Communicating tokenomics and monetary policy: A comparative analysis of real and virtual economies

ter Veer, Kane Falco; Heinrich, Timo Article — Published Version Communicating tokenomics and monetary policy: A comparative analysis of real and virtual economies International Journal of Finance & Economics Provided in Cooperation with: John Wiley & Sons Suggested Citation: ter Veer, Kane Falco; Heinrich, Timo (2024) : Communicating tokenomics and monetary policy: A comparative analysis of real and virtual economies, International Journal of Finance & Economics, ISSN 1099-1158, John Wiley & Sons, Ltd., Chichester, UK, Vol. 30, Iss. 3, pp. 2849-2866, https://doi.org/10.1002/ijfe.3046 This Version is available at: https://hdl.handle.net/10419/323776 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ RESEARCH ARTICLE Communicating tokenomics and monetary policy: A comparative analysis of real and virtual economies Kane Falco ter Veer | Timo Heinrich Institute for Digital Economics, Hamburg University of Technology, Hamburg, Germany Correspondence Timo Heinrich, Institute for Digital Economics, Hamburg University of Technology, Hamburg, Germany. Email: [email protected] Abstract This article investigates the economic governance of blockchain-based virtual economies in the context of monetary policy. Focusing on tokenomics communication, we employ deductive and inductive approaches, applying real-world monetary policy metrics and text mining frameworks. Our comparative analysis reveals that the tokenomics communication in blockchain-based virtual economies primarily functions as a fundraising tool, lacking policy discussions, with divergences from real-world economies in policy goals and numerical targets. Furthermore, our research highlights similarities between blockchainbased virtual economies and early-stage low-income developing countries in communication dynamics. KEYWORDS blockchain, monetary policy communication, monetary policy frameworks, text mining, tokenomics, virtual economies 1|INTRODUCTION Over the last 5 years, two rapidly growing technological landscapes—virtual worlds and blockchain technology— have increasingly converged, creating blockchain-based virtual economies (BBVEs). On the one side, virtual worlds provide internet users the opportunity to spend their time online within a computer simulated environment through an avatar, shown through the rapid growth of Second Life in the 2000s (Nazir & Lui, 2016). On the other side, the recent technology of blockchain as a distributed ledger system enables developers to power the underlying economic structures of virtual worlds, seen for instance in the rise of play-to-earn gaming or metaverses (Vidal-Tom as, 2022). Even though relatively low engagement still nurtures scepticism regarding the prospects of BBVEs, their economies have been of significant interest to public and institutional investors, with the metaverses Sandbox and Decentraland both boasting market capitalizations of over a billion US$ in virtual tokens in 2022 (Mogaji et al., 2023). Numerous incentives exist for virtual world developers to leverage blockchain in the underlying economy: increased accessibility to fundraising vehicles (Conley, 2017; Malinova & Park, 2023) and a plethora of blockchain enabled tools through the utilization of smart contracts (Zheng et al., 2020) are the most prominent ones. At the intersection of both landscapes, we witness how BBVEs emerge as new approach to economic structures within virtual worlds. In this regard, a commonly found narrative amongst BBVE developers stems from comparing these to realworld economic systems. Policymakers of the game Axie Infinity claim ‘You can think of Axie as a nation with a real economy’(Axie Infinity, 2021b, p. 1). Similarly, Sandbox developers state ‘We are aiming at replicating real-world economy systems…’(Sandbox, 2020, p. 30). Received: 22 March 2024 Revised: 26 August 2024 Accepted: 29 August 2024 DOI: 10.1002/ijfe.3046 This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited. © 2024 The Author(s). International Journal of Finance & Economics published by John Wiley & Sons Ltd. Int J Fin Econ. 2025;30:2849–2866. wileyonlinelibrary.com/journal/ijfe 2849 The Star Atlas whitepaper claims that its economy provides the ‘…opportunity for players to extract in-game virtual earnings into real-world income’(Star Atlas, 2021b, p. 19). Such statements paint BBVEs with a clear ambition to function just as their real-world counterparts, at times allowing for interaction and trade between both economies. In a similar vein, academic literature analysing virtual economies of the pre-blockchain era frequently draws on parallels between real-world economics and that of virtual worlds (Castronova, 