Tokenomics

A token is something that represents something else. Economics is an academic field concerned with analyzing and describing the production, consumption, and exchange activities within an economy.

Tokenomics is a portmanteau word blending token and economics. However, the term is misleading; one might believe the primary academic discipline implicated by Tokenomics is Economics, when really it’s Psychology.

The term “token economics” is a term based on concepts derived from the theory of operant conditioning — a theory that describes how presenting an individual with certain stimuli along with a parallel reward or punishment of the individual’s specific behavior can come to change the person’s future behavior. In this theory, the stimuli eventually come to control the subject-person’s behavior.

In the late 1960s, Psychology researchers began recording their use of “token economics” to successfully modify the aggressive and destructive behavior of, generally, mentally disturbed patients (i.e., “severely disturbed preadolescent boys so as to insure their continued treatment in a children’s day care unit.” ref: Carlin & Armstrong (1968). These studies were replicated with success (search on Google Scholar).

Tokenomics is distinct from token economics because tokenomics is a descriptive practice, while token economics is a prescriptive discipline. Token economics is a method of operant conditioning that actively seeks a particular form of compliance. By contrast, tokenomics attempts to describe and anticipate the behavioral consequences that crypto-assets have on society.

In tokenomics, Psychology is more influential than Economics because, again, tokens are representations of something that they are not. In order to understand a token economy and apply concepts from Economics to the economy, one must first understand why the participants are in the economy/marketplace to begin with (e.g., what does the representation mean to the participant?). This often involves behavioral, sociological, and depending on the size of the token economy, political analyses.

As a field of study, tokenomics deals with how and why people participate in token economies/marketplaces, as well as how and why certain economic variables are associated with their participation and non-participation.