Crypto Regulations are coming…


19 Oct 2020
Crypto Regulations are coming…

Understanding crypto regulation is an integral step in learning about the blockchain industry. On our Nextrope blog, we decode the existing ecosystem of regulation, recent regulatory changes and barriers against new regulation.

The Status-Quo of Crypto Regulation

Cryptocurrency’s decentralized nature has prevented governments from exercising universal control and regulations. This barrier prompted varying approaches to crypto regulation across countries.

Source: Visual Capitalist

1) Extremely Tight Regulation

Countries such as Algeria, Bolivia, Morocco, Nepal, Pakistan, and Vietnam have completely prohibited cryptocurrency. 

2) Tight Regulation

Qatar and Bahrain permit cryptocurrency-related activities strictly outside the borders. 

3) Slightly Tight Regulation

Instead of directly outlawing crypto-related activities, Bangladesh, Iran, Thailand, Lithuania, Lesotho, China, and Colombia have barred their financial institutions from executing crypto-related transactions.

4) Medium Regulation 

Australia, Canada, and the Isle of Man have amended their counterterrorism and money laundering laws to regulate cryptocurrency markets and mandate  due diligence requirements on their financial institutions.

5) Slightly Weak Regulation

Spain, Belarus, the Cayman Islands, and Luxembourg are establishing crypto-friendly regulations with the goal of attracting tech investments. 

6) Weak Regulation

Belgium, South Africa, and the United Kingdom have determined the current cryptocurrency market to be inconsequentially small and are yet to establish any regulations. 

7) Extremely Weak Regulation

France, Marshall Islands, Venezuela, the Eastern Caribbean Central Bank (ECCB) member states and Lithuania are in efforts of establishing their own cryptocurrency systems. 

Why is Regulation Necessary?

Wei Zhou, the chief financial officer of the cryptocurrency exchange, Binance, spoke out in support of the cryptoregulation. Experts such as Zhou recognize that the human elements of cryptocurrency makes the system vulnerable to fraud, money laundering, terrorism and organized crime. 

Despite some users’ concerns regarding the potential negative effects of crypto regulations on its trading values and innovation, major crypto regulations have empirically never posed a long-term impact on the share price of Bitcoin, save for some immediate volatility. Further, crypto users widely believe that regulations provide the much needed investor protections that offsets its potential drawbacks. 

Source: Finance Magnates

Recent Regulatory Actions 

European Union (EU) – Proposal for a Regulation on Markets in Crypto-assets (MiCa)

On September 24, 2020, the EU Commission enacted the regulations on Markets in Crypto-assets (MiCa). MiCa’s goals are (1) reducing the rate of cash payment, which currently make up 78% of all payments in the eurozone, and (2) stimulating responsible innovation and competition among financial services providers in the EU. 

MiCA plans to differentiate between crypto-assets governed by EU legislation from crypto-assets that fall outside its scope. Prof. Rasa Karpandza, a professor of Economics and Finance at New York University Abu Dhabi and EBS Business School, claimed that “In order to achieve widespread usage as an alternative to fiat options, blockchain and crypto assets need to be classified appropriately and this is a good first step”.

In order to harmonize the EU market and prevent market regulatory fragmentation, the EU Commission published a single set of immediately applicable rules for the EU's Single Market as opposed to a "Directive", which leaves Member State discretion through the need of national transposition. I believe that MiCA will effectively bring together the fragmented national crypto-asset legal regimes within the EU.

United States (US) – Stablecoin guidance

On September 21, 2020,the Securities and Exchange Commission (SEC) published stablecoin guidance, laying out the legal implications of  cryptocurrencies backed by fiat currencies for the first time. Stablecoin (cryptocurrencies designed to minimize volatility of price and usually backed by fiat money) issuers have been using U.S. banks for years but in an unclear regulatory environment. Through the new guidance, the SEC plans to better ensure safety for the federally regulated banks as they provide services to stablecoin issuers.

Venezuela – Decentralized Exchange

On October 2,2020, the National Superintendency of Securities of Venezuela (Sunaval) authorized the operation of a decentralized electronic exchange. This legalized the exchange of shares, fiat money, securities, debt securities and cryptocurrencies. Sunaval plans to decrease the commissions to nearly 0% in order to encourage its use.