2005; Nazir & Lui, 2016; Zhang & Shrestha, 2010). In a comprehensive survey, Lee et al. (2021) already identify economic governance as a crucial issue for the development of the metaverse. While several dimensions of economic governance exist, the design of monetary policy is of crucial importance for macroeconomic developments related to output and inflation as well as for the functioning and stability of financial markets. Key features are the degree of monetary policy independence which often displays a negative relationship with inflation (Cukierman et al., 1992), and as well as the monetary policy strategy and monetary policy communication (Cobham, 2021). An inflation targeting strategy has been successfully adopted by several central banks and monetary policy communication is necessary to communicate monetary policy aims and affect expectations about inflation and the future path of monetary policy (Coibion et al., 2022). Against this background, our article analyses the economic governance of BBVEs by answering the following question: How are the structures, mechanisms, and policies of blockchain-based economies communicated? It thus investigates the ways developers communicate the so-called tokenomics (Freni et al., 2022; Mougayar, 2017). By focusing on the communication of monetary policy, we align our research with a mature field of economic literature, providing an established benchmark to our research. Hence, we can validate the claim that BBVEs resemble real-world economies, shedding light on their credibility and potential impact. Lastly, the way BBVEs communicate their monetary policies within a competitive environment may offer insights applicable to newly established real-world entities such as charter cities and special economic zones. We combine both a deductive and an inductive approach by applying, first, the real-world monetary policy framework metric introduced by Unsal et al. (2022)to the BBVEs, and, secondly, the text mining frameworks introduced by Benchimol et al. (2022) and Benoit et al. (2018). To our knowledge, this article presents the first application of these frameworks to the communication of tokenomics. Furthermore, we present the first comparison of the tokenomics communication of BBVEs to that of real-world economies with different stages of development, including advanced economies, emerging markets, and low-income developing countries. Our comparative analysis reveals that the tokenomics communication in BBVEs primarily functions as a fundraising tool, lacking policy discussions, with notable divergences from real-world economies in policy goals and numerical targets. Furthermore, our research highlights similarities between BBVEs and early-stage low-income developing countries in communication dynamics. Our study is complementary to recent work by Vidal-Tom as (2023). He analyses 196 metaverse fungible tokens and argues—based on comprehensive econometric analyses—that these tokens fail to function as unit of account and medium of exchange or store of value due in part to explosive dynamics and negative market performance. Based on our findings, we argue that deficiencies in economic governance, in particular with respect to tokenomics communication, could be one potential reason for why these tokens are failing to serve as reliable currencies. The remainder of this article is structured as follows: The theory section provides the conceptual background to analyse monetary policy in BBVEs. The methods section reflects on the empirical design of our study. The results section displays the main findings. Finally, a discussion of the main results is followed by a conclusion that outlines avenues for further research. 2|THEORY 2.1 |Monetary policy in real-world economies Our main point of reference for analysing tokenomics in a systematic manner are frameworks of monetary policy that stem from academic studies analysing real-world economies. A monetary policy framework should define all the structures needed for the development, communication, and execution of monetary policy (Cobham, 2021), providing clarity and a reference point to policy-makers and transparency to stakeholders (Unsal et al., 2022). Monetary policy frameworks vary greatly between countries or economic zones, depending on legal frameworks, regulations, and governmental policy (Cobham, 2021). This paper builds on the monetary policy framework of the International Monetary Fund (IMF) (Unsal et al., 2022) that characterizes monetary policy multidimensionally by three main pillars: ‘Independence and Accountability’,‘Policy and Operational Strategy’,and ‘Communications’(IAPOC). ‘Independence and Accountability’largely refers to the legal foundations regulating 2850 TER VEER