Observations, goals & concessions

In many Web3 networks, people are able to create token based assets. These networks enable an open, permissionless and competitive free market for different mediums of exchange to compete with one another. Multiple forms of token money could exist that fulfil different requirements and that each have different properties based on the needs of each community.

Observation - Environment specific governance

Token based money could be governed in a multitude of ways depending on the needs of the community. The larger the community the more important it becomes to keep governance as simple as possible due to the costs involved in decision making with large populations. Each type of token money could experiment with different governance approaches and the most effective ones will likely be adopted more broadly.

Observation - Environment specific implementation

Token money could be implemented in any way that a community prefers. Network money has the responsibility of handling node operation and ensuring the network is always available for anyone to use and exchange token based assets. Token money does not have this requirement, so it could adopt the store of value property in certain circumstances. For example, a country could create a token based money that enables holders to hold a certain amount of token money without there being a wealth tax. Then if the user exceeds that threshold the wealth tax would then be applied. This isn’t a suggestion that this type of approach is a good idea. Instead it is a statement that token money can be implemented in a variety of different ways. In a permissionless network anyone can hold whichever assets they want to. So mediums of exchange that adopt demurrage would need to consider and generate an ongoing and sufficient amount of demand for the token money to maintain stable prices.

Observation - Local financial liquidity incentive

The financial incentives around liquidity that are adopted by the network money could be effective for handling global token exchanges between the most important assets that are available in the network. However some communities could also have assets that are only relevant to their own community. Localised financial liquidity incentives could also be relevant and effective for token money. Liquidity incentives could also be effective for token money.

Goals - Community acceptance and adoption

Token money doesn’t need to compete on a global scale like network money does. Token money only needs to achieve acceptance and adoption in the community it is intended for such as a country or online community. A medium of exchange will benefit from being as broadly accepted as possible in these communities to increase its network effects. Broad acceptance of token money would make it simpler and easier for people to use it as a medium of exchange in their community. This can prevent the need for exchanging that money for other types of money that people might also be accepting instead.

Concession - Systemic failure risks

Token money could be implemented in ways that make it unstable over the long term. Governance processes might collapse or become ineffective. These risks could be an ongoing problem for token money due to the ongoing amount of competition between new forms of money. Web3 networks enable a free market for different forms of token money. This means that any failure of one token money could introduce an opportunity for another to emerge. New forms of money could be adopted very rapidly due to the speed and availability of these digital environments. Although systemic failures could occur this also opens the door for ongoing innovation.

Concession - Store of value asset adoption risks

Users are incentivised to hold assets that don’t lose value over time. This means any token money that is introduced that adopts demurrage could have limited demand when compared to alternative assets that maintain or grow in value over time. Mediums of exchange will need to consider this when thinking about how they will generate stable demand for the money so that the price remains stable and so the price is not suppressed. Token money will likely also require sufficient network effects and incentives to sustain moderately high wealth taxes to simulate demurrage over the long term.