I believe that having principles that work is essential for getting what you want out of life. — Ray Dalio, Principles
Tokenomics describes the relationship between a token's use and its price. Done right, tokenomics can align the interests of protocol participants, leading to a valuable token, and securing the protocol from economic exploits.
The demand-side tokenomics framework can be distilled in three principles: utility, value capture, and economic security. There are tradeoffs between each of them, so the goal of tokenomics is to maximize the aggregate of these three.
Utility
Utility is the usefulness of a protocol to all participants. There can be multiple groups of participants in a protocol. To maximize utility, these groups' interests should be synchronized. For example, MakerDAO matches the wider market's demand for stablecoins with degens' demand for leverage.
Value capture
Many protocols create value — utility — but fail to capture any of it to a token. Uniswap has $1.2 trillion in all-time trade volume, but UNI sees none of it. Use of the Uniswap protocol is completely uncorrelated with the value of its token. Because they didn't capture value initially, Uniswap can't capture value from the utility it creates.
Economic security
Economic security is distinct from technical security — technical security comes from an absence of bugs in the code; economic security entails a lack of vulnerabilities in the incentives. Vulnerabilities in the incentives enabled three major exploits in 2022: the collapse of Terra, the Mango Markets exploit, and the Aave liquidity exploit were all economic, rather than technical security issues.
Conclusion
There are tradeoffs between each of these principles, and successful protocols maximize the aggregate of the three.