How to Design a Sustainable Tokenomics Model in a Defi Project?


26 Feb 2024
How to Design a Sustainable Tokenomics Model in a Defi Project?

Investors look for projects that not only develop innovative products but also do it sustainably. In a way that allows for long-term growth, and resistance to uneasy conditions in the crypto market. Projects can achieve this through a studious design of their tokenomics model.

Understanding Tokenomics

Tokenomics, short for token economics, refers to the study and design of economic systems within blockchain networks and crypto projects. At its core, tokenomics encompasses the distribution, circulation, and utilization of tokens to incentivize various stakeholders and drive desired behaviors within the ecosystem.

Key Components of Sustainable Tokenomics

Token Allocation

Defining clear purposes and rules for the treasury fund to align the interests is essential. A well-defined allocation strategy ensures that tokens are distributed in a good manner. That it promotes decentralization, fosters community participation, and supports the long-term growth of the ecosystem.

Token Allocation

Maintaining a balanced token allocation to achieve decentralized governance and organic project growth is critical. By distributing tokens equitably among stakeholders, projects can mitigate the risk of centralization, and foster a diverse and engaged community. While it may be tempting to allocate most tokens for the founding team and institutional investors, projects should remember that the value of their tokens is in large part determined by how decentralized the ownership structure is.

Token Vesting Schedule

Token Vesting Schedule
For example: Thetan Arena token vesting schedule: the square marks out the period September 2021 to March 2022. ( economy/theta-gem)

Implementing a structured vesting schedule for team members, investors, and advisors is crucial to ensure the alignment of incentives and commitment. A vesting schedule gradually releases tokens over a specified period, incentivizing continued participation and discouraging short-term speculation.

Maximum Inflation

Managing inflation is a delicate balancing act for crypto projects, as excessive inflation can erode the purchasing power of tokens. Insufficient inflation may hinder growth and adoption. An important metric in that regard is Maximum Inflation, which refers to the total supply increase over time. It is calculated through dividing maximum supply by the initial supply.

Projects must carefully calibrate their inflationary policies to maintain a healthy balance between supply and demand. While also incentivizing long-term holding and participation. By adjusting maximum inflation rates in response to project needs, crypto projects can optimize tokenomics for sustainable growth and stability.

Bitcoin inflation vs. time
Bitcoin inflation vs. time. Source: Research Gate

Value Accrual

Ensuring that tokens accrue tangible value to holders is essential for fostering long-term engagement and participation within the ecosystem. Value accrual mechanisms may include utility features, governance rights, revenue-sharing mechanisms, or other incentives that incentivize holding and active participation in the project.

Strategies for Designing Sustainable Tokenomics Models

Designing Sustainable Tokenomic Models

Defining Clear Objectives

Establishing clear objectives and goals for the project's economic model is fundamental to its success. By articulating a compelling vision and roadmap, projects can attract stakeholders, align incentives, and rally support for their long-term mission. Clear objectives also provide a framework for decision-making and resource allocation, guiding the project towards sustainable growth.

Incorporating Governance Mechanisms

Implementing robust governance mechanisms is essential for ensuring democratic decision-making and community involvement in protocol upgrades and changes. By empowering token holders to vote on proposals, participate in governance discussions, and shape the future direction of the project, projects can foster a sense of ownership and accountability within the community.

Ensuring Transparency and Accountability

Promoting transparency and accountability in tokenomics design and fund management is critical for building trust and confidence among stakeholders. By providing regular updates, financial reports, and disclosures, projects can demonstrate their commitment to integrity

Case Studies: Examining Sustainable Tokenomics Models

Ethereum (ETH)

Ethereum, often regarded as the pioneer of smart contract platforms, boasts a robust tokenomics model that underpins its vibrant ecosystem. ETH serves as the native currency of the Ethereum network, facilitating transactions, powering decentralized applications (dApps), and serving as collateral for various DeFi protocols. With a clear distribution schedule, Ethereum incentivizes miners, validators, developers, and users to contribute to the network's security, scalability, and innovation.

Cardano (ADA)

Cardano ADA Allocation
Source: Coin Gecko

Cardano, one of the most prominent Layer 1 platforms, attributes much of its success to a tokenomics model focused on long-term growth. The platform itself states in its whitepaper: “The overall focus beyond a particular set of innovations is to provide a more balanced and sustainable ecosystem that better accounts for the needs of its users as well as other systems seeking integration”. Cardano tokenomics model supports sustainable development goals through research-based approach, decentralized governance structure, and well-thought treasury system. Unfortunately, commitment to sustainable growth came with a cost. Cardano Blockchain is much slower than many of its competitors, which reflects the famous blockchain trilemma (hypothesis that blockchain can’t be secure, scalable, and decentralized at the same time).

Challenges and Future Directions

Tokenomics has emerged as a powerful tool for incentivizing and coordinating decentralized networks. It also presents various challenges and areas for improvement. Addressing issues such as governance effectiveness, economic sustainability, and regulatory compliance will be crucial for advancing crypto projects, in the face of progressing regulatory scrutiny.

MUST READ: "Tokenization Regulations"


Tokenomics represents a foundational aspect of crypto and Web3 projects, providing the economic infrastructure needed to incentivize participation, coordinate activity, and drive value creation within decentralized networks. By designing sustainable economic models that align incentives, foster community engagement, and promote long-term growth, projects can get the best out of blockchain technology

If you're looking to design a sustainable tokenomics model for your DeFi project, please reach out to Our team is ready to help you create a tokenomics structure that aligns with your project's long-term growth and market resilience.


Why is token allocation important?

  • Proper token allocation promotes decentralization and community engagement, vital for a project's success.

What's a token vesting schedule?

  • A schedule ensuring stakeholders remain committed by gradually releasing their tokens over time.

How can DeFi tokens retain value?

  • By implementing supply control mechanisms and expanding utility within the ecosystem.

What are key challenges in tokenomics design?

  • Balancing incentives, managing inflation, and navigating regulatory landscapes are significant challenges.

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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.