Audio: if you prefer to listen to the spoken word, you can hear this article here.

Trigger warning: contains frank discussions about the effort involved in making money and opportunities to profit through business planning.

(Not by buying Orthoverse tokens though — as we all know by now, it’s doomed.)

Tokenomics: the application of the theory and practice of Economics to token economies.

Economics: the creation and study of economic models that work well until you really need them, at which point they fail.

It’s about the tokens, stupid

Tokenomics is an interesting beast. At one end, looking at hard-core decentralized finance protocols, you’re performing something close to security auditing for marketplace and arbitrage behaviour.

Do the structures of the smart contracts and the way they interact actually work, that is, incentivize participants, provide value, and produce a profit for the organization behind the protocols.

Or are they vulnerable to manipulation and flash-loan arbitrage attacks? Is the economy instantiated by the tokens going to work, or is there a design flaw that will cause it to grind to a halt, or overheat? How much capital do you need to transfer into your automated market maker to provide enough of a liquidity buffer? How can you launch a successful vampire attack on an established DeFi protocol to give your protocol a leg-up?

Stuff like that.

At the other end, for example with NFT collections, you have something that aligns more with business development, marketing, positioning and pricing.

Should there be an auction? A whitelist? And if so, how many tokens should people on the list be allowed to mint? Or just free minting for all (and will that bring Ethereum grinding to a standstill for a few days as gas prices rocket)? What should tokens be priced at, and what percentage should be requested for royalties on onward sales?

Because if you under-price, you’re leaving money on the table. But if you overprice, then you might not sell out, and a secondary market will not arise (and hence there won’t be speculation, rampant floor price increases, and an ongoing revenue stream from those mentioned royalties). But if you are an idiot and set the royalty at something insanely high (say 47.5%) rather than closer to the norm, then you might annoy and turn-off otherwise enthusiastic participants.

So on, and so forth.

So how does one decide simple things such as how many tokens to release, what initial price the tokens should be listed at, how much to charge first-tier investors and family and friends versus the public, and if it’s an NFT collection, what should the royalty be? Or should there even be a royalty?

From this point on I’m going to talk about NFTs rather than DeFi, because NFTs are easier to understand and explain, as they don’t involve as much mathematics, but they still illustrate some of the issues well. With added monkeys.

What do we call the band?

You can burn multiple person-weeks of time if you select a committee of people from your organization to discuss tokenomics. If you’ve ever formed a rock band, you will know what I mean — some fledgling groups spend more time arguing about what to call themselves than they do on writing and rehearsing songs. It’s the same with selecting a logo for your product in a start-up, pricing the product, deciding if it should be as a service or monolithic or open source … the list goes on and on, and each item on it can take days or weeks to resolve.

One of the many useful things a tokenomics expert can do is save you that wasted time. Most of the tokenomics models I’ve seen are versions of earlier successful projects with some of the numbers changed to make it less of a copy/paste. With a decent tokenomicist, you can pay a simple fee and avoid the following three week discussion that boils down to:

“Let’s have 6,666 tokens rather than 10,000 — less to sell, more likely to sell out, but not so few that we don’t have a large pool for buyers and sellers.”

“Let’s put the royalty at 5%, as that seems standard. Three mints for people on the whitelist. And the team will hold back 666 tokens because it’s ten percent of the supply, and it’s the number of the beast.”

“Well done. That resonates with the fact that it’s a collection of vampire gorillas.”

See — job done, time to move on.

Dull, dull, dull

The problem with all of this is that it is incredibly boring. I see tens of new NFT projects with 5000, 6000 or 10000 images of curvy elf princess warriors in skimpy armor, cryptopunk bored ape mashups, doodles of faces that look like they were done by my eight year old, or those aforementioned vampire gorillas. They all have the same underlying smart contract, similar royalty figures, and the same marketing and business model.