and HEINRICH policy-making institutions, usually central banks, and defines their legal capacity to pursue policy goals, such as numerical targets. Also, it encompasses the degree of their operational independence and accountability (Berger et al., 2001; Friedman, 1990; Goodfriend, 2007). The pillar ‘Policy and Operational Strategy’defines strategies for policy implementation and also transparency requirements regarding policy tools and instruments, such as interest rates (Unsal et al., 2022). ‘Communications,’finally, encompasses how information regarding policy actions, current monetary stance, and rationale regarding policy decisions is communicated to the public. As displayed in Figure 1, the pillars of the IAPOC framework are further divided into sub-pillars. However, some features are inherently connected across sub-pillars. Policy formation, for example, falls within the scope of ‘Policy and Operational Strategy,’yet the ‘Communications ‘sub-pillar defines how these policies are worded, justified, and presented. This interconnection underlines the holistic approach needed when looking at the IAPOC index as a complete description for monetary policy frameworks. For this reason, our empirical design comprises a comparative assessment of the extent to which the tokenomics of BBVEs exhibit the main premises of monetary policies that underlie all three pillars. Theimportanceofcommunicationisnowwidelyrecognized by central banks and scholars (Blinder et al., 2008). Since the beginning of the 1990s—especially following the 2008 financial crisis (Hayo & Neuenkirch, 2015)—central banks have increased the frequency and transparency of their communication (Geraats, 2006), acknowledging the increase in monetary policy effectiveness it entails (Benchimol et al., 2020;Blinderetal.,2008). In line with this development, interest in academia has turned towards empirical measures of central bank communication. Quantitative measures build on text data mining (Benchimol et al., 2022) or investigate the relationship of communication on high-frequency financial market data (Gertler & Horvath, 2018). Unsal et al. (2022)useamoremanual methodology to apply the IAPOC framework. They define their metric by a set of criteria, in which countries or economic zones are subjected to 225 questions across the three pillars, and use information based on governing laws as well as website-based material and publications. 1 With respect to the communication pillar, the assessment applies a principle-based and axiomatic approach, where a series of FIGURE 1 The pillars and sub-pillars of the IMFs monetary policy framework (Unsal et al., 2022). TER VEER and HEINRICH 2851 questions through the axioms transparency (T), coherence (CH), or consistency (CS) are queried for each sub-pillar (see Figure 2). 2.2 |Virtual economies One may expect that the application of blockchain technology has fundamentally changed the dynamics of monetary policy in virtual worlds. In order to substantiate this assumption, we pursue three steps: First, we offer a brief introduction to blockchain technology, and, secondly, we sketch the main features of tokenomics and the corresponding academic efforts made to conceptualize it. 2.2.1 | Blockchain-based virtual economies BBVEs are virtual economies where—instead of using traditional databases—digital assets are stored and transferred on a blockchain-based network. A blockchain is essentially a chain of digital blocks, with each block representing a data structure containing a summary of all the transactions within it. The technology can be thought of as a massive distributed ledger, where each new entry to the ledger is agreed upon through the consensus of a global network of validators. Each block written to the ledger is then immutable, with the block and all before it linked and saved across all validators. Typically, this record of transactions is then publicly viewable, creating an audit trail (Catalini & Gans, 2020). The concept of blockchain was first popularized with the release of the bitcoin whitepaper in 2008 (Nakamoto, 2008). The article describes bitcoin as a ‘…peer-to-peer electronic cash system’(p. 1), powered by a decentralized peer-to-peer network, using cryptography and a proofof-work mechanism to ensure the network's integrity and security. Nakamoto's introduction of bitcoin has been hailed by many as a radical and disruptive innovation of currency and store of value, developed and maintained without centralized issuance or control (Buterin, 2014; Catalini & Gans, 2020). It is however, arguably the underlying blockchain technology as a tool of decentralized consensus that has been of greater importance (Buterin, 2014) and is of central importance for our article. In