In an interview with Nik Pletikos, Head of DeFi – Fuel Labs, Raj Brahmbhatt, CEO of Web3 payments platform Zeebu deep dives into the core concepts of tokenomics, its influence on the digital economy, and key strategies for effective token use.
A crypto advocate at heart, Zeebu emerged from his vision to leverage Web3 technology and disrupt the traditional telecom landscape.
“A key factor for successful crypto projects is having clear and practical use cases for their tokens. This means the token's value isn't solely driven by speculation but by genuine user needs. In other words, there should be a natural demand for the token, regardless of overall market trends, because it serves a specific purpose within the project's ecosystem - He emphasizes”.
Key Takeaways from the Discussion
This interview has been lightly edited for clarity.
Raj: Hi Nik. Can you please tell us a little bit about yourself?
Nik: Hi Raj. I am the head of DeFi at Fuel Labs. I also built treasury at Bitstamp and managed treasury with some prominent protocols in the crypto space.
Raj: Amazing. So, how’s your journey been? How long have you been in the industry?
Nik: My background is in finance and modeling, and that's what initially drew me to crypto space back in 2017. I started part-time, helping out with tokenomics for different projects. It was a great way to get my foot in the door.
Fast forward to 2019, and I joined Bitstamp full-time. I was proud to be part of the team that built their treasury department from scratch. It was a valuable learning experience.
After about four years, I decided to shift gears and started advising other projects on tokenomics. I've had the privilege of working with both startups, where I helped develop token models alongside their business plans and established players, where I offered my expertise in optimizing tokens, managing treasuries, and improving liquidity.
These days, I'm working with Fuel Labs. My focus is on scaling their DeFi side and designing sustainable tokenomics for new projects within their ecosystem. One of the biggest challenges in crypto, as I see it, is building ecosystems that can last. That's a big part of what motivates me at Fuel labs.
Raj: That’s true. My background is in securities trading, but crypto caught my attention in 2020 during the market crash. Stuck at home with free time during COVID, I dove into the Bitcoin white paper and bought some BTC and ETH at attractive prices.
Beyond established players, I was curious about altcoins, particularly XRP. Its focus on facilitating bank settlements seemed interesting, but it still relied on banks, which felt inefficient. My vision was to connect businesses directly on a decentralized platform where everyone is KYC/AML compliant, enabling peer-to-peer transactions.
This inefficiency was especially glaring in the telecom industry, where margins had shrunk from 30% to 4-5%. Carriers couldn't afford high bank fees, slow forex exchange times (especially in emerging markets), and the wasted time associated with traditional settlements.
So, while economics was not my initial focus in crypto, I have learned the importance of tokenomics. At Zeebu, we are all about creating a sustainable ecosystem with real use cases. We have a massive target market – a $120 billion opportunity – and we plan to capture over $48 billion over the next three years. Our tokenomics reflect that, aiming for stability regardless of market conditions. You might notice our tokenomics include a high inflation rate. However, this is balanced by a substantial quarterly burning mechanism.
I would also like to understand what things you find important in the tokenomics. How do you structure it?
Nik: There are two crucial aspects for any crypto project, and most (around 80-90%) fall short:
- Clearly Defined Utility with Traction: The token needs a clear purpose and existing use case. An already functioning product with a user base is ideal. This traction fuels community growth, ecosystem development, and attracts market participants. It is a major driver of demand for the token, ultimately influencing its price.
- Supply and Demand Balance: A project must manage the token supply. Relying solely on demand growth isn't sustainable. Limiting supply is key, whether through a capped maximum supply or regular burning mechanisms (like buybacks). This keeps supply in check with demand for long-term sustainability.
Many projects focus too much on launching the token and neglect proper tokenomics design beforehand. This leads to a disconnect between the token and market realities. Here's where the real work begins:
- Continuous Tokenomic Optimization: After launch, ongoing optimization is essential. This involves managing both supply and demand to ensure the token's viability.
