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Auditing token economies

As you might know, I am one of prime tokenomics experts. I was one of the first to recognise the value of using tools like agent based modelling in analysing token economies. Since then, I’ve done lots of work commercially and academically on areas like stablecoins, DeFi and NFTs.

Token economies are an amazing technology which allows incentives and penalties to come together, in order to create a decentralised system to achieve goals that otherwise wouldn’t be possible.

On this article I wanted to discuss what I believe is the next frontier in token economics: auditing.

Token economics

Those of you who follow this blog might have seen the BankX tokenomics audit. BankX is a partially collateralised algorithmic stablecoin, which promises to fix many of the problems that stablecoins like TerraUSD faced.

During the audit, I conducted a full breakdown of BankX’s incentive structure, the deflationary and inflationary mechanisms, and ran data-based simulations to ensure that the project’s goals can be achieved.

bankx liquidity - tokenomics audit

I used this experience to write up an article, which I am very proud to announce that is published on the Journal of the British Blockchain association.

In the article I explain the different mechanisms that can be used to audit token economies, and why auditing will become a very important part of any tokenomics design. I also outline the main tools that can be used for the analysis:

  1. Empirical proof
  2. Agent-based modelling
  3. Game theory
  4. Marginal cases analysis
  5. Probability theory

Each one of those tools can be used in isolation or together in order to make a case that a tokenomics design is sound or not.

Next generation tokenomics

I really believe in the power of a good token economics design to make or break a project. It is my belief that auditing is going to be the next big frontier in this area, and I am very happy to be contributing to it.

If you are interested to discuss more about data science, AI or blockchain, make sure to get in touch. Also, if you are thinking about creating a token economy, make sure to check out the Tokenomics Questionnaire by the Tesseract Academy.

 

 


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Categories: Blockchain

Dr. Stylianos Kampakis is the owner and author of The Data Scientist.

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