the 15 years following its inception, there has been immense growth and innovation within the blockchain sphere as well as increased interest from both industry and academia. New technologies and capabilities have frequently widened the scope of use. In this regard, the addition of smart contracts in the underlying protocol of a blockchain is perhaps the most important development. A smart contract is a set of rules written in code and deployed on a blockchain, which is programmed to selfexecute when a transaction containing instructions is sent to the contracts address. As such, logic can be written to create sophisticated applications that are able to run autonomously through blockchain transactions (Zheng et al., 2020). Four main use cases of smart contracts are commonly leveraged in the development and functionality of BBVEs. First, smart contracts enable the creation of new tokens upon an existing blockchain. This can be fungible tokens— commonly used to represent a BBVEs payment token or currency—or non-fungible tokens (NFTs) that are uniquely distinguishable from one another, able to represent a wide landscape of digital assets (e.g., digital images, virtual real estate or assets, virtual characters, trading cards or digital claims to real-world assets) (Vidal-Tom as, 2022). Second, smart contracts can be used to create blockchain native applications, such as decentralized applications or financial tools (Zheng et al., 2020). Third, by staking, developers may incentivize users to lock up digital assets in a smart contract in return for some form of reward—generally in the form of additional currency or tokens. The mechanisms surrounding staking vary, for example linked through the participation in a liquidity pool, to governance participation (Sharma et al., 2023), or simply through a mechanism to reward users for temporarily removing tokens from circulation (Vidal-Tom as, 2022). Finally, smart contracts can be Is there a statement of monetary policy decisions? (T) Is there a statement explaining policy decisions? (T) Is there a discussion of the outlook for the objectives and numerical targets? (CH) Are the objectives and numerical targets in this explanation consistent with Policy and Operational Strategy? (CS) Yes=1 No=0 …… Yes=1 No=0 Yes=1 No=0 Yes=1 No=0 FIGURE 2 Abbreviated criteria for the IAPOC metric for communications (Unsal et al., 2022). 2852 TER VEER and HEINRICH used to facilitate voting rights of stakeholders for groups of (pseudo anonymous) entities, thus creating decentralized autonomous organizations (DAOs) (Sharma et al., 2023). Taken together, smart contracts enable numerous innovations in how tokens are used and implemented (Oliveira et al., 2018). In turn, this requires constant updating of knowledge as to what, in fact, tokens represent in the blockchain landscape and how they connect to their underlying business model. The field of tokenomics (Mougayar, 2017) emerged from this need and has since evolved rapidly within online media and academia (Freni et al., 2022;Lo& Medda, 2020; Malinova & Park, 2023; Oliveira et al., 2018). 2.3 |Tokenomics The field of tokenomics provides various frameworks that classify blockchain tokens, with Oliveira et al. (2018) and Freni et al. (2022) being the most prominent ones. 2 Oliveira et al. (2018) base their token classification on a literature review and empirical data. They consider four main parameter sets: Purpose parameters describe the high-level purpose of the token's design. Governance parameters refer to the underlying representation of the token, its supply strategy and incentives provided for the use of tokens. Technical parameters define the underlying technical layer (i.e., blockchain). Finally, functional parameters capture how the token behaves on a functional level, governed by rules set within the blockchain code, protocol, or token standard. Freni et al. (2022) propose a morphological token classification framework based on a thorough analysis of current token classifications. Their framework is based on three domains: ‘technology’,‘behaviour’, and ‘coordination’(see Figure 3). Whereas ‘technology’and ‘behaviour’build on the respective technical and functional parameter sets suggested by Oliveira et al. (2018), the ‘coordination’domain combines aspects of token purpose FIGURE 3 Token classification framework with focus on coordination, from Freni et al. (2021). [Colour figure can be viewed at wileyonlinelibrary.com] TER VEER and HEINRICH 2853 and governance whilst adding both incentive enablers and drivers. The ‘incentive enabler’dimension describes what an ecosystem's stakeholder is potentially able to do with a token. The ‘incentive driver’dimension defines why stakeholders may be motivated to engage in elements of the token's ecosystem. The ‘coordination’domain thus covers those parts of the tokenomics structures that are closely linked to stakeholder incentives and emphasizes the vital role of communication. Furthermore, through the ‘supply strategy’sub-domain it has a strong link to monetary policy in traditional economies. It thus serves our aim to analyse the communication of tokenomics best. 3|METHODS Our methodological approach is designed to answer the research question ‘How are the structures, mechanisms, and policies of BBVEs communicated?’