Tokenomics: Making Use of Utility Tokens

Let's Help You Understand Utility Tokens Better.

Utility tokens are digital assets used in blockchain technology. They help you do things and earn rewards in specific online communities.

What Are Utility Tokens?

Definition

Utility tokens are like special keys for accessing services or features in certain online networks.

How They Work

They let you buy and use stuff within those networks. Sometimes, they also let you vote on decisions.

Example: The Basic Attention Token (BAT) is a utility token. It rewards you for paying attention to ads while using the Brave web browser.

How Utility Tokens Are Used

Access Tokens

These tokens let you unlock special features or services in online communities.

Example: In the Golem network, you use the GLM token to rent computing power for tasks like graphics rendering.

Transaction Medium

Utility tokens can be used to buy, sell, or exchange things within a network.

Example: XRP is a token used in the Ripple network for fast and cheap money transfers.

Governance Rights

Some tokens let you have a say in how the network is run or upgraded.

Example: With the Maker (MKR) token, you can vote on changes in the MakerDAO system, which manages a stable cryptocurrency called Dai.

How Utility Tokens Impact the Economy

Token Demand

When more people want to use a network's services, the demand for its tokens goes up.

Example: Tokens like Compound (COMP) and Aave (AAVE) become more valuable as more people use decentralized finance apps.

Token Supply

The number of tokens available can affect their value. Some networks control how many tokens are made.

Example: Uniswap (UNI) has a fixed number of tokens, which are given to users of its exchange platform.

Tokenomics

Networks often have rules for how tokens are used or rewarded, like staking or burning.

Example: Synthetix Network (SNX) lets users stake tokens to help run the system and earn rewards.

Conclusion

Utility tokens are essential for online communities, helping users access services and participate in decision-making. Understanding how they work and their impact can help navigate the world of blockchain technology.

This article takes inspiration from a lesson found in 15.S12 at MIT.