The marketing model being mint the tokens, sell them, whip up a frenzy of enthusiasm with a hyperactive Discord channel and Twitter account. And the business model aiming to gain profit relying on three things:

  • the initial sale commission,
  • selling tokens you held back on the secondary market once the mint is complete, and
  • those royalties from secondary sales again.

The odds are that your project is not going to be a Goblintown or We Are All Going To Die. And when I say, “the odds”, what I mean is:

The probability of success is so low it’s pretty much zero. As a get-rich strategy, spending time mowing lawns and spending the money on lottery tickets might be a better approach.

And even if you are one of the lucky few, after that, other than the satisfying glow of producing an NFT collection that went viral, all you are left with as a project owner is:

  • merchandising possibilities if you held on to the copyright and trademarked your brand,
  • derivative “pets of vampire gorillas”, “mutant vampire gorillas”, or “sneakers for your vampire gorilla” collections to try to milk more cash out of your followers and attract vampire gorilla wannabe-holders who can’t afford a real vampire gorilla, and
  • collaborations with advertisers who want to pay you for some of the caché of your brand.

I’m sure there are plenty of other things that people can dream up or copy, but they are all traditional approaches that have nothing to do with capitalizing on the capabilities of this amazing programmable decentralized ledger-instantiating machine that is Ethereum.

Aha — a vampire gorilla theme park in Florida. Vampire gorilla energy drink. Vampire gorilla Christmas tree ornaments. See — that part is simple.

I know there are people out there who find this kind of brainstorming exciting, but they also find developing new ways of selling fizzy sugar water exciting too. Good luck to them.

Everyone’s a critic

“Okay, that’s all very well,” I imagine some of you are saying. “But what can be done instead? And more to the point, what have you done?”

Aha, I’m glad you asked, my imaginary dismissive friend.

“Oh no, here comes the Orthoverse again” — yeah, but I’m going to give away some trade secrets, so pay attention and be grateful.

When Richard and I were about to deploy our amazing NFT contract that airdropped a token into every single Ethereum wallet (see — that was innovative), the challenger NFT marketplace had just launched. As a result, gas prices were insane as people scrambled to claim their $LOOKS tokens, and we didn’t want to waste money. So we decided to delay for a few days until the storm died down.

At this point we didn’t have the concept of The Orthoverse. We just had a token contract, and some time. So we started throwing extra functionality into it (the contract, not the time), and talking about what it could mean, and what it could do.

And this is what we came up with:

1. Added value

The first idea was to have a “level” for each token, stored on-chain, that you could raise by calling a function in the smart contract and paying some ETH. We also came up with the idea that the cost of “levelling up” would double for each level, and did some back-of-an-envelope tokenomics to work out what the starting price should be. I think we spent about half an hour discussing this, and half a day coding it up.

The result was to have eight levels (including the starting level of zero), and for the starting price to upgrade to level one to be 0.008 ETH. Here is an image from a spreadsheet illustrating the result:

Here you can see that if someone reveals a token, and then levels it up to the max, the Orthoverse makes 1.016 ETH. That’s not bad at all, for us. If for some crazy unexpected reason a thousand people decided to level up their tokens to seven, even at today’s deflated ETH prices that’s a cool million euros.

So with half an hour of talking, and half a day of coding, we’ve opened up the opportunity for serious returns over time. They’re not guaranteed, but the possibility is there. And the theoretical upper cap is about 1.4 * 10⁴⁸ ETH.

Vanilla OpenZeppelin NFT contracts don’t offer that possibility.

2. Everything is in flux

The second idea was to be able to “flip” the token. Initially this one ended up causing a lot of confusion for Orthoverts. Just like the “level” idea, the concept behind a “flip” was that each token would have a single bit on the chain, that could either be 0 or 1. Each token is in one of two states — we now interpret them to mean that the token is “futuristic” or “fantasy” in nature.

