Advanced Web3 Tokenomics Design — Part 5: Profitable Loan Programs
Nearly all the crypto-assets currently launched by web3 companies suffer horrible tokenomics design. In this blog post, I will be discussing the importance of implementing Profitable Loan Programs as an additional revenue stream into tokenomics design as a part 5 of a complete series. This work is a follow up to a previous blog post “How to Design Web3 Tokenomics”. Web3 founders are the main target, but crypto investors in general might find the content interesting to help them make investment decisions.
Loan using Token as Collateral
Web3 companies can also reduce selling volume of their token, especially when the token price is in a downward trend by offering their community a loan program. Loan businesses have been operated for the past several decades and can be done profitably. In the case of a blockchain project, their own token can be used as collateral and locked to obtain a loan in USDT for example, ideally with a value of 60% to 80% of the collateral current value. Aave, a popular peer-to-peer lending protocol, has been successful at operating this type of crypto-backed loan infrastructure. However, it doesn’t have to be in a peer-to-peer fashion, it can be managed and operated by the project itself using the project liquidities. This way, if the borrower doesn’t pay back the loan, the project can re-integrate their token (collateral) back into their treasury, and if the borrower repays, the interest rate becomes part of the project revenue stream. I would set the interest rate around 10% per year, but it should be a dynamic rate based on available liquidities dedicated to the loan program, the default rate, and the current price of the token based on the last 30 days average or so.
Participants who have outstanding loans may choose to repay their full loan when the token price increases a lot, further reducing excessive growth while preventing temporary crashes. With the volatility reduction benefits, such a loan program offers an additional revenue stream to integrate back into the tokenomics, and to early investors, etc.
Credit Cards using Token as Collateral
Some projects, for example Crypto.com, have offered their users the ability to pay for goods and services with Visa using their crypto assets as collateral. Fortunately, individual smaller projects do not have to partner with Visa directly, they can do so with intermediaries such as Sentinel Digital to accelerate time to market. In the case of credit cards, additional income can be generated, while delaying selling volume or even preventing it entirely. If the corporate entity behind the token accepts to receive their tokens as repayment for the credit card loan, this causes no selling volume from exchanges either. Both credit cards, and loan programs can be operated in parallel for the benefit of the project, and their community.
Conclusion
I explained the importance of integrating a profitable loan/credit program into a new revenue stream, to support the tokenomics models of crypto-assets. In the next blog post of this series on Advanced Web3 Tokenomics Design, we will cover the topic of “Network Effects Design” to help web3 builders in designing better economies for themselves and their community.
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