2-Factor Driver for Sharing Economy 3.0

Private Token Economics + Blockchain

If you experienced the rapid development of Sharing Economy 2.0, you might realize that successful decentralized applications in the current blockchain industry, such as Uniswap and OpenSea, do not fundamentally innovate on a business level. They reflect the sharing economy platforms similar to those we know by deep user experiences, like Uber and Airbnb.

So, what sets them apart?

Technologically, current decentralized applications run on blockchain, unlike traditional internet systems where blockchain is not the backend infrastructure. On the business level, the private token economy model used in the current Web3 industry benefits from the new internet economic model provided by blockchain, which differs from the private points system of the Web2 era. Thus, the core of this article is to explore:

Blockchain combined with private token economy equates to Sharing Economy 3.0. Sharing Economy 3.0 will become the business model of the next generation of the internet, and the key to the survival of next-generation internet applications will be the effective use of private token economic systems, as the value of tokens derives from the value of the applications themselves.

Industrial Revolution (Reducing Marginal Costs), Information Revolution (Zero Marginal Costs), Sharing Economy 2.0 (Negative Marginal Costs), Sharing Economy 3.0 (Breaking the Floor Price)

The economic definition of marginal cost refers to the additional cost incurred for producing one more unit of a product. Since the first Industrial Revolution in 1760, the invention of the steam engine and the proliferation of mechanized production have significantly improved labor productivity. Subsequently, during the Second Industrial Revolution, the establishment of electricity, large-scale steel production, and railway networks further reduced marginal costs.

The advent of the Information Revolution eliminated the marginal cost of information products, greatly breaking the geographical barriers between merchants and consumers, and becoming a new growth point for the industrial revolution. Therefore, in the information world, the key to success lies not in how many products you can produce but in how much network effect you can create. By providing early subsidies, platforms can quickly attract users and establish ecosystems. This strategy has already been widely applied in the user subsidies of the Web2 era.

1760 - Industrial Revolution: Reducing Marginal Costs

During the Industrial Revolution, advancements in production technology significantly lowered the marginal cost of products. Mass production and assembly line operations made products increasingly affordable, intensifying market competition and prompting businesses to seek new growth points.

1960 - Information Industry: Zero Marginal Costs

With the advent of the Information Age, especially after the rise of the internet, the marginal cost of information products became nearly zero. For example, the cost of replicating and distributing digital products like software, music, and videos is extremely low, leading many products to adopt a free initial pricing model to acquire users and build a large user base.

2008 - Sharing Economy 2.0: Negative Marginal Costs

The rise of the sharing economy can be traced back to the late 2000s to early 2010s. Key milestones include:

- 2008: The founding of Airbnb, marking the emergence of the sharing economy in the short-term rental and housing sharing sectors.

- 2009: The founding of Uber, which brought the sharing economy to the transportation sector.

- 2010: The founding of TaskRabbit, which promoted the task and service-based sharing economy model.

- 2012: The founding of Didi, further advancing shared transportation globally.

- 2014-2015: The rapid rise of shared bicycles and Meituan delivery platforms in China, signifying the widespread application and rapid development of the sharing economy in various fields.

These milestones highlight the transition of the sharing economy from its nascent stage to rapid development, becoming a new business model that changed how people consume and receive services through the proliferation of internet and mobile technologies.

China's internet sharing economy experienced rapid development between 2014-2015, with platforms like Didi, shared bicycles, and Meituan attracting users through high subsidies, quickly establishing network effects. These platforms' business models belong to a bilateral economic model, where demand and supply mutually promote each other: the more people use it, the more supply there is; the more supply there is, the more people use it.

For example, Meituan needs to ensure the selection of high-density demand locations to reduce delivery costs, increase delivery personnel's productivity per unit time, and ensure users enjoy cheap, fast, and high-quality services. This model requires initial activation from both sides, hence the high initial subsidies to stimulate network effects. To stimulate the future network effect when entering the Hong Kong delivery market, Meituan spent 1 billion Chinese Yuan (~138M USD) (see below).

2008 - Sharing Economy 3.0: Sharing Platform Revenues and Governance

In the blockchain society, the initial use of token economics and shared platform revenues breaks the floor price by subsidizing users, attracting them and establishing ecosystems. Over time, these users gradually become contributors to the platform, sharing in the platform's revenues. Imagine Airbnb not only allowing you to be a user on both the supply and demand sides but also enabling you to share in the platform's revenues in the long term. Consequently, the platform's success or failure becomes more closely tied to the user's interests. Such innovation truly has the potential to advance the sharing economy further.

Uniswap's Bilateral Economic Model

Uniswap, as a decentralized exchange platform, also operates under a bilateral economic model. Users on the platform engage in currency exchange, consisting of two types of participants: liquidity providers (LPs) and those needing currency exchange. Liquidity providers hold dual currencies and do not care about price fluctuations; those needing currency exchange care about pairing and price and pay a fee.

Traditional exchange companies profit from the spread and fees, while Uniswap attracts users to provide liquidity through token incentive mechanisms, forming strong network effects.

The Key to Breaking the Floor Price with Blockchain

The key to breaking the floor price lies in creating future network effects. Some of the initially subsidized users may become project contributors. For example, Didi consumers might become drivers. While Web2 sharing economies can't achieve this, blockchain can attract users by sharing future platform revenues, potentially involving securities regulations.

For instance, SushiSwap's "vampire attack" strategy involved airdropping future tokens to Uniswap's liquidity providers, successfully attracting a significant number of users to their platform. This strategy demonstrated the powerful role of tokens in binding contributors' and potential contributors' interests.

Tokenomics of Bitcoin and Ethereum

Bitcoin and Ethereum, as representative blockchain projects, have unique tokenomics designs. Bitcoin provides value through the hard cap design and network fees, while Ethereum uses a burning mechanism as a fee to consume tokens. This design ensures the long-term value and utility of the tokens.

Conclusion

Private token economics is reshaping modern economic systems by leveraging historical economic models and blockchain technology innovation. To make private tokens truly valuable, it is crucial to ensure the tokens hold real value for users and contributors.

Source of Token Value

Regardless of the strategy, the tokens provided must have genuine value for users. This means designing token economics based on identified product demand and aligning token supply and usage scenarios accordingly. The core of the supply should not be the tokens themselves but the services and functions supported by the tokens.

Combining Service and Token Supply and Demand

When designing private token economics, the supply of services should align with the supply and demand of tokens. For example, as token voting rights become increasingly valuable, users need tokens to participate in platform governance or redeem future shared services, increasing token demand. Platforms should retain and distribute tokens appropriately to ensure value circulation and appreciation within the ecosystem.

Incentive Mechanisms and Rebates

Some projects can enhance token value and user stickiness through rebate mechanisms. For instance, platforms can provide additional token rewards based on user participation and contributions, encouraging users to actively engage in platform activities and increasing the practical application scenarios of tokens.

Creating Closed-Loop Token Consumption Pathways

To ensure the long-term value of tokens, platforms need to design effective closed-loop consumption pathways. For example, Ethereum consumes tokens through a burning mechanism, increasing token scarcity and value. Additionally, platforms can continuously introduce new services and functions, giving tokens practical use in more scenarios, thus forming a virtuous cycle.

By creating network effects, incentivizing user participation, and sharing platform revenues, private token economies can play a more significant role in future economic activities. Understanding and mastering private token economics will provide new opportunities and perspectives for enterprises, investors, and researchers, driving innovation and development across the economic system.

PS: This article is a summary concluded as a result of a product discussion within Namefi.