Author: Jason Di Piazza, Yuan Han Li Source: Blockchain Capital Translation: Shan Ouba, Golden Finance
The principle that pursuing one's own interests in free and open markets will unconsciously promote social welfare was first proposed by Adam Smith and later confirmed by economists Milton Friedman and Paul Samuelson. This concept remains a cornerstone of modern economics. Douglass North expanded on this point, elaborating that carefully designed institutions to protect property rights and enforce contracts shape individual behavior and mitigate economic uncertainty through clear incentive frameworks. As we have seen in the United States, the United Kingdom, Japan, and other countries, such legal frameworks instill trust in the fairness and reliability of the economic system, ultimately stimulating entrepreneurship, investment, and continued economic growth.
Conversely, trust erodes as corruption, opacity, misaligned incentives, or monopolistic practices emerge, inhibiting economic activity and innovation. The potential for mutual benefit is lost. As power is concentrated, the risk of abuse and misaligned incentives increases, threatening the integrity of a free and open economy.
History provides many examples of such outcomes. For example, in the United States in the late 19th century, the rise of powerful railroad monopolies led to widespread price discrimination, market manipulation, and suppression of competition. These practices undermined confidence in the fairness and efficiency of markets.
While legislative actions such as the Sherman Antitrust Act were a direct response to curb these monopolistic practices, technological advances have also played a vital role in diversifying transportation and logistics. The invention and mass production of the automobile and the development of the interstate highway system are a case in point.
There are parallels with today’s internet monopolies. Just as 19th-century railroad monopolies concentrated power and stifled competition, today’s dominant digital platforms have created a similarly unequal economic landscape despite their undeniable contribution to global connectivity.
Just as the automobile challenged the railroad monopoly, the emergence of blockchain-powered decentralized systems—enabling trustless peer-to-peer interactions—offers a potential solution for democratizing today’s digital economy.
At the heart of this revolution are tokens, a novel coordination mechanism for digital engagement and value exchange. At their core, tokens are just assets. What makes them unique is their programmability, which transforms them from static units of value into dynamic, versatile tools capable of instilling trust, fairness, and reliability in economic systems.
Just as concert tickets provide access to events, tokens provide access to digital services and/or resources, with additional features such as expiration dates, transferability, and even revenue-sharing agreements. Imagine if owning Apple stock not only represented equity value and governance rights, but also gave you exclusive access to the latest iPhone or discounts on Apple services — that’s the power of tokens.
Essentially, both equity and digital assets represent a stake in the future success and growth of a company or protocol. As such, investors should focus primarily on two key factors: the potential for value appreciation (value appreciation) and the ability to influence the direction of the company (governance rights).
Like other assets, tokens are not created equal. While stocks are fractional ownership shares of a company, with varying specifics but unified by the principle of equity, tokens are a heterogeneous asset class. Some tokens offer equity-like exposure, while others grant access to services, governance rights, or embody units of ecosystem value. This heterogeneity requires an assessment of the unique characteristics of each token within its ecosystem.
For example, we can juxtapose Uniswap and Doge. In the former, Uniswap’s token derives value from its role in governance and potential fee capture in a widely adopted decentralized exchange. On the other hand, Dogecoin’s value is primarily derived from its meme-driven popularity and speculative demand, rather than clear underlying utility.
While sentiment and momentum factors can drive short-term price action, sustainable value creation relies on two interdependent factors: token economics and network utility.
Token economics blends economic principles, incentive structures, and governance mechanisms to regulate the supply, demand, allocation, and decision-making processes of tokens. This developing field blends economics, game theory, computer science, and political economy to create sustainable ecosystems that balance and align the interests of stakeholders. In other words, they are the digital embodiment of Douglas North’s efficient economic organization.
Network utility, on the other hand, represents the real-world applications, adoption, and value creation achieved by a project.
Together, token economics and network utility form the basis for assessing a project’s long-term fundamental value. By evaluating a token’s economic design, governance structure, and digital utility, investors can make more informed decisions about which companies or protocols have the potential to drive lasting change and generate sustainable value.
Governance Value: All token value flows downstream from the governance structure. Token ownership gives holders decision-making power to guide the future of the ecosystem and its smart contract framework
Consensus Participation Value: Token ownership grants the right to earn fees and rewards through active network participation (e.g., staking)
Utility Value: Token value is derived from use cases within the ecosystem, such as access to services, fee payment, or as a means of exchange. Particularly relevant to base-layer blockchain tokens
Network Value: The value created by the growth and adoption of an ecosystem, as measured by user activity, transaction volume, and overall market sentiment, applicable to all token types
By evaluating tokens against these core value drivers, investors can gain a more complete picture of a project’s potential and make more informed decisions about which tokens to support and hold over the long term.
As the blockchain and decentralized application space continues to evolve, new token models and value drivers will emerge, requiring a multidisciplinary team to evaluate and navigate this landscape. This includes experts in blockchain technology, economics, game theory, computer science, hardware design, and political economy.
At Blockchain Capital, we invest in digital assets for their utility, rights, and governance, not for speculation. As investors, we can shape the future of decentralized ecosystems by supporting projects that embody these principles, drive positive change, and create long-term value. Through participation and adaptability, we aim to help build a more inclusive, transparent, and equitable economic future powered by tokens.
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