Archway’s New Tokenomic Incentive Model Empowers Blockchain Developers

By: Christos Makridis

Despite the increase in new blockchain projects that have been launched in recent years, many of them have been short-lived, as they fail to maintain traction after launch, struggling to weather the storm known as crypto winter. Central to the failure of these initiatives is the lack of an adequate financial system of incentives – often referred to as “tokenomics” – in the underlying framework and ecosystem.

There is a growing recognition that many factors and considerations that generally play a large role in determining the long-term success of a traditional business simply do not receive the attention or scrutiny that has been expected outside of web3. Many token designs are “not optimally designed … nor can platforms even write down a logical goal for the token supply and allocation policy,” said Will Cong, the Rudd Family Professor of Management and Faculty Director of the FinTech at Cornell Initiative at Cornell University.

The tendency among projects, whether launching a non-fungible or fungible token, is to use an overly optimistic growth and “get-scale-quick” strategy. “It’s understandable that growth for growth’s sake and gaining users above all else became the most dominant early metric. Things were just so new, and all of this is Greek to most people. But today, when we’re on the edge of commoditization, “projects will have a much harder time selling one-dimensional value propositions that have to do purely with performance technology specifications for a chain, like time to completion and such,” said Dan Edlebeck, director of ecosystem at Archway’s core contributor, Phi Labs, and former head of ecosystem for Say Labs.

Strategies that may have worked in the early days of the crypto community are much less likely to work today because the initial euphoria and novelty of crypto as a medium of exchange has set in and most platforms compete similarly in many technical areas. “With most chains competing equally in these areas, give or take, both users and investors will want to understand actual key differentiators in operational models. Is there a fair financial model for all stakeholders in the long term? Does the team have the ability to maintain business functions and cycles? If not, I predict an eventual extinction event for even some of the most dominant projects in Q2 2023,” Edlebeck continued.

Archway has pioneered a refreshingly unique approach that redefines the landscape by not only excelling in technical areas, but also designing incentives: rewarding developers who build dApps that drive activity on the chain. “Archway addresses the financial incentive issue for developers by giving them a share of the network rewards, giving them a sustainable business model to build on. The community feels this issue is so important that it’s the overarching driver of virtually everything they work on, says Griffin Anderson, CEO of Phi Labs.

Developers have been the unsung heroes of the blockchain ecosystem, working tirelessly to create applications that drive blockchain utility and adoption. But their contributions often go unrewarded, even after attracting large user bases. Ethereum, for example, offers no incentives to developers if dApps become popular. This model has long been the standard across the blockchain landscape. “Most of the web3 community only focuses on scaling … building a faster mousetrap,” Anderson continued. “We are at a critical crossroads in blockchain where it is prudent for any participant to look around at all the factors, assess where the lion’s share of the upside goes in any ecosystem, and ask yourself, ‘Am I involved in a single cycle chain?’

“Some of the most popular dApps on Ethereum generate significant fees – but of those fees, very few are reimbursed to the developers and core contributors who actually created that value… This causes incentives to be misaligned, causing developers to and contributors issue tokens, even if they are not needed just to allow them to actually extract some of the value of the products they create, says Max McKendry, director of business development at Phi Labs. It may work for Uniswap since it was first to market, but other dApps face serious headwinds because their liquidity is entirely dependent on expectations of future growth to drive the valuation of their token, rather than actual revenue.

Tokens that derive their value from future expectations, rather than existing cash flow, will exhibit more volatility swings in their prices, causing liquidity pressures and stifling growth. “This is one of the core problems I think Archway can solve by giving developers a solid financial framework to build on that also adjusts incentives by distributing value back to the application layer where the value is created. This allows developers to directly profit from their hard work, McKendry continued.

Archway breaks the mold with a business model that incentivizes developers to create high-quality, community-driven dApps, fostering an ecosystem that encourages developers to innovate and build, with the assurance that their hard work will be rewarded. Built on the Cosmos blockchain, dubbed an “internet of blockchains” due to its inter-blockchain communication protocol that enables different blockchains to seamlessly interact with each other, Archway has pioneered the “value capture engine” — a model that contributors feel will be very disturbing.

Under Archway’s model, developers receive a portion of the stake rewards generated by the dApps they build. The more a dApp is used, and the more it contributes to the overall Archway community, the greater the reward for the developer. This is a significant departure from the conventional model and offers an attractive proposition for developers: Build something good, attract users, and you receive tangible rewards.

The Archway model introduces a direct feedback loop between the quality and popularity of a dApp and its creator’s reward. This not only motivates developers to build better dApps, but also to engage with and nurture their user base. Developers are motivated to create dApps that meet users’ needs and wants, fostering a stronger sense of community in the Web3.

Archway’s mission isn’t just about rewarding developers. It is also about creating a sustainable and thriving blockchain ecosystem. By incentivizing developers, Archway encourages the development of high-quality, useful dApps that will attract more users to Cosmos. More users means more transactions, and more transactions means a healthier, more vibrant blockchain.

Phi Labs thoroughly examines unanswered questions regarding compensation and believes that many teams underestimate their internal human capital as they constantly seek growth. A brief look at Archway’s core contributing team quickly shows that both the team’s size and exceptional backgrounds exceed industry norms. Team members such as Michael Cullinan, Ted Hand and Griffin Anderson have extensive experience in the industry, respectively from companies such as Tendermint, Coinbase and Consensys.

The Web3 community has struggled to achieve its goals of greater democratization and remuneration for contributors. This often leads to projects issuing unnecessary tokens with convoluted and unsustainable financial designs that fail to deliver value to the end user and community, but Archway is pioneering a new path built and made for developers where their contributions to the network are directly rewarded.

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