The Tokenomics Audit Checklist: Presentation and Examples from the Audit of a DeFi project, Terra/Luna and Ethereum 2.0

Abstract

With the increasing popularity of Web 3.0, tokenomics is becoming even more important as a scientific discipline. Tokenomics auditing is a new area of interest in the context of Web 3.0 whose aim is to stress test the design and structure of token economies, to ensure they are robust and safe. The importance of this area has increased considering multiple project failures and fraud that were witnessed in the recent history of the space. In this paper we present a framework to audit the tokenomics of blockchain-based projects. The auditing framework can be used by stakeholders to audit their tokens and by investors to assess the risks associated with investing in a given token. We demonstrate how this framework can be applied to assess risks and improve the structure of a token economy. We give three examples: First, an example is based on a real case study of a newly launched DeFi protocol called Algem which was the original inspiration for this protocol. Then, we perform retrospective study of Terra/Luna. Finally, we show how that framework could be used for the analysis of Ethereum 2.0. While the auditing framework is not without its shortcomings, it represents the first attempt at standardising tokenomics auditing. Therefore, this provides a foundation upon which the community will build and improve, as tokenomics auditing matures as a framework.