Glossary

One way to distinguish a crypto-currency from a token would be to say: tokens are mostly not implemented on their blockchain, unlike crypto-currencies. An interesting corollary follows directly from this distinction: the price of a token can be affected by many factors besides Supply and Demand, such as their linkage to other assets. This is not the case of crypto-currencies which are fully market-regulated.

Crypto-currencies such as bitcoin, are always of one type as their sole purpose is always to be a medium of exchange. On the other hand, there are several types of tokens because tokens can be designed for several purposes which themselves can be sub-categorized into different types. For example, when tokens have a representation purpose, they can represent a wide variety of elements: digital assets such as voting rights or digital identities (we speak of digital representation of these rights) or linked to virtual reality objects (virtual representation) or even legal rights granted by law or agreed between parties (legal representation).

It is therefore necessary to make finer typological distinctions

Since 2018, a major classification effort has been made. Tokens have classified given three properties they have:

1° Class (of a token) : it can be digital money (in which crypto-currencies such as bitcoin are found) which is the class of means of transaction. It can be digital shares giving the right to a profit-sharing or to dividends (one speaks then of Security Token) under strict legal control. It can be crypto-assets (or also called Utility Token), which is the class of tokens that provide access to products and services. Finally, it can be digital representation of assets (or also called Asset Token) which is the class of tokens that represent a real asset.

2° Purpose (of a token) : a token exists either because it represents in a unique way an asset (it is said asset-backed); or because it confers to its holder an access authorization as does an access token (usage token); or because it is used as a value container to reward a certain behavior (work token).

3° Role (of a token): Tokens can confer a right to their holder, represent a unit of value exchange in an internal system, represent a fee for the use of or access to a platform (tax), constitute a tool to enrich the user's experience and reward his behavior (incentive), constitute a de facto method of payment ("quasi-currency ") or, again, represent a right for this holder to a share in the profits (gains) generated on this platform.

At Nomiks, class + purpose + role of a token constitute what we call in total its functions.* We sometimes speak in a more unitary way of the utility of a token* which includes all the functions of this token from the point of view of its holders and the advantages they get from it. *

For example in the Sandbox whitepaper, the token SAND is defined as follows:

Players spend SAND in order to play games, buy equipment, or customize their Avatar character — and can potentially collect SAND through gameplay. Creators spend SAND to acquire Assets, Lands […]. Land Sales drive demand for SAND to purchase Lands. Artists spend SAND to upload Assets to the Marketplace […].

So, the functions of the SAND token can be described as a utility token that aims to be a usage token (you need it to play), incentive token (to both reward creators and enrich the player experience). It is also a de facto payment method on the Sandbox platform.

The distinction between a utility token and a security token exists at the legal level. But this distinction is not so obvious from the internal point of view of projects which are financed (partly or totally) thanks to the token(s). At the same time, the token is implemented to be held and used by various agents. That is why a perfect classification does not exist and remains largely empirical, as a token can have a lot of various functions at once.

Projects have become more sophisticated; this is reflected in the multiple ERC standards (on the Ethereum blockchain) which testify to the functional or utilitarian diversity that a token can play.

The agents are the ones who use the token(s) of a given project. Users are a sub-category of agents, they are the entities that create activity by buying, exchanging goods, using services of the project. This brings a semantic level, to our syntactic classification. The token of a project is, indeed, distributed or issued to several holders. But some holders do not always use it, not all the time, do not commit it on the platform but retain it for various reasons. This is why, at Nomiks, we speak of agents rather than users, to reserve this name for active users who create activity by buying, exchanging goods or services made available by the platform. In order to create judicious incentive systems, we have to make even finer distinctions between, for example, "lazy" holders who rely on the community and others. Holders are also a sub-category of agents.

The agents are the ones who use the token(s) of a given project. Users are a sub-category of agents, they are the entities that create activity by buying, exchanging goods, using services of the project. This brings a semantic level, to our syntactic classification. The token of a project is, indeed, distributed or issued to several holders. But some holders do not always use it, not all the time, do not commit it on the platform but retain it for various reasons. This is why, at Nomiks, we speak of agents rather than users, to reserve this name for active users who create activity by buying, exchanging goods or services made available by the platform. In order to create judicious incentive systems, we have to make even finer distinctions between, for example, "lazy" holders who rely on the community and others. Holders are also a sub-category of agents.

