The post Innovative Economic Model Introduced for App Tokens by a16z Crypto appeared on BitcoinEthereumNews.com.

Timothy Morano Aug 08, 2024 12:49 a16z Crypto unveils a new model for cash flows in app tokens, aiming to enhance compliance and maximize protocol value. a16z Crypto has announced a groundbreaking approach aimed at transforming the economic models of application tokens, introducing cash flows for app tokens to create more permissive, flexible, and compliant fee structures. This new model is designed to enhance the value accruing to protocols while ensuring regulatory compliance across various jurisdictions, according to a16z Crypto. Challenges for Token Models While infrastructure tokens like those on Layer 1 networks have well-understood economic models based on supply and demand for block space, application tokens face a different set of challenges. These tokens, used in smart contract protocols on blockchains, cannot rely on gas fees and must develop their own economic models. Legal complexities also arise, as application tokens often facilitate regulated activities requiring governance by token holders. Governance Challenges Application tokens often come with governance rights, which can introduce risks if Decentralized Autonomous Organizations (DAOs) control protocol revenue or economic activities. To mitigate these risks, a16z suggests reducing DAO governance or adopting Wyoming’s Decentralized Unincorporated Nonprofit Association (DUNA) model, which offers a legal framework for DAOs in compliance with U.S. tax laws. Value Distribution Distributing value to token holders while complying with U.S. securities laws is another challenge. Direct mechanisms like pro rata distributions or token buy-and-burns resemble traditional financial practices, raising regulatory concerns. Instead, a16z recommends stakeholder capitalism, rewarding tokenholders for contributions that benefit the project, such as running a frontend or participating in a protocol. Regulated Activity Applications facilitating regulated activities must ensure their value accrual mechanisms comply with legal standards. Protocols should collect fees only from compliant frontends or APIs. This approach helps avoid regulatory pitfalls and ensures that tokenholders do not profit from…

---

Filed under: News - @ August 10, 2024 2:16 am