<aside> <img src="/icons/book_gray.svg" alt="/icons/book_gray.svg" width="40px" />
This is a chapter from the book Token Economy (Third Edition) by Shermin Voshmgir. Paper & audio formats are available on Amazon and other bookstores. Find copyright information at the end of the page.
</aside>
This token design thinking framework was developed to support the understanding, analysis, and design of token systems. It systematically addresses the critical questions surrounding token issuance, distribution, and governance. A series of questions guide the design thinking process in a methodical manner. This framework was also used to analyze the use cases presented in this book.
After analyzing numerous token systems, both their similarities and differences, I realized that every protocol, regardless of their final governance structure, demands a systematic evaluation of its purpose, principles, functions, stakeholders, token types (and their properties), and potential power structures. There is no one-size-fits-all solution for token design.
I developed this framework as a qualitative tool. It is intentionally comprehensive and should serve as an essential first step in the design thinking process, approaching token design from an economic, political, technical, and legal perspective. While additional quantitative modeling and analysis will be necessary, they are not the starting point of the process. Quantitative methods—though crucial—only become meaningful once the objectives, stakeholders, key measurements, and contextual factors have been clearly defined. Metrics such as the number of tokens issued (for fungible tokens) or pricing policies (for NFTs), as well as analytics indicators like total value locked, market capitalization, or gross network value, are not meaningful in isolation. They must be evaluated in relation to the token’s purpose, industry context, stakeholder structure, and other qualitative factors.
The design process should be iterative rather than linear, incorporating continuous feedback loops across the different stages of trying to answer all the questions in the tool. Iteration ensures that each question is thoroughly examined and refined in response to other connected questions. While it can be time-intensive, this approach is essential for developing robust and adaptable token systems.
This framework can be applied to model or analyze complex token systems that govern Web3-based online communities. It can also help design more simpler tokens, such as asset tokens or access-right tokens which are managed within more centralized governance structures, such as those of a private company. However, such centralized approaches contradict the principles and potential of Web3, and might prove counterproductive in the long run.
The first step in the design process is defining a clear purpose for the token or community one wants to create. Understanding the purpose helps to (i) identify the necessary stakeholders, (ii) determine their motivations for participation, and (iii) establish the best way to incentivize them with network tokens (in the case of a DAO) or define the business model (in the case of tokenization of real-world assets or access rights).
If one aims to create a DAO protocol that collectively maintains an infrastructure network, it is crucial that the purpose is well-defined and understood by all participants. A clearly articulated purpose simplifies the alignment of tokenized incentives and supports the development of a resilient and sustainable economy. Single-purpose protocols can be seen as collectively maintained public (often global) infrastructure networks. Multi-purpose protocols, designed to provide various services, may face coordination challenges similar to those encountered by nation-states. These challenges stem from contradictory goals that governments and administrative bodies must navigate while attempting to meet the diverse needs of their people and institutions. A clearly defined single-purpose protocol simplifies incentive alignment and enhances resilience over time.
Key questions to consider:
Political principles establish the governance philosophy upon which a protocol is designed. These principles must address power structures, individual privacy, and institutional accountability:
Power Structures: