultimate hard cap of 21 million coins (we currently have 17 million). So holders of Bitcoin are being diluted through the mining process, but to a limited and predictable extent. What sets Bitcoin apart as a token economy example is that it did not have an initial TGE, but rather their token supply started at zero and has increased regularly over time through mining.

One question I regularly get on this topic surrounds the term “crytpocurrency.” Some — such as our advisor Rick Dudley over at Vulcanize — would argue that “cryptoassets” is a better descriptor of the current crypto ecosystem. That aside, currencies have a number of different facets — the textbook list being store of value, medium of exchange, and unit of account. Bitcoin is a great store of value, but a poor medium of exchange. Interestingly enough, the two aims are at odds with each other. An appreciating currency tends towards store of value, and a depreciating currency optimizes for medium of exchange. The US Dollar performs all three of these functions with proficiency, in part, due to its lightly-inflationary value. A cryptocurrency doesn’t need to become the next US Dollar to still have a solid investment case — just look at the world of video games and in-game currencies, which show that there is a viable economic case to be made for niche digital assets or currencies.

When looking to optimize for the potential financial upside of a token — if the investment vehicle and the native token in the system are one in the same — you’re looking for a token economy more or less like Bitcoin’s, involving a constrained but slightly increasing supply.

After researching and considering a wide range of options, this is what we ultimately landed on for Regen Network. At our TGE, we’ll have an initial supply of 755,952,381 XRN tokens, 40% of which will be sold to contributors via Simple Agreements for Future Tokens (SAFTs) through two simultaneous offering sales (Reg D in the US and Reg S internationally), with a cumulative hard cap of $40 million. From that point forward, Regen Ledger (our blockchain), will be governed by the Regen Consortium, a group of organizations that share a set of values around regeneration. From the TGE, there will be a small annual increase in token supply (starting at 1%). The Consortium will grant out this annual increase to projects and ventures in support of the broader Regen Network ecosystem.

Want to learn more?