Use or hold? Double Token Model Solve Classical Encryption Problems
Original title: "To Use or Hold? Solving the Classic Crypto Conundrum With a Dual Token Model"
Original author: Da Hongfei, Founder of Neo Blockchain
Is the dual-token model better than the single-token model? While major blockchain networks are unlikely to change the token model anytime soon, this is still a research topic of growing interest among blockchain developers.
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a paradox that raises questions
Fundamentally, all blockchains share a common goal: to reliably record transactions, store economic value, and facilitate network growth. Of course, they achieve these goals in various ways, some with stronger privacy guarantees than others. But fundamentally, they're moving in the same direction.
Currently, the vast majority of blockchain ecosystems rely on a single token, which reflects the value of the project and is used simultaneously as a store of value (similar to a stock), medium of exchange (currency), mining rewards, and payment of transaction fees. And therein lies the problem.
Holders of cryptoassets — any token-based source of economics — support the project and want it to succeed. They buy tokens because they like the technology, trust the developers, and believe the project (and its native assets) will succeed.
However, if they spend Token on Gas - they will reduce their stake in the entire project ecosystem. Conversely, if they refuse to spend tokens, they neglect to actually use the network.
This paradox is easy to understand but hard to reconcile. Unlike currencies, cryptoassets have the potential to appreciate significantly over time, attracting long-term savers. From the perspective of the blockchain, it is also good news to build a united community that blockchain developers work hard to build.
The choice between actively using the protocol (and reducing their stake by paying Gas) and holding tokens in anticipation of profit is an economic and emotional conflict.
There is another important question. That is, in some ecosystems, users' spending of Token will reduce their authority and influence in certain governance models. This makes users less willing to "spend" their hard-earned tokens in some on-chain protocol.
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make economics work
You should not spend your tokens just for transaction value. It's like using your Starbucks (SBUX) stock to buy a cup of coffee, or your precious Apple (AAPL) stock to snap up the latest iPhone. It is especially painful when Gas spikes due to network congestion.
Back in February, Ethereum Gas broke its previous record after surpassing $20 for the first time. If you're a diehard Ethereum fan, every time you need to come up with $20 of ETH for a transaction, it's like throwing away a lottery ticket before the result is announced. After all, that $20 could be worth $200 in five years.
The dual-token economic model solves this problem. In this case, one token performs governance duties, while the other token is only used to pay for gas. In such a system, the holders of the former Token can be regarded as the "owners" of the network, because they have the right to influence the direction of the project through voting. At the same time, the Token used to pay Gas is completely decoupled from the main assets. This solves the problem of "using the agreement will reduce the rights and interests".
The dual-token system is still a minority, which may be because the blockchain OG is not willing to make radical changes to its Token model. We’ve seen several blockchain forks in the past, and the ensuing consequences are always nasty. Modifying the fundamental rules of the protocol by introducing a separate Gas Token is a decision not to be taken lightly.
However, 2nd and 3rd generation blockchains understand the benefits of issuing separate tokens for governance/payments and incentives/Gas. And it’s not just public chains: Many GameFi projects, Stablecoin protocols, and lending/financing platforms have adopted a dual-token system, which means their users no longer need to sacrifice liquidity or compete for scarce on-chain resources.
Projects like Neo (my project), VeChain, Ontology, Axie Infinity, and Frax are all experimenting with different dual-token models, and in my opinion, their businesses are future-proof.
But as with any experimental technique, the protocol design itself can go wrong. This was demonstrated by the catastrophic implosion of the Terra blockchain, which used the native asset LUNA to help secure Stablecoins, especially the USD-denominated UST Token.
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Dual Token to support ecology
As several previous projects have demonstrated, the economics of the dual-token system are sound. The dual-token model has the following common features.
First, the total supply of main tokens is usually limited and is used for governance, SOV (share-of-voice) or dividend distribution. It is usually distributed through public sales or grants.
In contrast, auxiliary tokens (or utility tokens) have an infinite or elastic supply. It is used for on-chain payment and Gas, and rewarded to its ecosystem participants or main Token holders.
When the growth rate of economic activity exceeds its inflationary supply rate, the price of utility tokens increases. As the rate of return of utility tokens rises, the demand and price of main tokens will rise until the rate of return reaches a new equilibrium level.
Finally, the utility token forms a positive feedback to the main token through economic activities.
Following this model, economic/emotional conflicts that force users to choose between active use of the protocol and long-term investment are resolved. While utility tokens are used for continuous incentives and system growth, main token holders are also incentivized to participate in on-chain activities and secure the network.
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