A tokenomic consists in maximizing:

a) The utility of a token, i.e. the different benefits it provides to different agents,
b) The value chain, i.e. the increase in value of a token through well identified functions,
c) The alignment of users, i.e. the overall harmony orchestrated by incentives or dissuasions (in the form of a loss of earnings for example)

The utility of a token is the maximization of the benefits it provides to its users, its holders and more generally to a whole series of agents.
As these agents interact with each other and work towards a common goal, the utility of a token is necessarily collective.

All tokenomics are designed to reach a final objective which can be, for example, the production of a common good or a service.

To gain value, a token must be used along a value chain. The functions of the token in a tokenomic will determine whether its value will increase or decrease. For example, a token used to pay fees on a platform will create less value than a token used as a payment method to purchase goods and services from that platform as we expect the volume of fees would be lower than the volume of token used to purchase goods & services.

Levers or tokenomic mechanisms are means by which tokens acquire value. There are levers on the Offer and levers on the Demand.

Example:

There are often conflitct between Tokenomics, user experience and legal aspects. For example, charging user fees for a platform and distributing them directly to holders will probably make its token look like a security token to some regulators.

Generally speaking, a crypto project without tokenomics runs a risk affecting its own sustainability. Tokenomic is crucial and at the core of any web3 project.

A token supply (or supply for short) is divided into:

A token supply is allocated among stakeholders which can be :

A current trend we are seeing at Nomiks is the increased use of community incentives, whether in the form of Airdrops, rewards to contributors or to the ecosystem in general, as a token of participation in Liquidity mining programs for example, or any other commitment to growth.

It is a commercial and technical operation of limited duration which implies the technical generation of the token and its launching on the market. This can be done in the form of a public sale, a private sale, or any other type of offer. TGEs are generally used for advertising purposes and to raise funds from crypto/blockchain communities, as well as to officialize the project.

In a presale, assets are made available to selected customers for purchase prior to an announced sale date. In most cases, presales involve investments by private companies in products that are still in development. It is also a way for companies to accumulate money that they can use to fund the project.

This is the period during which an asset or service is launched on the market and can be purchased. This is usually done on token exchange platforms and websites.

The hard cap is the highest amount of money a crypto project plans to raise for its development needs. On the other hand, a soft cap refers to the minimum amount of funds needed to continue developing the project.

Inspirée des introductions en bourse (IPO), une Initial Coin Offering (ICO), souvent appelé Inspired by initial public offerings (IPOs), an Initial Coin Offering (ICO), often also called a Public Sale, is a method of raising funds used by blockchain projects. An ICO allows institutional and retail investors to buy tokens instead of shares. These investors can use fiat currencies or crypto-currencies to participate in the sale. An ICO can involve multiple rounds of funding.

Market Cap is a shortened term for Market Capitalization, which in the crypto-currency field is calculated by multiplying the current price of a unit of a crypto market by its circulating supply. This determines the value of a crypto currency as it is considered to be the analogue of a high market capitalization and as such a criterion in the investment decision. FDV (Fully diluted valuation) is the total capitalization if all tokens were actually in circulation. A high FDV compared to the Market Cap can lead to significant supply inflation and pressure on the sell side. To understand the impact of FDV, consider that it represents the total tokens in circulation plus the tokens unavailable on the market (at the current purchase price).

Market Cap is a shortened term for Market Capitalization, which in the crypto-currency field is calculated by multiplying the current price of a unit of a crypto market by its circulating supply. This determines the value of a crypto currency as it is considered to be the analogue of a high market capitalization and as such a criterion in the investment decision. FDV (Fully diluted valuation) is the total capitalization if all tokens were actually in circulation. A high FDV compared to the Market Cap can lead to significant supply inflation and pressure on the sell side. To understand the impact of FDV, consider that it represents the total tokens in circulation plus the tokens unavailable on the market (at the current purchase price).

This is the decrease in value of the token, following an increase in its quantity in the circulating supply. It is the same as the inflation seen in the fiat systems. For example a bar of chocolate costs 1 Token. But with an inflation of 50 % of those tokens, the offer remaining the same, the same bar of chocolate will cost 1.5 Token.

This is the opposite of inflation. The term scarcity is often used to describe this phenomenon. The value of the token will increase over time, which is an incentive to hold it. But this prevents economic mobilizations such as investment in other value-added activities. Consequently, the activity will decrease on the platform.