. It pursues two main steps. First, we select cases from the landscape of BBVEs through our employed strategies for data collection. Second, given its explorative nature, our empirical design combines both a deductive and an inductive approach in order to comprehensively compare the communication in real-world and virtual economies. 3 3.1 |Case selection and data collection In July 2023, we collected all BBVEs with the help of online blockchain aggregators, 4 using the platform defined categories ‘play-to-earn’,‘gaming’and ‘metaverse’. Twenty-three individual BBVEs resulted from this process. Subsequently, we scrutinized their level of quality by applying the five criteria displayed in Figure 4and disregarded any BBVE that did not meet all five requirements. The selection of criteria 1.1–1.4 was guided by the following considerations: transparency; existence of a legal interface payment structure between the BBVE andreal-worldeconomies;accountability;andtheexistence of a playable version. The fifth criterion—oversight—is directly connected to the framework of monetary policy provided by Unsal et al. (2022). It filters the sample to include only BBVEs in which an application of the IAPOC communications criteria can be considered meaningful. The respective question (1.5 in Figure 4) indicates whether BBVEs are openly subject to direct oversight by decision makers after the initial communications of their tokenomics. To put this in the context of real-world economies, this process determines whether a central bank type entity exists for the BBVE that is able to enact some extent of monetary policy to target economic goals within the BBVE. This case selection strategy yielded six BBVEs (Axie Infinity, Decentraland, Illuvium, My Neighbor Alice, Sandbox, and Star Atlas) which we use for our deductive and inductive approaches. Our inductive analysis systematically compares these BBVEs to six real-world economies: two advanced economies (USA and the Euro Area), two emerging markets (Argentina and Indonesia), and two lowincome developing countries (Nigeria and Ghana). In our selection, we aimed to balance data availability with FIGURE 4 Flow chart for the filtering of blockchain-based virtual economies for further research. *By major exchange, tokens must be exchangeable to fiat currency which is subsequently withdrawable through SEPA or international wire transfer. [Colour figure can be viewed at wileyonlinelibrary.com] 2854 TER VEER and HEINRICH geographic diversity to capture a wide range of economic conditions, cultural contexts and institutional frameworks. Thus, for the advanced economies, we selected the USA and the Euro Area as the largest and third largest economies worldwide providing central bank transparency and a stable institutional environment. For the emerging markets we selected Argentina, representing South America and an environment with high exchange rate volatility and inflation, and Indonesia, representing Asia and relatively stable economic conditions. As most low-income developing countries are located in Africa, we select Nigeria as the most populous African state and Ghana as one of the most stable economic environments in African. At the same time, both countries provide sufficient data and transparency in central bank communications for analyses. The resulting sample for both economy groups can be found in Appendix Table A.1. Our data collection with regard to the BBVEs tokenomics and their communication builds on three main source groups: Project publications and internet documents, most importantly the most current available document of the projects' whitepapers, online blog articles, periodic newsletters, Medium 5 articles, and periodic economic reports. Blockchain data aggregators (Etherscan 6 and Coingecko 7 ), that give insights into the supply, distribution, and movement of a BBVE's token(s). Finally, online social discourse platforms (Discord 8 and X 9 ) that allow us to evaluate how virtual world developers or policymakers discuss with the public and stakeholders and to access social metric data. As for the real-world economies in our inductive approach, we selected communications only if they described the currency and overall monetary policy strategy or framework. Periodic documents such as monetary policy reports or statements explaining and justifying decisions were not used. Finally, for our deductive approach in the IAPOC metric analysis there was no need to collect empirical data as the results for real-world economies are readily available from the IMF (Unsal et al., 2022). 