Tokens Are the New Currency of Machine Intelligence

In today's landscape of artificial intelligence, the token has emerged as the fundamental unit of machine intelligence.

Two quick announcements before I jump into today’s post!

One, I will be chatting with Kevin Kelly in my live show tomorrow at 12pm ET / 9am PT on the Substack app. Two, I am speaking at SXSW next week. If you’re there, join me for an Exponential View meet-up.

OK, now onto our regular programming.

In today’s landscape of artificial intelligence, the token has emerged as the fundamental unit of machine intelligence. Tokens are the building blocks of AI communication—the bite-sized pieces through which humans and machines exchange information. When you type “What is the weather today?”, an AI system breaks this into individual tokens like “What”, “is”, “the”, “weather”, etc., processes them, and then generates new tokens that form its response. Tokens transform your question into something the AI can understand, and the tokens it produces in return represent the machine’s carefully constructed answer.

Understanding the scale of the token market is incredibly valuable, as this insight provides a clear, intuitive grasp of the market size of the genAI economy.

It helps estimate the infrastructure necessary to sustain growth, particularly in terms of computing resources like GPUs and other specialized chips. While the initial demand for AI training capabilities fuelled Nvidia’s historic market capitalization surge past $3 trillion in 2024, sustained token usage for inference — representing demand for genAI — will be crucial to maintaining this valuation.

But accurately assessing this market, especially in the US, can be challenging. Major technology firms typically remain guarded and reveal only limited information about their actual usage. So analysts often rely on reported revenue figures, which, while helpful, give only partial visibility into true market dynamics.

Now valuable insights have begun to emerge from the Chinese market. Recently disclosed data points from China — like the DeepSeek numbers we referenced in the Monday email — offer a rare glimpse into actual usage patterns. This can help us construct a more comprehensive picture of the global token economy.

Software markets commonly exhibit a distinct pattern of concentration: a small number of companies or products tend to massively dominate a given segment or geographic market. Because this dominance is so pronounced, even limited data about the largest players can serve to illuminate the overall structure and size of the market.

Helpfully, this power law dynamic considerably simplifies market analysis. Even a few data points, like those emerging from China, can provide surprising insights into the global AI token economy.

This approach, of course, has notable limitations: it isn’t bottom-up and it captures only a snapshot in time—specifically, the token market from late 2024 to early 2025. However, it helps us understand the scale of the numbers involved and the implications for infrastructure and investment.

Over to China

Looking at this particular report, Baidu’s Wenxiaoyan service was delivering 1 trillion tokens per day in August 2024, with API calls having increased 30-fold over one year. Bytedance’s Doubao went over 4 trillion tokens per day following several price cuts, with token usage growing 33 times in a single year.

The report also hinted that there were 200 Chinese firms delivering at least 1 billion tokens per day. We know that Doubao sits at 4 trillion per day, while the 200th-ranked firm delivers around a billion tokens per day. DeepSeek recently announced they served 750 billion tokens daily to a diverse range of customers, both domestically and internationally.

Using these three data points, we can begin to estimate the market’s overall size. I used a modified Zipf distribution, a discrete probability distribution that follows a power law where the frequency of an element is inversely proportional to its rank. In market analysis, Zipf’s law often manifests when the market share of the nth largest company is approximately proportional to 1/n. I’ve adapted this distribution to account for the specific characteristics of the token market, allowing us to estimate the entire market from limited data points about the largest players.

The chart above provides five different distributions of token usage by the largest Chinese genAI firms, ranging from the most concentrated market (orange 🟠) to the least (green 🟢). Each resembles common distribution curves observed in other markets: orange like web search, blue like enterprise software, red like cloud computing and yellow and green like non-technology markets.

Summing across all samples allows us to estimate the market’s total size and make educated guesses about market concentration.

My best guess is that the Chinese genAI market today might resemble something between the orange and blue curves, with Doubao, Wenxiaoyan and DeepSeek being the largest players. The market might be less concentrated publicly, though probably not significantly below the blue curve.

I’ve also built a preview calculator that lets you play around with some of the parameters here. This simplified version isn’