Israel – Treatment of cryptocurrency as Fiat

On September 22, 2020, the Israeli legislature proposed the amendment of existing tax law. While the current income tax policy taxes digital currencies 25% anytime it is converted into fiat, the new legislation seeks to (1) have digital currencies be treated like fiat for tax purposes and (2) exempt gain taxes on digital currencies.

Malaysia – Approval of Cryptocurrency exchange

On January 15, 2019, Malaysia passed “The Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019”. Designed to regulate DAX operators, the Order was followed by the legalization of a cryptocurrency exchange agency’s operation. 

Nigeria – Beginning of regulatory conversation

Source: Google Trends, Regions with highest bitcoin searches

Bitcoin has become increasingly popular in Nigeria (highest google searches in the World) and the Nigerian SEC is working to recognize cryptocurrencies as financial securities and establishing safety regulations. The Nigerian SEC claimed that “the general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices”,  advocating that this will protect investors’ interests and promote transparency. 

South Korea – Permit System for Crypto Exchanges

On March 5, 2020, South Korea’s National Assembly passed a revised bill on the reporting and the use of special financial transaction information. The bill introduces a permit system for cryptocurrency exchanges as well as the plans to strengthen the Anti-Money Laundering (AML) system for virtual assets including cryptocurrency.

China – Digital Yuan

China has been working vigorously on the digital yuan, though cryptocurrency is formally banned in the country. Digital yuan targets the dominance of tech giants, such as Alibaba and Tencent, in the digital payments sector. However, the government remains cautious in its approach to both its own cryptocurrency and digital assets and is yet to issue regulations.

Barriers against Regulations?

1) Economic Strategy

Because some governments believe that crypto regulation will impede growth and innovation, they intentionally avoid implementing regulations as an economic strategy. These governments also believe that while high barriers to entry through stricter regulation can benefit users by providing security, it may also curtail potential projects through financial and regulatory strains.

2) Incomplete Understanding of Cryptomarket

Current understanding of cryptocurrency, of users, economists and policymakers, remains incomplete, partly due to the volatility of the crypto market and its small size. Thus, governments are hesitant to implement hasty regulations.

3) Threat to National Economic Sovereignty

Countries, specifically the developing nations, believe that cryptocurrency will be harmful to their economic sovereignty. Decentralized finance has the potential to disrupt the financial services sector. 

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Token Engineering Process

Kajetan Olas

13 Apr 2024
Token Engineering Process

Token Engineering is an emerging field that addresses the systematic design and engineering of blockchain-based tokens. It applies rigorous mathematical methods from the Complex Systems Engineering discipline to tokenomics design.

In this article, we will walk through the Token Engineering Process and break it down into three key stages. Discovery Phase, Design Phase, and Deployment Phase.

Discovery Phase of Token Engineering Process

The first stage of the token engineering process is the Discovery Phase. It focuses on constructing high-level business plans, defining objectives, and identifying problems to be solved. That phase is also the time when token engineers first define key stakeholders in the project.

Defining the Problem

This may seem counterintuitive. Why would we start with the problem when designing tokenomics? Shouldn’t we start with more down-to-earth matters like token supply? The answer is No. Tokens are a medium for creating and exchanging value within a project’s ecosystem. Since crypto projects draw their value from solving problems that can’t be solved through TradFi mechanisms, their tokenomics should reflect that. 

The industry standard, developed by McKinsey & Co. and adapted to token engineering purposes by Outlier Ventures, is structuring the problem through a logic tree, following MECE.
MECE stands for Mutually Exclusive, Collectively Exhaustive. Mutually Exclusive means that problems in the tree should not overlap. Collectively Exhaustive means that the tree should cover all issues.

In practice, the “Problem” should be replaced by a whole problem statement worksheet. The same will hold for some of the boxes.
A commonly used tool for designing these kinds of diagrams is the Miro whiteboard.

Identifying Stakeholders and Value Flows in Token Engineering

This part is about identifying all relevant actors in the ecosystem and how value flows between them. To illustrate what we mean let’s consider an example of NFT marketplace. In its case, relevant actors might be sellers, buyers, NFT creators, and a marketplace owner. Possible value flow when conducting a transaction might be: buyer gets rid of his tokens, seller gets some of them, marketplace owner gets some of them as fees, and NFT creators get some of them as royalties.

