Your Guide to Tokens: Types, Design, Uses, More
Digest
This podcast introduces a groundbreaking seven-part framework for classifying crypto tokens, moving beyond simplistic categorizations. The framework considers economic, legal, and technical aspects, differentiating tokens based on their value source (inherent value vs. speculative value), control mechanisms (company-backed vs. decentralized), and network effects. The discussion distinguishes between various token types, including company-backed tokens, security tokens, arcade tokens (used for stable in-ecosystem transactions), and network tokens (crucial for decentralized marketplaces). The podcast delves into the design and use cases of arcade tokens, highlighting their role in fostering brand loyalty and network effects. It then focuses extensively on network tokens, explaining their function in guaranteeing the supply and integrity of decentralized marketplaces, contrasting them with governance tokens and addressing the challenges of launching such marketplaces, including the "cold start" problem. The discussion also explores how blockchain technology solves inherent problems in marketplace design, such as the "bait and switch" tactic, and clarifies that payment isn't the sole determinant of a network token's value. Finally, the podcast addresses regulatory hurdles and the future potential of network tokens, emphasizing their role in creating truly autonomous and global marketplaces.
Outlines
Introduction and Token Definition
The podcast introduces a new seven-part framework for classifying crypto tokens, moving beyond simplistic categories and exploring their economic, legal, and technical aspects to clarify ambiguity surrounding token definitions and their potential. This includes a discussion on what tokens are and aren't, rejecting "currency" as too narrow a definition.
The Seven Token Types Framework & Inherent Value
A seven-category framework for classifying tokens based on economic, legal, and technical factors is introduced. The concept of inherent value is explored, distinguishing meme coins from tokens with value derived from underlying assets, company actions, or network effects. This section includes a discussion on company-backed vs. security tokens and the importance of considering legal implications.
Arcade Tokens and Their Applications
The podcast introduces "arcade tokens," characterized by stable, non-speculative value, often used for in-ecosystem transactions. Their design, advantages, and differences from other token types are explored, including examples and use cases in creating network effects and brand loyalty.
Network Tokens and Open Loyalty Systems
This section focuses on network tokens and the benefits of open loyalty systems, highlighting increased competition, consumer surplus, and the potential for co-opetition among businesses. The unique characteristics of network tokens and the role of decentralized networks are emphasized.
Decentralized Network Marketplaces and Network Token Functionality
Decentralized network marketplaces are defined, contrasting them with traditional marketplaces. The function of network tokens in guaranteeing the supply and integrity of these marketplaces is explained, clarifying the distinction between network and arcade tokens. The "cold start" problem and solutions are discussed.
Blockchain Solutions and Market Design
This section focuses on how blockchain technology solves inherent problems in marketplace design, such as the "bait and switch" tactic. The immutability of blockchain rules ensures fairness and trust. The role of payment in network tokens is clarified, exploring alternative mechanisms for value accrual.
Network Tokens vs. Governance Tokens & Regulatory Hurdles
The distinction between network and governance tokens is clarified, emphasizing the token's role in the marketplace's economic model. Regulatory challenges faced by network tokens and the impact of the SEC's approach are discussed.
Future of Crypto: Network Tokens and Beyond
The podcast concludes with perspectives on promising areas for future innovation in crypto, highlighting the potential of network tokens to create truly autonomous and global marketplaces.
Keywords
Token Taxonomy
A classification system for crypto tokens considering economic, legal, and technical aspects.
Inherent Value
The intrinsic worth of a token independent of external factors or speculation.
Company-Backed Token
A token whose value is primarily derived from a specific company's actions.
Network Token
A token whose value is derived from a decentralized network's functionality and growth.
Arcade Token
A token designed for in-ecosystem transactions with stable, non-speculative value.
Decentralized Network Marketplace
A marketplace operating on a decentralized network, enabling peer-to-peer transactions.
Cold Start Problem
The difficulty of attracting initial users to a new decentralized marketplace.
Howey Test
A legal test to determine if an asset is a security.
Programmatic Enforcement
Using smart contracts to enforce rules in decentralized marketplaces.
Q&A
What is the key difference between a company-backed token and a security token?
Security tokens have formal legal relationships defining ownership and rights, unlike company-backed tokens.
How does the seven-part token classification framework improve upon previous attempts?
