Broadly, cryptoeconomic design as we will discuss here is about the flow of distribution: where do tokens to be distributed come from, how are those tokens distributed (to whom under what conditions), and how is the distribution governed (how can it change over time). We can segment these questions and choices into three generally independent categories of mechanisms:
- Distribution sourcing mechanisms concern where tokens to be distributed come from. The simplest, and perhaps most flexible sourcing mechanism is simply to mint new tokens ex nihilo (from nothing) as part of the protocol/application rules. Tokens to be distributed could also come from the collection of fees somewhere in the system, from donations, or from other such specific sources.
- Distribution allocation mechanisms concern specific algorithmic ways of allocating tokens. Example allocation mechanisms could include yield paid on bonds (very common in so-called “proof-of-stake” systems), distribution to anyone who solves a computationally intensive but easy to verify puzzle (so-called “proof-of-work” systems), distribution to specific parties identified by public keys, all the way to attempts at “proof-of-humanity” or other such protocols.
- Distribution governance mechanisms concern how the distribution allocation mechanisms, distribution sourcing mechanisms, and specific parameters / amounts allocated / etc. can change over time. Example governance mechanisms could include proposal-based voting (Cosmos, Polkadot, Namada, etc. have flavours of this), intent-based voting, median/mean averaging of scalar choices for different distribution flows, etc.
In a diagram, visualizing the flow of tokens, these three mechanisms simply look like:
