• by William Mougayar
    Venture advisor, 4x entrepreneur, marketer & strategist. I live in Toronto, curate a lot, blog a bit, and help startups.

The Relationship Between Cryptocurrency Tokens, Value and Work

Circular Blockchain EconomyThe topic of cryptocurrency-based tokens and their relationship to organizations, protocols and startups has been picking up speed, with a variety of opinions debating their merits from a legal and business model generation perspectives.

I have been thinking about the implications of cryptocurrency-based tokens for a long time, dating to when I wrote about their impact in the context of an Operational Framework for Distributed Autonomous Organizations (February 2015), and recently evolved my thoughts by explaining how they enable the creation of circular mini-economies that generate and propagate value.

Some are objecting to the crypto currency token approaches, citing the apparent legal hurdles, but that is a narrow view. Rather than second-guess the Howey Test or other securities regulations, I think we should fast forward to 1-2 years from now, when there will be more maturity and clarity around these new businesses. By that time, we will have adapted or evolved the regulation accordingly, and I foresee that this will rather become a compliance exercise more than anything else.

One of the clearest articulations on the role of tokens in the creation of decentralized protocols is from USV’s Joel Monegro, in Fat Protocols, and it includes links to additional relevant work on that topic. That view explains the shifting role of protocols vs. applications along the valuation spectrum, although I would add that not all decentralized protocols may necessarily require a crypto token at their base.

In my opinion, there is a greater theme in addition to tokens, protocols and new types of securities. The novelty is also about the work that is indirectly represented by the tokens, and its relationship to value creation via interactions between users, i.e. the Work-to-Value creation paradigm.

Tokens are just a means to an end. They are a digital derivative of the actions that users undertake, and have a direct relationship to the value their work creates, both to other users and to the network itself.

User Generated Content (UGC) has been a popular moniker denoting a key user activity for social networks pertaining to native content generation. Maybe UGC evolves to UGW,- User Generated Work, to place an emphasis on the need to have a greater variety in user participation that results in real direct value, of the monetary kind.

We could classify what tokens enable along three segments:

  1. Tokens that power a protocol: e.g. Bitcoin, Ethereum. The nature of the “Work” is mostly software development, done by its network participants.

  2. Tokens that are intrinsic to a vertical function: e.g. Steemit, Filecoin, Storj. The “Work” is content curation or production, file storage, sharing data, driving a car, etc.

  3. Tokens that extend an existing business: e.g. any loyalty points given by existing companies could be turned into a mini-economy to fuel additional transactions. We could label this part “hybrid models”.


The general theory is: User actions generate value that earn them internal tokens that can also be spent inside the network via new transactions.


Tokens Value Work

Here are my additional thoughts:

  • The tokens that are issued are like an exhaust of the user actions.
  • Tokens are not just a monetary currency, they are a combination of reputation currency, engagement currency, clout currency, and activity currency as a whole.
  • Tokens are a proxy to the economic activity that is generated inside the network.
  • Earning tokens should be done honestly, and not easily gamified.
  • The closer the token is to the value proposition or native model of your business, the more sustainable it will be.
  • The creation of value targets any type of user or customer: they could be your core developers, applications creators, end-users, speculators, ecosystem partners, founders, buyers, sellers, readers, writers, investors, influencers, partners, etc.

At the base of these tokenized constructs is the belief that all participants have a right to earn a part of the overall value creation they are collectively responsible for.

Let’s take Facebook. The essence of their business is to monetize our attention (by liking or sharing) and our engagement (by writing or posting), yet we are not compensated for it. If Facebook was formed as a decentralized business with a token, each user would be earning tokens for their participation. These tokens would have a redeemable and tradeable value via a liquid marketplace, internally and externally. Alas, Facebook is not doing any of that economic sharing (while we do plenty of content sharing for them), and that could become their Achilles heel in the long term, if Network Equity sharing business models turn out to be popular.

I think we are in the early stages of understanding and implementing the various models behind the tokenization of work with cryptocurrency and blockchains as the operating backbones for these models. We need to see more ambitious projects that take risks in tackling the possibilities. The most ambitious ones that I have seen to date are The DAO (which failed quickly, but with plenty of lessons), and Steemit (which has a few skeptics, but also a lot of supporters).


  1. bruno cecchini

    2 years ago when Ethereum release is white paper my first taught was, let codify Black-Scholes.

  2. William Mougayar

    I see it more as business model innovations than B-S codification. At the end of the day, what is credible rises to the top. What is not, crashes.

  3. @mikeriddell62

    But – in this day and age – what, actually, is ‘work’?

    Greetings from Manchester.

    Most people want to work and make a contribution to their community and society. But the market economy exclusively defines work as something we get paid money for. If we don’t earn money from it, it isn’t work; it is called bringing up a family, charity or volunteering. All of this work underpins the economy and without it the market would fall apart. But it is generally invisible to the economy itself when money does not change hands.

    Many people do essential work in communities and receive no money for it: running community centres and community groups, sports clubs, bands and orchestras, dance troupes, wildlife clubs and on and on.

