Token Engineering for Home DAO

“If you would like to tokenize your business or community and make it Web3 ready, how do you need to approach your token design? Which questions do you have to ask yourself? What know-how do you need in your team to be able to properly “design” or “engineer” these tokens?” — Token Economy. We are going to deep dive into some of these areas.

The aim of this article is to understand what questions are relevant in the design and engineering process of a token system for Home DAO.
While the “token engineering” community points out the necessity for rigorous software engineering practices, it often seems to me that in the theories outlined and practices lived, it mostly focuses on what I would call the “technical engineering” aspects of a token system. A look at the composition of team members of most blockchain/web3/token startups reflects this techno-centricity quite well. Engineering, however, is the practice of creating a technology that ultimately always has a social goal. Looking at engineering though a purely technological lens perpetuates a reductionist mindset on why and how we build technology.

We will cover the following Engineering aspects for the HomeDAO Token

1. Technical Engineering
2. Legal Engineering
3. Economic Engineering
4. Ethical Engineering

1. Technical Engineering

When creating a token system, one needs to decide whether to create an infrastructure token or an application token, and how to technically implement the token system.

There are 2 types of tokens to choose from in this area, Infrastructure Tokens and Application Tokens. All HomeDAO tokens are application tokens, hence the general infrastructure aspects like Security, Scalability & Privacy are essentially taken care by the underlying blockchain network.

Although that leads to the following questions:

1. On which infrastructure? — Ethereum is the most widely adopted & rigorously tested blockchain network over the years and hence seems the most logical choice.
2. Interoperability? — In spite of the fact that distributed ledgers currently have limited interoperability, there are solutions on the horizon that might favor one system over the other. Depending on how much interoperability your token system requires in the long run, infrastructure questions need to be considered. Most systems have bridge towards Ethereum blockchain and hence it still makes sense to choose it although the gas fees needs to be thought about.
3. Standards? The technical engineering process can choose from a growing list of standardized token contracts. Since we do not want to re-invent the wheel, we will leverage the existing standard and audited contracts. The token standards used depend on the properties a token should have (privacy, fungibility, transferability, expiry date), and the properties depend on the purpose of the token, taking into account all economic, legal, or ethical constraints. HomeDAO needs a combination of both NFTS & FTs.

2. Legal Engineering

In the context of token engineering, the dynamics of the business or governance models of a potential token should be well known, as in the case of (i) central bank money, (ii) securities and other assets, (iii) identification and certification processes, (iv) voting rights, (v) vouchers and coupons, or (vi) entry tickets and other access rights. HomeDAO will be in the asset tokens, voting rights, entry tickets & other access rights categories.

Relevant questions in the legal engineering process of identity tokens, currency tokens, asset tokens, or voting-rights tokens are:

1. Which transnational/national/local jurisdiction(s) need to be considered? — French jurisdiction in the beginning
2. Which regulatory bodies might be concerned? — Notary, Central Banks
3. How do we design smart contracts so that they are legally compliant? — Need crypto lawyers
4. Does the jurisdiction need to be changed to cater to the new possibilities/dynamics of tokenization and the Web3? Maybe but further studies need to be conducted

3. Economic Engineering

Economic engineering is predominantly required when designing “complex token systems.” The incentives and governance rules of the community are tied to “purpose-driven tokens” that steer collective action of the community through automated mechanisms.

Since HomeDAO deals with Sociotechnical system, which in principal refers to the interaction of social and technical aspects of private and public organizations and communities, online and in the real world, the relation can be either simple (linear cause-and-effect relationships) or complex (non-linear and hard to steer and predict).

Goal of your Token system: Ease Real Estate transactions & investments

How many different token types do you need? 1 Governance or utility token and other asset tokens, one per each country.

Purpose: Governance & asset backed investments.

Properties:

Transferability: Need high transferability for uniquely identifiable and asset tokens

Fungibility: Need both asset tokens with high fungibility & NFTs

Expiry Date: Not needed as of now

Proof of…: Provenance & Property tokenised & owned

4. Ethical Engineering

The design of token systems also requires ethical and political thinking. What type of system we want to create is not a technological question but a socio-economic and political question. Questions of politics, morals, and ethics will need to be answered, ideally before the design of such systems.

Transparency vs. Privacy: utility tokens & asset tokens in the HomeDAO can be extremely transparent, however some information with respect to the NFTS representing real estate can be private or encrypted.

Power Structures: Tradeoffs between decentralization, security & stability. More Decentralization makes the network slower, but HomeDAO tends to rely on the Ethereum blockchain for now to leverage all the good properties from there. The Oracles can be a hybrid mix of centralized and decentralized so that security & stability of the network is not undermined.

Summary

Having lawyers, economists, and social scientists as part of the team in addition to the technical engineers, on executive level and below, will be paramount to developing resilient token systems. However, interdisciplinary work takes time and effort, as all four categories overlap and communication between the disciplines requires some ramp-up efforts.

Having lawyers, economists, and social scientists as part of the team in addition to the technical engineers, on executive level and below, will be paramount to developing resilient token systems. However, interdisciplinary work takes time and effort, as all four categories overlap and communication between the disciplines requires some ramp-up efforts.

Reference: Token Economy by Voshmgir, Shermin