Incentive alignment is crucial in token economies.
An example of potential conflict occurring is an issue that emerged with MakerDAO on September 2020.
When $DAI holders lost about US$2,500,000 from their vaults on the system due to a hack, a governance vote was held on whether to reimburse the loses with the $MKR treasury. The governors, $MKR holders, decided against compensating the losses.
This shows a clear misalignment of incentives between different token holders and how that can impact the overall ecosystem. Avoid this by designing interlinking incentives.
An example of potential conflict occurring is an issue that emerged with MakerDAO on September 2020.
When $DAI holders lost about US$2,500,000 from their vaults on the system due to a hack, a governance vote was held on whether to reimburse the loses with the $MKR treasury. The governors, $MKR holders, decided against compensating the losses.
This shows a clear misalignment of incentives between different token holders and how that can impact the overall ecosystem. Avoid this by designing interlinking incentives.
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Stripe acquired Bridge this week for $1.1 billion, marking a significant move to bridge the Web2 and Web3 ecosystems. Overall, the raises have been sky high.
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The VCs are back.
Or are they?
$1.1Bn of this $2.2Bn raised comes from the M&A of Bridge. This brings the raise down to $1.1Bn, which is still a very sizable increase, being tied as the most invested month this year.
Also, people who don't know about the Bridge M&A, will assume the VCs are back, which means they'll be more bullish, bringing more VCs back, etc. - self fulfilling prophecy.
One way or another, things are looking solid.
Or are they?
$1.1Bn of this $2.2Bn raised comes from the M&A of Bridge. This brings the raise down to $1.1Bn, which is still a very sizable increase, being tied as the most invested month this year.
Also, people who don't know about the Bridge M&A, will assume the VCs are back, which means they'll be more bullish, bringing more VCs back, etc. - self fulfilling prophecy.
One way or another, things are looking solid.
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Here's 3 ways we'd fix a dead token price that's down by 95%:
1. Marketing: people care about future value, and they need to see that there are things in the works that will increase value.
Build hype about new product launches, share big partnerships and explain what they'll bring, be clear about your mission and the steps you're taking to get there.
2. Trust: speak with your community. Everyone is depressed when the price goes down, and trust flies out the window.
The team being down to earth and speaking with the community - Twitter spaces, Telegram group calls, Discord voice channels - builds this trust and keeps everyone motivated.
3. Liquidity: depending how much money you have in the treasury, you can boost the token price by buying up your own tokens and holding the supply. Fundamentally, good price action is the best way to attract more holders in this industry.
1. Marketing: people care about future value, and they need to see that there are things in the works that will increase value.
Build hype about new product launches, share big partnerships and explain what they'll bring, be clear about your mission and the steps you're taking to get there.
2. Trust: speak with your community. Everyone is depressed when the price goes down, and trust flies out the window.
The team being down to earth and speaking with the community - Twitter spaces, Telegram group calls, Discord voice channels - builds this trust and keeps everyone motivated.
3. Liquidity: depending how much money you have in the treasury, you can boost the token price by buying up your own tokens and holding the supply. Fundamentally, good price action is the best way to attract more holders in this industry.
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Align incentives.
One of our clients has quarterly product releases - something people buy in bulk. To access, you need to stake some tokens. However, the quantity is limited, so if they sell out, there's no real need to keep staking: users can sell and buy back in three months to try again.
To avoid this sell pressure, we've devised two incentives:
1. Locked tokens get more benefits. e.g. lock up for a year, be able to buy 3x as many products.
2. The longer the tokens are staked for, the earlier people get access to the drops. e.g. if they've been staked and untouched for 3 months, you get 60 minutes earlier access to the drop, ensuring you don't miss out this time.
Fundamental alignment of incentives between company and user shouldn't be neglected.
One of our clients has quarterly product releases - something people buy in bulk. To access, you need to stake some tokens. However, the quantity is limited, so if they sell out, there's no real need to keep staking: users can sell and buy back in three months to try again.
To avoid this sell pressure, we've devised two incentives:
1. Locked tokens get more benefits. e.g. lock up for a year, be able to buy 3x as many products.
2. The longer the tokens are staked for, the earlier people get access to the drops. e.g. if they've been staked and untouched for 3 months, you get 60 minutes earlier access to the drop, ensuring you don't miss out this time.
Fundamental alignment of incentives between company and user shouldn't be neglected.
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Here's something successful founders know about VCs that others don't:
VCs are not in the business of giving money, they're in the business of making money.
Think of them as a bank giving you a loan.
Both have a level of risk they're willing to go to, and if you can show that you're not a risky investment with a lot of upside, you will have no problem getting capital.
"If I give them $200,000, will they be able to take this idea and 5x my investment?"
That's all you have to prove.
VCs are not in the business of giving money, they're in the business of making money.
Think of them as a bank giving you a loan.
Both have a level of risk they're willing to go to, and if you can show that you're not a risky investment with a lot of upside, you will have no problem getting capital.
"If I give them $200,000, will they be able to take this idea and 5x my investment?"
That's all you have to prove.
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They loved our knowledge and offer, but ultimately opted for a more expensive, "traditional top 4 consultancy," in this case Ernst & Young, with the reason that the big name would allow them to deflect any risk associated with the changes.
Long story short, Plutus started promising much higher staking rewards instead - e.g. deposit 50,000 PLU, and after 5 years you will have 215,000 PLU. How does this make sense?
Well, EY calculated that the token is actually worth $10.25, instead of the current $1.90, so all these extra rewards are "self-sustainable". How did they arrive at that conclusion?
"EY simplified their calculations by assuming that 100% of reward emissions are stacked, no PLU is redeemed, and no PLU is withdrawn."
The lesson? Industry native expertise is indispensable.
For actually sustainable economy designs, reality-based modelling, and general token advisory, feel free to reach out to us: @Alex_Simplicity, @Daniel_Simplicity, @Yoaquim_Simplicity.
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We examined over 16,000 data points to assess the market depth of 35 leading cryptocurrencies on centralised exchanges: Binance, ByBit, OKX, KuCoin, Coinbase, Bitget, and MEXC.
There's a consensus that bigger exchanges have deeper order books, but is that true? We analysed the API data to find out.
Report: https://www.simplicitygroup.xyz/blog/top-crypto-exchange-depth-report
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