3.2 |Empirical design Given their character as newly and constantly emerging technologies, anyone analysing tokenomics communication in BBVEs is sailing in unchartered seas. Nevertheless, communications put forth by developers claim their virtual economies should function in parallel to their real-world counterparts, indicating that established frameworks of monetary policy are of scientific value when it comes to analysing BBVEs and their tokenomics. In recognition of this somewhat ambivalent character of our research subject, our empirical design encompasses two steps. In the first step, we take the claims of developers for granted and apply the metric analysis of the IAPOC framework to tokenomics. This analysis starts out with a comparative description of our sample that uses the IAPOC framework as a conceptual framework. The communicated texts are analysed more systematically by metric analysis as proposed by Unsal et al.'s (2022) approach. In doing so, we analyse the structures, underlying meaning, and accessibility of communications and also follow the axiomatic approach that considers its transparency, coherence, and consistency. In the second step, we discard established frameworks and apply an text mining analysis to the BBVEs whitepapers. To our best knowledge, using text mining for analysing tokenomics communications is a new approach within the literature. Benchimol et al. (2022) introduced a set of text mining methodologies through the use of open source software R (Ihaka & Gentleman, 1996), using the text data mining packages ‘tm’(Feinerer et al., 2008). We build on Benchimol et al. (2022)asa guiding methodology for data collection, cleaning, and compiling. The results from this text mining analysis are visualized as word-clouds, where key terms within the text corpus are plotted with font sizes proportional to the overall word frequency in the document-text matrix. Additionally, we use the R package ‘quanteda’(Benoit et al., 2018) that enables the visualization of contextual placement and the co-occurrence of keywords. 4|RESULTS Six BBVEs resulted from the selection process defined in Figure 2. Each of these operates within a computergenerated virtual world, at times described as a ‘metaverse’(Sandbox, 2020,p.6)or‘universe’(Axie Infinity, 2021a). Three BBVEs focus on social interactions (Decentraland, 2017b; My Neighbor Alice, 2021; Sandbox, 2020), the others blur boundaries as a collection of interconnected games (e.g., farming, battling, exploring, and racing) (Axie Infinity, 2021a;Illuvium,2023b; Star Atlas, 2021b). All BBVEs had more than 100 k users as part of the social metric, calculated as an unweighted average of Twitter and Discord followers. Additionally, all BBVEs had combined market capitalizations of at least $20 million USD for their fungible token(s) as of July 2023 (see Figure 5). A summary of each of the projects, their underlying BBVEs, and policymaking tools that is based on the projects' whitepapers is given in Table A.2 of the Appendix. TER VEER and HEINRICH 2855 4.1 |Application of the IAPOC framework 4.1.1 | Comparative assessment of tokenomics Our initial comparative assessment of tokenomics yield that three aspects are crucial for analysing BBVEs, namely inflation, fundraising and supply strategy, as well as governance participation. Shedding light onto these concepts within the BBVE context and contrasting them with real-world economies is important as they impact the meaning of monetary policy within BBVEs across all three pillars of the IAPOC framework (Unsal et al., 2022). The following rather holistic assessment of monetary policy in BBVEs thus precedes the metric analysis of tokenomics communications. Firstly, it is important to discuss what exactly monetary policy and its implementing toolkit may represent in BBVEs. The overarching objective for monetary policy in real-world economies is well agreed on by central banks as price stability (Goodfriend, 2007). Maintaining a stable inflation rate—understood as the increase in the cost of living through the relative increase in price of a set of goods and services over a given time period (Öner, 2017)—is thus at the heart of real-world monetary policy (Bernanke & Mishkin, 1997). But what are price stability and inflation in the context of a BBVE? Our analysis suggests that the concept of inflation is fragmented and somewhat misrepresented in BBVEs. Without a peg to a real-world currency and a subjective cost of living, we miss a reference point for inflation. Indeed, the concept ‘cost of living’is perhaps not easily translatable to BBVEs, especially if tokens are based on a decentralized blockchain and can be transferred or sold outside of the jurisdiction of the virtual world. 