Thread by @Cryptowhisp3rs

1. To analyze the economics of using tokens, i.e. tokenomics, one has to first understand what tokens are. Not all tokens are made equal.

Relevant for venture builders: #VentureCapital

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2. According to the SEC, there are 2 kinds of tokens: security tokens and utility tokens. “Security tokens'' are mostly tokens that represent entitlements of future potential cash flows or profit, while “Utility tokens” are tokens that can be used to redeem a product or service.

3. However, tokens can be further divided into 4 categories: general payment tokens, platform tokens, product tokens, and cash flow based tokens.

4. Perhaps best known, general payment tokens can be seen as cryptos that try to substitute for fiat money or other liquid instruments such as treasury bills or gold. The value of such tokens are based on network effects and the security of the network.

5. Platform token is used as a way to transfer value within a blockchain ecosystem. The value of the platform token is proportional to the value users get from the ecosystem.

6. For example, the #Filecoin platform provides a marketplace and infrastructure for people with spare storage to meet up with people with a demand for storage. They then complete the transactions using #Filecoin tokens.

6. Product tokens can be used to redeem a certain service from the issuer. This is very much like corporate coupons or discount vouchers used by retail stores or airlines.

7. Exchange tokens are a subcategory of product tokens. Similar to the platform token, the product token's value is proportional to value the users get. However, as we have experienced in the recent FTX fallout, product tokens come with counter-party risks.

7. It is worth mentioning that a particular type of product token involves Non-Fungible Tokens (NFTs), which are ownership tokens for digital collectibles such as #BoredApeYachtClub.

8. An owner of a rare piece of art derives both a practical utility from viewing/consumption of the art and the utility from ownership, which could be tied to social status and exclusivity of ownership.

Finally, cash-flow-based tokens, also called real yield tokens, generate cash flow from the usage of the underlying protocol. An example of this could be #GMX.

While cash flow-based tokens could fit the description of a security token from the SEC, it could be argued that they don’t necessarily fit the criteria of the Howey test [a test used by the SEC to determine what a security is].

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