Incentive Mechanisms Canvas

The last part of what we consider to be in the Discovery Phase is filling the Incentive Mechanisms Canvas. After successfully identifying value flows in the previous stage, token engineers search for frictions to desired behaviors and point out the undesired behaviors. For example, friction to activity on an NFT marketplace might be respecting royalty fees by marketplace owners since it reduces value flowing to the seller.


Design Phase of Token Engineering Process

The second stage of the Token Engineering Process is the Design Phase in which you make use of high-level descriptions from the previous step to come up with a specific design of the project. This will include everything that can be usually found in crypto whitepapers (e.g. governance mechanisms, incentive mechanisms, token supply, etc). After finishing the design, token engineers should represent the whole value flow and transactional logic on detailed visual diagrams. These diagrams will be a basis for creating mathematical models in the Deployment Phase. 

Token Engineering Artonomous Design Diagram
Artonomous design diagram, source: Artonomous GitHub

Objective Function

Every crypto project has some objective. The objective can consist of many goals, such as decentralization or token price. The objective function is a mathematical function assigning weights to different factors that influence the main objective in the order of their importance. This function will be a reference for machine learning algorithms in the next steps. They will try to find quantitative parameters (e.g. network fees) that maximize the output of this function.
Modified Metcalfe’s Law can serve as an inspiration during that step. It’s a framework for valuing crypto projects, but we believe that after adjustments it can also be used in this context.

Deployment Phase of Token Engineering Process

The Deployment Phase is final, but also the most demanding step in the process. It involves the implementation of machine learning algorithms that test our assumptions and optimize quantitative parameters. Token Engineering draws from Nassim Taleb’s concept of Antifragility and extensively uses feedback loops to make a system that gains from arising shocks.

Agent-based Modelling 

In agent-based modeling, we describe a set of behaviors and goals displayed by each agent participating in the system (this is why previous steps focused so much on describing stakeholders). Each agent is controlled by an autonomous AI and continuously optimizes his strategy. He learns from his experience and can mimic the behavior of other agents if he finds it effective (Reinforced Learning). This approach allows for mimicking real users, who adapt their strategies with time. An example adaptive agent would be a cryptocurrency trader, who changes his trading strategy in response to experiencing a loss of money.

Monte Carlo Simulations

Token Engineers use the Monte Carlo method to simulate the consequences of various possible interactions while taking into account the probability of their occurrence. By running a large number of simulations it’s possible to stress-test the project in multiple scenarios and identify emergent risks.

Testnet Deployment

If possible, it's highly beneficial for projects to extend the testing phase even further by letting real users use the network. Idea is the same as in agent-based testing - continuous optimization based on provided metrics. Furthermore, in case the project considers airdropping its tokens, giving them to early users is a great strategy. Even though part of the activity will be disingenuine and airdrop-oriented, such strategy still works better than most.

Time Duration

Token engineering process may take from as little as 2 weeks to as much as 5 months. It depends on the project category (Layer 1 protocol will require more time, than a simple DApp), and security requirements. For example, a bank issuing its digital token will have a very low risk tolerance.

Required Skills for Token Engineering

Token engineering is a multidisciplinary field and requires a great amount of specialized knowledge. Key knowledge areas are:

  • Systems Engineering
  • Machine Learning
  • Market Research
  • Capital Markets
  • Current trends in Web3
  • Blockchain Engineering
  • Statistics


The token engineering process consists of 3 steps: Discovery Phase, Design Phase, and Deployment Phase. It’s utilized mostly by established blockchain projects, and financial institutions like the International Monetary Fund. Even though it’s a very resource-consuming process, we believe it’s worth it. Projects that went through scrupulous design and testing before launch are much more likely to receive VC funding and be in the 10% of crypto projects that survive the bear market. Going through that process also has a symbolic meaning - it shows that the project is long-term oriented.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.


What does token engineering process look like?

  • Token engineering process is conducted in a 3-step methodical fashion. This includes Discovery Phase, Design Phase, and Deployment Phase. Each of these stages should be tailored to the specific needs of a project.

Is token engineering meant only for big projects?

  • We recommend that even small projects go through a simplified design and optimization process. This increases community's trust and makes sure that the tokenomics doesn't have any obvious flaws.

How long does the token engineering process take?

  • It depends on the project and may range from 2 weeks to 5 months.

