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Designing a Token Economy: Incentives, Governance, and Tokenomics

This paper presents a design-oriented framework for creating sustainable token economies. Kivilo et al. address the practical requirements for balancing complex

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Abstract

This paper presents a design-oriented framework for creating sustainable token economies. Kivilo et al. address the practical requirements for balancing complex systems of incentives, governance mechanisms, and economic parameters. The authors argue that a token economy is a social-technical system that requires interdisciplinary oversight. The methodology draws on systems engineering and behavioral economics to propose a lifecycle approach to tokenomics. The study provides concrete guidelines for developers on how to design incentive loops that encourage long-term participant loyalty while preventing systemic exploitation. Its significance lies in its applied nature, offering a practitioner-focused roadmap that bridges the gap between abstract economic theory and the functional realities of smart contract-enabled incentive design. Authors: Samela Kivilo, Alex Norta, Marie Hattingh, Sowelu Avanzo, Luca Pennella Publication: arXiv preprint Publication date: 2026-01-01

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Key findings

  • Token economies require an interdisciplinary design approach involving economics and software engineering.
  • Incentive loops must be stress-tested for potential exploit vectors during the design phase.
  • Effective governance is the backbone of sustainable token value.
  • Token lifecycle management is essential for avoiding premature economic degradation.

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Citation

Samela Kivilo, Alex Norta, Marie Hattingh, Sowelu Avanzo, Luca Pennella (2026). Designing a Token Economy: Incentives, Governance, and Tokenomics. arXiv preprint. https://arxiv.org/abs/2602.09608
Canonical knowledge ID: research:designing-a-token-economy-incentives-governance-and-tokenomics