Understanding Cryptocurrency Game Theory

What is the game theory model popularized by the meme (3,3) in the text?

What does tokenomics refer to in the text?

What caused the price of the protocol to fall dramatically?

What did the tokenomics of the protocol incentivize people to do?

What is the purpose of a DAO?

What was the tokenomics of Hofmann’s game revolved around?

What did the investors using an OHM liquidity pool on a third-party platform do?

What did people have to do to benefit from additional funds joining the pool?

What did the tokenomics of the protocol permit?

What is the main purpose of cryptocurrencies?

Cryptocurrencies are a free pass to introduce any game theory the creators would like.
In the past few years, token holders have been able to vote on rules that define a cryptocurrency’s economy by voting using tokens through decentralized autonomous organizations, or DAOs.
For instance, Olympus DAO operated a huge decentralized money-market fund, where those who wanted to create a reliable reserve currency benefited from additional funds joining the pool.
According to the project’s game theory model (popularized by the meme (3,3)), the most rational choice was to stake OHM into the auto-compounding protocol.
The tokenomics of the protocol permitted this; by staking OHM, you would strengthen the decentralized reserve currency and allow people to buy more bonds.
On the other hand, if everyone sold OHM, that would hurt the price of the protocol, and all holders would get hit.
So, you can see how the protocol’s tokenomics incentivized people to buy and stake the token.
Tokenomics don’t always go to plan. Eventually, lots of people did sell OHM after investors using an OHM liquidity pool on a third-party platform were liquidated.
That caused the price to fall dramatically, scaring other investors away from the token.
Meanwhile, the tokenomics of Hofmann’s game revolved around scarcity; there were only 10,000-character sheets that were hyped up on Twitter, which became immensely valuable.

Explore the intersection of cryptocurrency and game theory through real-world examples and tokenomics principles. Discover how decentralized autonomous organizations (DAOs) and token economics influence the behavior of holders and impact the value of cryptocurrencies.