It synthesizes economic, legal, and technical aspects for a more comprehensive classification.
What are the advantages of using arcade tokens in a blockchain ecosystem?
Arcade tokens offer control over value, enable network effects, and provide transparency.
Why are network tokens unique to blockchain technology?
They are intrinsically linked to decentralized network marketplaces, a concept enabled by blockchain.
What is the key difference between a traditional and decentralized marketplace?
Traditional marketplaces are controlled by central intermediaries, while decentralized ones use blockchain for peer-to-peer transactions.
How do network tokens contribute to a decentralized marketplace's success?
They incentivize participation, ensure operation, and capture value generated within the ecosystem.
What are some challenges in building a decentralized network marketplace?
Overcoming the cold start problem, designing effective tokenomics, and navigating regulatory uncertainties.
How does blockchain address problems in traditional marketplace design?
Blockchain's immutability prevents platforms from exploiting users after achieving network effects.
Why is payment not the sole determinant of a network token's value?
Value accrual can also occur through fee collection, token burning, or other mechanisms.
What are the implications of regulatory uncertainty for network tokens?
Regulatory uncertainty hinders innovation and potentially creates perverse incentives.
Show Notes
with @eddylazzarin @skominers @milesjennings @rhhackett
Today we're diving deep into *the* defining concept in crypto: tokens.
We're moving beyond conventional categories — like “governance tokens” or “utility tokens” or even “memecoins” — to present a full taxonomy that details what tokens are, what they aren’t, and what they're capable of becoming.
Questions we'll explore include: What is a token? Is it a form of money? A piece of data? Something else? How many types of tokens are there — and who is in control of each? And how should we think about their actual economic, legal, and technical characteristics? We'll also dig into different token designs and their uses; where tokens derive value from; how they jibe with securities laws; and much more.
In this conversation, you’ll hear from several experts on the a16z crypto team who have developed a new 7-part framework for classifying tokens, which you can find linked below. Joining us are the coauthors: Chief Technology Officer Eddy Lazzarin, General Counsel and Head of Policy Miles Jennings, and Research Partner Scott Kominers, who is also a Professor at Harvard Business School where he teaches courses on market design and entrepreneurship.
Check out the resources below for a flowchart that we’ll also be referencing throughout this episode and that will be helpful as we wend our way through the token idea maze.
Timestamps:
(0:00 ) Introduction
(3:28 ) The Evolution of Token Terminology
(6:19 ) Classifying Tokens: Economic, Legal, and Technical Dimensions
(8:37 ) Moving Beyond “Governance Tokens”
(12:05 ) Inherent Value: The Memecoin Debate
(15:35 ) Company-Controlled Tokens: Risks and Realities
(31:33 ) Arcade Tokens: Stability and Utility
(46:00 ) The Power of Blockchain Interoperability
(49:34 ) Shared Rewards and Loyalty Programs
(59:19 ) Asset-Backed Tokens and Their Mechanisms
(1:08:23 ) Collectible Tokens and Their Uniqueness
(1:14:31 ) Network Tokens: The Future of Decentralized Marketplaces
(1:31:03 ) Regulatory Challenges and "Lawyer Tokens"
(1:36:57 ) Final Thoughts and Future Prospects
Resources referenced in this episode:
- 7 canonical tokens, defined [see flowchart] by Miles Jennings, Scott Duke Kominers, and Eddy Lazzarin (a16z crypto newsletter, March 2025)
- Defining tokens by Miles Jennings, Scott Duke Kominers, and Eddy Lazzarin (a16z crypto, March 2025)
- Network tokens vs. company-backed tokens by Miles Jennings, Scott Duke Kominers, and Eddy Lazzarin (a16z crypto, March 2025)
- Defining decentralization: It comes down to control by Miles Jennings (a16z crypto, February 2025)
- Read Write Own: Building the Next Era of the Internet by Chris Dixon (Penguin Random House, January 2024)
- The Everything Token: How NFTs and Web3 Will Transform the Way We Buy, Sell, and Create by Steve Kaczynski and Scott Duke Kominers (Penguin Random House, January 2024)
As a reminder, none of the content should be taken as investment, business, legal, or tax advice; please see a16z.com/disclosures for more important information, including a link to a list of our investments.
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