10 Nevertheless, the term inflation is used in the communications of at least two BBVEs in a potentially misleading way. Both Star Atlas and Decentraland use the term to define their supply strategies, referring to ‘…a standard inflation rate of 4% per annum’(Star Atlas, 2021b, p. 21) and a continuous token generation model with decreasing supply ‘inflation targets’(Decentraland, 2017a), respectively. Used in this sense, ‘inflation’and ‘inflation targeting’ represent trivial concepts as they consider only a developer-controlled token supply increase. Thus, particular caution is required when referring to inflation in BBVEs. Instead of the goal of price stability through inflation targets, the targeting of a fixed or stable exchange rate band as a monetary policy objective could also be an interesting point of reference for BBVEs. Such policies have been implemented in many forms throughout real-world economies (Goodfriend, 2007). Also, the preblockchain virtual economy of Second Life has maintained a degree of currency parity to the US$ (ECB, 2012; Ernstberger, 2009). However, none of the BBVEs in our sample implements or communicates any form of exchange rate band objective. The bottom line is, without a coherent price stability objective through inflation targets or exchange rate regimes, BBVEs are seen to lack clarity and coherency with monetary policy. The economic objectives given are rather vague: ‘economic sustainability’(Axie Infinity, 2021b,p.1)orthe creation of a ‘circular’(Sandbox, 2020,p.8),‘fully decentralised and sustainable’(Star Atlas, 2021a,p.34),or‘playerowned’(Axie Infinity, 2021b, p. 1) economy. Illuvium simply wishes to ‘balance supply and demand while providing players with an engaging and rewarding experience’ (Illuvium, 2023d, p. 1). None of the projects defines its objectives numerically, leaving the success of such goals open to interpretation. With such a fundamental difference in the premise of monetary policy, the discussion is, secondly, shifted to the who and how of tokenomics. 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An overview on smart contracts: Challenges, advances and platforms. Future Generation Computer Systems, 105, 475–491. https://doi.org/10.1016/j.future.2019.12.019 How to cite this article: ter Veer, K. F., & Heinrich, T. (2025). Communicating tokenomics and monetary policy: A comparative analysis of real and virtual economies. International Journal of Finance & Economics,30(3), 2849–2866. https:// doi.org/10.1002/ijfe.3046 2864 TER VEER and HEINRICH APPENDIX A TABLE A.1 Different economic groups for real economies and for the sample of blockchain-based virtual economies. Advanced economies (AEs) Emerging market economies (EMs) Low-income developing countries (LIDCs) Blockchain based virtual economies (BBVEs) Australia Argentina Mauritius Ghana Axie infinity Canada Armenia Mexico Kenya Decentraland Czech Republic Brazil Pakistan Kyrgyz Republic Illuvium Euro Area Chile Peru Malawi My Neighbor Alice Iceland China Philippines Moldova Sandbox Israel Colombia Poland Mozambique Star Atlas Japan Georgia Russia Nigeria Korea Hungary Serbia Rwanda New Zealand India South Africa Tanzania Norway Indonesia Thailand Uganda Sweden Jamaica Turkey Zambia United Kingdom Kazakhstan Ukraine United States Malaysia Uruguay TABLE A.2 Project summaries based on whitepapers. Axie Infinity is a ‘…universe filled with fierce, collectible creatures called Axies’(Axie Infinity, 2021a, p. 1) where players can battle, breed, and trade NFT Axies as part of an ‘…open-ended digital pet universe’(Axie Infinity, 2021e, p. 1). Its BBVE is built using a two fungible token system. The first token, $AXS, has three main utilities: Governance, staking, and payment (Axie Infinity, 2021c) and was used as a major fundraising vehicle (Binance, 2020). The second token, $SLP, represents reward emissions for in-game battles and is required for breeding new Axies. The developing company Sky Mavis also acts as a policymaker for the BBVE, though it communicates an openness to implement a DAO governance structure (Axie Infinity, 2021d). Decentraland is a ‘…decentralized virtual reality platform powered by the Ethereum blockchain’(Decentraland, 2017b, p. 1), where users can ‘…create, experience, and monetise content and applications’(ibid.). Its fungible token $MANA functions as a governance token and as a de facto currency to purchase virtual land, goods, and services (Decentraland, 2017b). 