Token Economics 4: Organizations

Blockchain technology builds upon previous changes in how people work together to produce value in advanced economies. With the rise of the platform economy, information technology has already within just a decade or so changed the model for the production and consumption of value within advanced economies. But these newly forming token networks greatly extend those previous trends, with some major alterations.

Online platforms and blockchain are changing how we collaborate and work together across organizations and across society at large. Token economics is set to change the very structure of the Industrial Age enterprise as it now offers the potential to align the interests of stakeholders in new ways.

What is happening today builds upon the recent development of the so-called collaborative economy: online platforms that function as two-sided markets matching producers and consumers. The collaborative economy is defined as initiatives based on horizontal networks and participation of a community. Blurring the lines between producer and consumer, they connect individuals into large peer-networks of exchange.

However, these large platform organizations that have arisen with the development of the internet are still centralized around the platform providers, creating many issues of security, data privacy, control, misalignment of incentives and concentration of wealth and power.

Blockchains let us design protocols that provide the same capacities for people to collaborate within large peer networks but this time without needing the centralized entity.

Through the use of tokens, the network is converted into a token market, with the market mechanism used to coordinate it in a decentralized fashion. By removing the centralized component this works to align the incentives of members better and turns businesses into something more like communities or ecosystems.

By removing the centralized component that is controlling the overall network and operating it for a profit, the individuals in the network become much more aligned with the whole. This alignment between the individuals and the whole network is realized through the token, because as the value of the whole organization increases, this increase in the value of the platform does not get sucked up by management and shareholders but in fact gets distributed across the network itself by accruing to all of those that hold the token.

This is how and why in a token economy the traditional business model of the Industrial Age – that was primarily designed to create a profit for its owners – is greatly reduced and replaced by these token networks which are more like public utilities as profit does not get taken out by the shareholders but instead is continuously reinvested and redistributed to the users of the network through the utility token that they must hold to use the network.

Thus unlike the centralizing forces of the Industrial Age where value was always getting pulled inwards and suck upwards, with these distributed networks – if designed properly – they can work to inherently push the value that accrues downwards to the infrastructure layer and outwards to the members of the network who hold the token.

With token economies, we now have the capacity to directly program incentive structures through tokens and this shifts the success of economies from the realm of policy and management into the realm of design and technology.

Today well designed token networks hold out the possibility to build new forms of incentive structures that really improve the alignment between the agents in the network and the whole system; potentially working to avoid a rich get richer effect and reduce the gap between owners and users of the economy.

We no longer have to place our hopes on the promises of politicians or protest against neoliberal economic policies but the future of our economies is now largely about designing token economies, programing blockchains and building communities that fuel them.