    We label them ‘volunteers’ but we should call them workers because their work creates healthy individuals, families and communities. Volunteering has no price, it is price-less. And that’s a problem. Because it has no price and does not appear in the market, we do not recognise its true value. Actually, various people have attempted to value the ‘worth’ of volunteering in money but it is difficult to do. Estimates of the economic value of volunteering in the UK vary widely between 23 and 100 billion pounds annually.

    What if we valued and rewarded people for the essential work they do?

    People say that volunteering has its own intrinsic rewards: the satisfaction of serving others; learning and practising new skills; loving what you do. Many people who earn a salary enjoy the same benefits. Why do we expect volunteers to work only for love? Why can’t they choose whether to get other types of extrinsic rewards or not?

    Rewards (‘carrots’) can make people less efficient at tasks that require creativity and flexibility. Carrots do not work if they have no meaning or are used to control people. They can produce lower quality work. But for clearly defined tasks where labour is needed, they can motivate people to give their time and skills. Experiments with ‘time credits’ in the UK show that simple rewards, such as concert tickets or trips, in exchange for time given to community activities, can increase the average frequency of volunteering from once a month to once a week.

    We are all familiar with corporate loyalty points designed to encourage customers to stay loyal to a brand e.g. Air Miles, Nectar points or supermarket loyalty schemes. Rewards for volunteering might be called ‘Community Loyalty Points’. Points say THANK YOU to people who do something useful for our community and reward them for learning how to look after to our community’s welfare.

    The relationship between tokens, value and work is incredibly important but only if the work has a purpose the builds community, unlocks stored value and generates recurring revenues for those that produce it.

  4. ZekeV

    There’s a big difference between bitcoin as a token that serves a real purpose within its protocol; and say, a steem coin as a token, which is mostly a gimmick designed to exploit users. The requirement to spend bitcoins to transact on Bitcoin is essential to make denial-of-service expensive. Bitcoin is useful to facilitate trustless transactions, and bitcoin tokens are necessary to make the system work. The steem concept, and your facebook hypothetical, involve gimmick tokens within artificially hobbled networks designed to extract rent from users. I can tweet or post to the internet for free, and this experience is much more powerful and effective than a slow/expensive p2p network. Blockchain needn’t be involved anywhere b/c there is no element of trust involved. Furthermore, you can read my stuff for free on the internet if you care to do so (hardly anyone does, but never mind that). In other words, the steem network doesn’t solve any problem that twitter has. Steem tokens are not needed to incentivize me to write, and are not needed to meter access to some scarce resource. They serve a limited purpose of monetizing a game that involves microblogging. I suppose this sounds exciting to web VC people, but to me it is not quite what I’m looking for in a financialized p2p protocol.

  5. William Mougayar

    It seems that we agree.
    “… only if the work has a purpose the builds community, unlocks stored value and generates recurring revenues for those that produce it.” Yesss!

  6. William Mougayar

    There is more to Steem than just earning tokens for voting on, or publishing content. There is a built-in blockchain that actually records all content transactions (and I believe they are at close to 200K transactions per day https://steemle.com/charts.php), so they are in essence a decentralized content network first and foremost.
    On the subject of whether the incentives are well deserved or artificial, I think it’s too early to tell. Facebook is generating real money from advertising, but they only started doing that after millions of users were already hooked on it, so one could say we were tricked until we realized we were trapped, and now we are hooked. Any network will try their own way to attract early users via growth hacking techniques. You can judge the potential longevity of Steem based on the quality of the content and discussions. If that remains and if the engagement metrics continue to grow accordingly, then I believe that the rest will take care of itself. Re-distributing wealth equitably across the whole range of users is not a bad thing after all.

  7. ZekeV

    To me, this is an example of using “the blockchain” where it is not needed. It smells like a decentralized app, and there’s a crypto token, but when you look at it in the cold light of day it’s just Medium with tradeable likes-based currency. If I could paraphrase your comment (perhaps twisting a bit) you’re saying, so what, we can still capture users and build something that has value. OK, sure, but to me the excitement of p2p protocols is that we in the realm of speech (as in free speech) we can start to devise ways that allow us to deal with our fellow man directly without being exploited in the process by an intermediary. And that is exactly what efforts such as steem are about. I don’t need steem to write, and to be read. The authors of steem (who I’m sure have a lot of steem coins) want to trick me into writing on their platform, so that they can become wealthy based on my efforts. It’s not “evil” and I willingly go along with such a program every day, even right at this moment while typing in Disqus (another such exploitative service). Render unto Caesar and all that. But, I consider it to be intellectually off-course to consider steem as a successor to bitcoin in any way, or part of the same movement, as it is attempting to subvert bitcoin to aims that are anti-bitcoin.

  8. @mikeriddell62

    Intermediaries don’t have to be exploitative. On the contrary, they can function as agents that bring business to their clients by putting the services they offer under the noses of those that might benefit.

    Markets that realise social and business value need middle-men who understand the needs and offers of both cohorts. Redistributing the shared value that the market unlocks – in proportion to the producer’s contribution – is a shared business model that is beginning to emerge.

    Rather than spending money on marketing to create the network effect, reward the producers instead with a divi that incents them to develop their network in the first place.

    Their network + other networks on the same system, using the same process and the same revenue model = a more investable proposition.

  9. Briann Bargo

    Thanks for this info – also another great source of info that is a bit more in depth – https://www.youtube.com/watch?v=5OSCaI4VQQM