40% of the initial token supply was distributed through a crowdfunding sale (Decentraland, 2017a). Policymaking is implemented by a DAO system, in which current proposals and voting mechanisms are communicated through the DAOs website dashboard (Decentraland DAO, 2023). Illuvium is a ‘…series of fully decentralized RPG [role-playing games] and collection games set in a fragmented world of beauty and wonder’(Illuvium, 2023c, p. 1), where users can ‘…explore the vast landscape, hunt dangerous creatures, and capture them for battles in the Arenas or trade on the exchange’(ibid.). Its fungible token, $ILV, is incentivized through governance participation, staking, and revenue sharing (Illuvium, 2022a). Illuvium fundraised through private and public sales (Illuvium, 2023d) totaling 30% of the total supply, with increasing prices in each round. Policy can be proposed and voted on by the Illuvium main council, where council members are elected by stakers of $ILV through a DAO structure (Illuvium, 2023a). The virtual world of My Neighbor Alice is a complex of large islands where players ‘…can buy and own virtual islands, collect and build exciting items and meet new friends’(My Neighbor Alice, 2021, p. 5) and are ‘able to design and decorate their property to make it as unique and special as they want’(My Neighbor Alice, 2021, p. 6). The $ALICE fungible token has the incentives of staking, decentralized governance, and use as an in-game de facto currency. Also, it was used as a fundraising vehicle through private and public token sales (My Neighbor Alice, 2021). The game developers are also interpreted as policymakers for the token. However, My Neighbor Alice also plans to implement a DAO structure for token holders (ibid.). Sandbox is a ‘…virtual world where players can build, own, and monetise their gaming experiences’(Sandbox, 2020, p. 1). Players may own virtual land, wearables, and other assets in the form of NFTs, which may be traded or utilized. Its fungible token is $SAND, with incentives described through governance, staking, and as an exchangeable means of payment. A third of the total supply was sold both privately and publicly as an initial fundraising mechanism. Although the whitepaper states an intention to shift governance elements to a DAO, policy decisions for the BBVE are essentially at the discretion of the Sandbox organization (ibid.). (Continues) TER VEER and HEINRICH 2865 TABLE A.2 (Continued) Star Atlas is a ‘…virtual gaming metaverse’(Star Atlas, 2021b, p. 4) set within an ‘…intergalactic conflict’(ibid.) where players can influence an ‘…ongoing struggle for resources, territorial conquest, and political domination’(ibid.). Star Atlas has two fungible tokens: $POLIS, which is used with the primary incentive of governance, and $ATLAS, which is a de facto currency for goods and services (Star Atlas, 2021a). Both currencies have staking incentives, and were used in fundraising, in which 26% of the total supply for both tokens was sold both privately and publicly (Star Atlas, 2021a). Decision making for Star Atlas takes place in three progressive phases (Star Atlas, 2021a). In the first, the development team directly adjusts the token emission rates. In the second, DAO voters may propose and decide changes in monetary policy. In the third, monetary policy tools are controlled by an automated algorithm, although DAO members may vote to adjust algorithm parameters. TABLE A.3 Sample of real-world and virtual economies and the document attributes for the text mining analysis. Economy Category Text origin and citation Document type Word count of analysed text Axie infinity Virtual Whitepaper tokenomics (Axie Infinity, 2021b) Gitbook 1615 Decentraland Virtual Tokenomics (Decentraland, 2017a,2017b) PDF download 856 Sandbox Virtual Whitepaper tokenomics (Sandbox, 2020) PDF download 1092 Star Atlas Virtual Whitepaper tokenomics (Star Atlas, 2021a, 2021b) PDF download 1681 My Neighbour Alice Virtual Whitepaper tokenomics (My Neighbor Alice, 2021) PDF download 1574 Illuvium Virtual Whitepaper tokenomics (Illuvium, 2023c) Gitbook 1197 The United States of America Real-world AE Conduct of monetary policy statement (FOMC, 2012) PDF download 1091 Euro area Real-world AE Monetary policy strategy statement (ECB, 2021) Website 1490 Argentina Real-world EM Monetary policy Guidelines (BCRA, 2022) Website 1120 Indonesia Real-world EM Monetary policy functionality (Bank Indonesia, 2023) Website 2573 Ghana Real-world LIDC Monetary policy framework (Bank of Ghana, 2023) Website 1811 Nigeria Real-world LIDC Monetary policy measures (CBN, 2023) Website 1010 2866 TER VEER and HEINRICH