What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained


18 Mar 2024
What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained

Enter Berachain: a high-performance, EVM-compatible blockchain that is set to redefine the landscape of decentralized applications (dApps) and blockchain services. Built on the innovative Proof-of-Liquidity consensus and leveraging the robust Polaris framework alongside the CometBFT consensus engine, Berachain is poised to offer an unprecedented blend of efficiency, security, and user-centric benefits. Let's dive into what makes it a groundbreaking development in the blockchain ecosystem.

What is Berachain?


Berachain is an EVM-compatible Layer 1 (L1) blockchain that stands out through its adoption of the Proof-of-Liquidity (PoL) consensus mechanism. Designed to address the critical challenges faced by decentralized networks. It introduces a cutting-edge approach to blockchain governance and operations.

Key Features

  • High-performance Capabilities. Berachain is engineered for speed and scalability, catering to the growing demand for efficient blockchain solutions.
  • EVM Compatibility. It supports all Ethereum tooling, operations, and smart contract languages, making it a seamless transition for developers and projects from the Ethereum ecosystem.
  • Proof-of-Liquidity.This novel consensus mechanism focuses on building liquidity, decentralizing stake, and aligning the interests of validators and protocol developers.


EVM-Compatible vs EVM-Equivalent


EVM compatibility means a blockchain can interact with Ethereum's ecosystem to some extent. It can interact supporting its smart contracts and tools but not replicating the entire EVM environment.


An EVM-equivalent blockchain, on the other hand, aims to fully replicate Ethereum's environment. It ensures complete compatibility and a smooth transition for developers and users alike.

Berachain's Position

Berachain can be considered an "EVM-equivalent-plus" blockchain. It supports all Ethereum operations, tooling, and additional functionalities that optimize for its unique Proof-of-Liquidity and abstracted use cases.

Berachain Modular First Approach

At the heart of Berachain's development philosophy is the Polaris EVM framework. It's a testament to the blockchain's commitment to modularity and flexibility. This approach allows for the easy separation of the EVM runtime layer, ensuring that Berachain can adapt and evolve without compromising on performance or security.

Proof Of Liquidity Overview

High-Level Model Objectives

  • Systemically Build Liquidity. By enhancing trading efficiency, price stability, and network growth, Berachain aims to foster a thriving ecosystem of decentralized applications.
  • Solve Stake Centralization. The PoL consensus works to distribute stake more evenly across the network, preventing monopolization and ensuring a decentralized, secure blockchain.
  • Align Protocols and Validators. Berachain encourages a symbiotic relationship between validators and the broader protocol ecosystem.

Proof-of-Liquidity vs Proof-of-Stake

Unlike traditional Proof of Stake (PoS), which often leads to stake centralization and reduced liquidity, Proof of Liquidity (PoL) introduces mechanisms to incentivize liquidity provision and ensure a fairer, more decentralized network. Berachain separates the governance token (BGT) from the chain's gas token (BERA) and incentives liquidity through BEX pools. Berachain's PoL aims to overcome the limitations of PoS, fostering a more secure and user-centric blockchain.

Berachain EVM and Modular Approach

Polaris EVM

Polaris EVM is the cornerstone of Berachain's EVM compatibility, offering developers an enhanced environment for smart contract execution that includes stateful precompiles and custom modules. This framework ensures that Berachain not only meets but exceeds the capabilities of the traditional Ethereum Virtual Machine.


The CometBFT consensus engine underpins Berachain's network, providing a secure and efficient mechanism for transaction verification and block production. By leveraging the principles of Byzantine fault tolerance (BFT), CometBFT ensures the integrity and resilience of the Berachain blockchain.


Berachain represents a significant leap forward in blockchain technology, combining the best of Ethereum's ecosystem with innovative consensus mechanisms and a modular development approach. As the blockchain landscape continues to evolve, Berachain stands out as a promising platform for developers, users, and validators alike, offering a scalable, efficient, and inclusive environment for decentralized applications and services.


For those interested in exploring further, a wealth of resources is available, including the Berachain documentation, GitHub repository, and community forums. It offers a compelling vision for the future of blockchain technology, marked by efficiency, security, and community-driven innovation.


How is Berachain different?

  • It integrates Proof-of-Liquidity to address stake centralization and enhance liquidity, setting it apart from other blockchains.

Is Berachain EVM-compatible?

  • Yes, it supports Ethereum's tooling and smart contract languages, facilitating easy migration of dApps.

Can it handle high transaction volumes?

  • Yes, thanks to the Polaris framework and CometBFT consensus engine, it's built for scalability and high throughput.