In fact, to save on space we cheated, programatically speaking (that’s a recurring theme for the Orthoverse), and used the fourth bit of the level storage for the flip bit. Did I lose the non-programmers among my readership there?

But unlike the level value for each NFT, which can only be made to go up, the flip bit can be switched as many times as you like. We set the cost for doing so at 0.001 ETH, which is about a euro. In hindsight, it probably could have been a little bit higher, but never mind.

Clued-up tokenomicists should be pricking up their ears at this point. The Orthoverse contract has a function that can be called many times, and provides a small bit of income from each call. A dollar or a euro every month, or even every week, is not a big sum for a token owner. Especially if that token ends up being worth hundreds of thousands of dollars or euros to the owner.

But it’s potentially recurring. Are you starting to see a theme? If you can make a token that provides something of repeatable value to the owner for a small repeatable payment, you have another income stream.

And now your creatives and your marketing people can start thinking about what that repeatable value could be, and how to enhance it over time. Richard and I have a bundle of ideas relating to this, but you will just have to wait and see which ones we pick.

Incidentally, both these ideas still allow for the metadata and the images of the tokens to be stored on an immutable file system and therefore “frozen” in NFT-speak. But just as the Bored Apes Yacht Club kept their token mutable for 411 days, we will be keeping ours flexible for the time being. After all, it’s only been 154 days for us, and what’s more, our collection is not a standard static art NFT collection, it’s a dynamic one.

Maybe not today, maybe not tomorrow, but some day and for the rest of its life, the Orthoverse will be locked down and frozen on the IPFS. So look out for that — how to create a token collection that is both frozen and dynamic in a future article.


To start with, I have been brutally honest in this article when it comes to recurring revenue that NFTs could derive if they were set up along the lines of the Orthoverse — the equivalent of the profits that streaming companies like Netflix and Spotify make from their user base, or software-as-a-service companies like Microsoft with their Office 365 subscriptions, Amazon with AWS, and Google with Google Drive and Youtube Premium.

Richard and I did not start out to achieve this. And, of course, we are not there yet. The Orthoverse is still in the minting phase. The thing is, if (sorry, when) we do reach the full 10,000 land tokens, we have so many more options than ordinary collections.

By now, you should have spotted what the problem with art, collectible, metaverse, and brand NFTs is, from a business development and tokenomics perspective.

They produce the art, launch the smart contract, and then start thinking about what to do next.

Once the contract is out there, it is a pain in the neck to change it. If you have 10,000 token holders or more, it is a complete nightmare. As NFTs are generally not launched with upgradable functionality, you have to get everyone to migrate. So you should think about it all beforehand.

And the funny thing is, just inventing and then adding a few original bells and whistles into your contract (provided you then test those bells and whistles thoroughly) opens up all sorts of opportunities — not just artistic ones, but business ones too. You probably won’t even know what those opportunities are when you first add the unusual functionality.

As it happens, we added three new things to the Orthoverse NFT contract: levels, flipping, and the possibility for two sets of baseURIs. You’ve seen in this article what the first and second bring to us from a business perspective in terms of revenue:

  • a small 0.001 ETH payment every time someone flips their token, and
  • potentially up to 1.016 ETH payments every time someone levels up their token.

Just to be clear — we didn’t add these things as blatant money grabs. The token holders get to improve the status of their token (and possibly resale value if the Orthoverse manages to reach the point of having a secondary market), and to play around with what it looks like in the meantime.

Just wait to see what the third one offers, which I haven’t even talked about here. I’m holding it back for a future article, once Richard and I have worked out exactly how we’re going to use it. So that’s two articles to look out for.

After all, it’s the Orthoverse — it may be doomed, but in the meantime we’re going to have fun. And part of fun is surprises. Richard and I are doing our best to make sure they’re interesting, and preferably pleasant.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Keir Finlow-Bates

Keir Finlow-Bates

CEO and co-founder of Chainfrog Oy, a Finnish startup researching and developing advanced blockchain technologies.