The Evolution of Cryptoeconomics: From Bitcoin to DeFi

Kajetan Olas

27 Feb 2024
The Evolution of Cryptoeconomics: From Bitcoin to DeFi

Cryptoeconomics is a concept that stands at the intersection of cryptography, economics, and blockchain technology. This field, though complex, offers an explanation for the mechanisms that drive the functionality and security of decentralized networks. At its core, cryptoeconomics applies economic incentives, and cryptographic verification, to design and secure trustless protocols.

The journey of cryptoeconomics began with the inception of Bitcoin in 2009, introducing the world to a new form of money that was independent of intermediaries. However, the scope of cryptoeconomics extends far beyond the realm of digital currencies. Today, it encompasses a vast ecosystem that includes smart contracts, decentralized autonomous organizations (DAOs), and decentralized finance (DeFi) platforms, among others.

Understanding Cryptoeconomics

To appreciate the full spectrum of cryptoeconomics, it's essential to dissect its components and understand how they collectively shape the ecosystem.

The Genesis: Bitcoin and the Birth of Cryptoeconomics

Cryptoeconomics made its first groundbreaking appearance with the launch of Bitcoin in 2009. Created by an individual or group under the pseudonym Satoshi Nakamoto, Bitcoin introduced the world to a new form of currency that was decentralized, transparent, and secure without the need for a central authority. This was achieved through an ingenious combination of cryptographic techniques and economic incentives.

Bitcoin's underlying technology, the blockchain, leverages cryptographic proofs to ensure the integrity and chronological order of transactions. Miners, motivated by the reward of newly minted bitcoins expend computational resources to solve complex mathematical puzzles. This process, known as proof of work, secures the network and validates transactions, embodying the essence of cryptoeconomics. Using economic incentives to maintain a secure and functioning decentralized system.

Principles of Cryptoeconomics

The principles of cryptoeconomics extend beyond the secure transaction of digital currencies. They are the foundation upon which decentralized networks operate, ensuring integrity, security, and consensus without centralized oversight. Key to these principles are:

The Blockchain Revolution

The innovation of cryptoeconomics laid the groundwork for the blockchain revolution, a seismic shift in how data is stored. This revolution extends beyond the creation of Bitcoin. In fact it is mainly about the diversity of blockchain apps, built on top of more complex systems like Ethereum.

Beyond Bitcoin: The Diversification of Blockchain Applications

Bitcoin's success as a decentralized digital currency showcased the potential of blockchain technology, prompting innovators and developers to explore its applications beyond peer-to-peer transactions. This exploration led to the emergence of a multitude of cryptocurrencies, each designed with specific goals and mechanisms, diversifying the landscape of cryptoeconomics. Projects like Litecoin and Ripple emerged, offering variations in transaction speed and consensus mechanisms, while others like Monero and Zcash focused on enhancing privacy.

This diversification was not limited to currencies. The blockchain began to be seen as a foundational technology for creating decentralized applications (DApps), decentralized autonomous organizations (DAOs), digital identity verification, and more. The ability of blockchain to offer transparency, immutability, and security without central control has opened up possibilities for its application across various sectors.

Ethereum and the Rise of Smart Contracts

The launch of Ethereum in 2015 marked a pivotal moment in the blockchain revolution. Conceived by Vitalik Buterin, Ethereum introduced the concept of a blockchain with a built-in programming language, allowing users to create smart contracts—self-executing contracts with the terms of the agreement directly written into code. This innovation expanded the scope of cryptoeconomics far beyond simple transactions, enabling the automation of complex agreements and the creation of decentralized applications (DApps) without intermediaries.

Smart contracts have become a cornerstone of blockchain technology, facilitating the development of decentralized finance (DeFi) platforms, non-fungible tokens (NFTs), and more. They allow for the creation of trustless, transparent, and secure systems for a wide range of applications, from financial services and insurance to gaming and art. The Ethereum platform, with its smart contract functionality, has thus been pioneer in demonstrating the potential of blockchain in various industries.

The Emergence of Decentralized Finance

The evolution of cryptoeconomics and the advancement of blockchain technology have paved the way for one of the most transformative developments in the financial sector: Decentralized Finance. Emerging from the principles of blockchain and the functionality of smart contracts, DeFi represents a radical shift from traditional financial systems towards a more open, inclusive, and transparent financial ecosystem.

Understanding DeFi

DeFi refers to an ecosystem of financial services that are accessible on public blockchains. Unlike traditional finance, which relies on intermediaries like banks, DeFi operates without central authorities. It's achieved through use of smart contracts to automate and enforce the execution of financial transactions and services. This allows for the creation of decentralized exchanges (DEXs), lending platforms, stablecoins, and more. All accessible to anyone with an internet connection.

The core appeal of DeFi lies in its ability to democratize access to financial services. It eliminates the need for intermediaries, reduces costs, and increases efficiency by leveraging blockchain technology. DeFi platforms often offer higher interest rates for lenders and borrowers than traditional banks, due to competitive nature of decentralized markets.

The Impact of DeFi on Cryptoeconomics

DeFi has had a profound impact on cryptoeconomics. It illustrates the potential for decentralized networks replicating traditional financial mechanisms. Key impacts include:


The journey from the inception of Bitcoin to the expansive ecosystem of DeFi has been nothing short of revolutionary. This evolutionary path has demonstrated blockchain's potential to disrupt traditional financial systems. It has also laid the foundation for a future where decentralized, transparent, and inclusive economic practices become the norm. As we look forwards, we can see more advancements in cryptography, coupled with steady creation of regulatory frameworks. This ensures that the blockchain will become more useful, as well as more prone to adoption by non-technical users.

If you are interested in utilizing blockchain-based solutions for your project, please reach out to


What are the future prospects of cryptoeconomics, and what challenges might it face

  • Scalability, privacy, and regulatory compliance are key challenges for cryptoeconomics. Innovations such as layer-2 scaling solutions and privacy-centric blockchains are emerging to address these issues.

Are there any detailed case studies or examples of real-world applications of cryptoeconomics, particularly in sectors outside of finance?

  • Real-world applications extend beyond finance into healthcare for secure patient data management, supply chains for transparency, and energy for efficient resource tracking.

How does the rise of cryptoeconomics specifically impact traditional financial institutions and systems? Is there evidence of adoption or integration by mainstream financial entities?

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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.