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The role of tokens in decentralized autonomous organizations

The boom in blockchain-based tokens in the past year has certainly made a lot of people uncomfortable. On one side, you have people arguing against the use of blockchain-based tokensciting the unnecessary complexity, regulatory uncertainty and harm that they can cause consumers as a result of abuse from entrepreneurs.

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And on the other side you have people claiming that ICOs are the future of venture capital and how entrepreneurs will get funded. Both of these takes are headline catching more tokens I understand why the different sides make the arguments. But I think the future is likely to be somewhere in the middle.

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At their core, tokens enhance the economic incentives of users of internet products. When we have ownership, we naturally care more about the products we use. Economic incentives are the lowest common denominator that we have as humans and embedding incentives into products is powerful.

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As a direct result of blockchain-based tokens, Internet tribes are emerging that some people feel more connected to than the city, state, or country that they physically live in.

The role of tokens in decentralized autonomous organizations Tokens enable Internet tribes to emerge not in the form of traditional companies as we know them, but instead in a new type of organization called a decentralized autonomous organization DAO.

A DAO is best described as a group of people bound together not by a legal entity and formal contracts, but instead by cryptographic tokens incentives and fully transparent rules more tokens are written into the software.

But for now, there are two legitimate types of blockchain-based tokens that bind participants in DAOs: Usage tokens: A token that is required to use a service Work tokens: A token that gives users the right to contribute work to a DAO and earn in exchange for their work Usage tokens are based on services where ownership is required to use the service.


Bitcoin and Ether are the best examples of usage tokens — token ownership does not give you any specialized rights within the network, but it does give you access to the service the Bitcoin payment network and the Ethereum Virtual Machine in the case of BTC and ETH. Scarce tokens combined with a useful more tokens can create massive value for token holders and entrepreneurs.

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Work tokens are tokens that give individuals rights to contribute work to aDAO more tokens earn value to help it function properly.

That work can be serving as an oracle in the case of Augurbeing the backstop in a collateralized debt system in the case of Makeror securing the network in the case of Ethereum when it switches to proof of stake. These two types are not mutually exclusive and there are tokens that serve as both usage tokens and work tokens.

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An example of a token with both characteristics will be ETH when Ethereum transitions from proof of work to proof of stake. Tokens should be thought of primarily as a product feature rather than a funding mechanism Over 2. There is regulation in the U. Lack of long-term focus can be paralyzing to technology projects.

While this was an unmitigated failure, more tokens end result of the failure was a successful Ethereum hard fork the first hard fork for a blockchain at scale. This demonstrates to me that positive things can come away from the failures as well as the successes.

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There are no live products in this group of 29 crowd sales. Raising significant funding before any product is generally a bad idea. If you look at the history of startups, the vast majority of more tokens that have set expectations high with a lot more tokens funding pre-product have failed. I think there will be a lot of failure in this batch and expect more tokens see better practices emerge for token-based crowd funding in the future.

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Where are we going from here More tokens are here to stay because of their ability to enhance More tokens products and create intensely passionate tribes via network ownership effects. But I think there is a lot to learn from the recent boom, specifically that tokens should not be used for funding first before an actual product exists and that certain types of tokens more tokens tokens and work tokens only make sense for certain entrepreneurs technically-oriented building certain types of products network-based Internet products.

If interested in learning more, attending the Token Summit more tokens be a good start! Previously, I worked on business development and marketing at Coinbase.

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