- Treasury Management Strategies: A strong treasury can utilize diversification, market-making activities, and strategic buybacks to maintain the token's value.
While optimization helps, the overall market climate plays a role. During bear markets, even well-designed tokenomics can only do so much. Survival is the goal, with the focus shifting to capital preservation for the next bull run.
Raj: Absolutely correct. Since you mentioned adaptable tokenomics, can you elaborate on how you see tokenomics needing to adjust based on market sentiment and a company's evolving direction?
Nick: Absolutely, building on the point about adaptable tokenomics, treasuries often fall short. During bull markets, they tend to spend heavily, leaving them unprepared for the inevitable bear market. This lack of reserves prevents them from injecting capital back into the token and ecosystem when it's most needed.
The key is to maintain a "dry powder" reserve. This financial buffer allows the project to outperform the market during a downturn by strategically injecting capital and promoting token sustainability. While the token's price will likely still decline, this approach helps minimize the fall. By waiting for opportune moments within the bear market, the project can then execute strategies more efficiently.
Raj: Right. Talking about adapting tokenomics, in phase one, we were laser-focused on business development and product adoption. Our core value proposition lied in driving token consumption through our decentralized network. So, our initial tokenomics were designed to incentivize this behavior.
However, we're now introducing a liquidity protocol to facilitate further scaling and launching new services. As market sentiment evolves, new technologies emerge, and Zeebu itself pivots, our tokenomics will need to adapt as well. This applies even to specific mechanisms like our Phoenix burn protocol. If we were to expand into a new industry like oil and gas, for instance, additional tokens might be necessary to fuel that growth. Your point about adapting tokenomics absolutely resonates with our evolving roadmap.
Given Zeebu’s upcoming liquidity protocol and governance features, what three adjustments do you think would be most important for Zeebu’s tokenomics?
Nik: When it comes to Zeebu’s liquidity protocol, attracting external participants is key. You need to incentivize them to bring liquidity into the ecosystem. This could involve offering rewards or other benefits to liquidity providers.
On the governance side, keeping things active is crucial. You’d want token holders to participate and have a say in the project's direction. This means ensuring the right people are involved in managing proposals and different aspects of the protocol.
Finally, there's the supply side. You already have a burn mechanism in place (Phoenix), but it's important to remember that tokenomics are never set in stone. You can optimize the burn based on market conditions and our evolving needs. It's all about finding the right balance between the incentives we offer to the ecosystem and managing the overall token supply.
Raj: Absolutely, to address your question about liquidity incentives for our TBL (Transaction Batch Layer), here's the plan:
Our current focus is scaling transactions on the Zeebu PSP (Payment Service Provider). Currently, institutions are capped at $200,000 per day. This restricts larger transactions, but it ensures instant settlements and withdrawals – a crucial factor for us.
That's why we're introducing TBL. To incentivize users within the protocol, we'll be allocating a portion of the fees collected from businesses using our platform. This creates a cycle of "consumptive liquidity" within the Zeebu ecosystem. We're not just minting tokens out of thin air; real dollar value is injected back into the system.
Imagine someone using a service like Uber through Zeebu. They pay with dollars, essentially "consuming" that liquidity. They wouldn't expect to get those dollars back – they've used a service. This is the missing piece in the market today, and at Zeebu, we're bridging the gap between Web2 and Web3 by bringing real-world dollar volume into the Web3 space.
Nik: Absolutely, revenue generation is the key to long-term sustainability in crypto. Minting tokens without a real use case creates an unsustainable cycle. As you said, it dilutes the supply and pushes the price down. This is a major pitfall for many projects – they experience a burst of initial activity fueled by token incentives, but without a solid revenue stream, things fall apart after a couple of years.
Projects solely reliant on minting tokens or investor funds are like houses of cards – eventually, they run out of resources.
Raj: Right. Well, thank you, Nik for taking the time to speak to us.
Nik: Thank you for having me, Raj.
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