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Token Economics: Capturing Protocol Value in an Efficient Way

This article re-examines the value of the agreement. A lot of content is great, because this aspect can also be discussed in depth, but the author chooses to go shallow, but the truth inside is still very profound. So I chose to translate more. The author's last sentence is particularly good "Why do we need a better token economic model design? For less hype, more logic."

The Need for Token Economics

Almost every blockchain protocol has its own token, and the idea of ​​issuing tokens is to effectively monetize and capture value, but contrary to that concept, most tokens cannot inherently capture value. Spencer Bogart, co-founder of Blockchain Capital, calls them “friction tokens” because they provide no utility and add friction to an otherwise simple process of using Ethereum or Bitcoin.

Here, a strong token economic model is required. I think that tokens are similar to equity. As the value of the company rises, the price of shares will naturally rise. In order for the token to appreciate in value as the protocol grows, it is vital to the ecosystem. For example, to use the Maker protocol, you don't need to own MKR (the protocol's native token). A strong token economic model links the value of the token to the value of the protocol by default.

Token Economic Model After Bitcoin

bitcoin. When using the network, you send BTC from one address to another and pay in BTC. While value capture was not baked into the protocol, Bitcoin’s pre-emptive network effects pushed it to the point where a native token began to mirror the protocol’s growing state.

After Bitcoin, many token models such as Peercoin and Namecoin failed. Ethereum has risen with a brand new value proposition, but it still does not have a very robust token economic model. Ethereum’s native token, ETH, also cannot capture value by itself. Ethereum has a huge advantage because any token created on Ethereum has to pay gas to miners in ETH rather than their own native token. But the fact that ethereum’s price does not reflect the massive development and deployment efforts of the last two years supports the view that ethereum may need to improve its token economic model.

Maker’s MKR also failed to capture the protocol’s growth. Despite a staggering amount of ETH locked in the protocol, the price of MKR has dropped a lot over the same period. Those who hold MKR have the right to participate in executive votes to change the Maker protocol. As part of its token economic model, the stability fee that users pay Maker when they open a CDP is used to buy back a certain amount of MKR from the market and burn it. This reduction in supply is believed to make MKR more "scarce," thereby increasing its price. Although MKR prices have not risen but fallen over the year, Maker's model is still positive. The idea of ​​using some of the revenue from the protocol to try and create value for token holders is a lofty promise and has a capped supply.

Synthetix is ​​spearheading token economic change, helping users create synthetic assets by staking the network's native token, SNX, and designing a tiered reward system by staking SNX.

Why we design token economy model

Token economics can only help holders recognize profit from their foresight if you have a product that provides real value to the end user. In addition, a strong token economic model can help the protocol increase liquidity, user interest, and help create a sustainable system.

A strong token economic model can help the protocol capture real value. Creating rewards by holding tokens, such as earning income through fees and inflation, making them similar to stocks, many projects have realized. Kyber Network recently announced their Katalyst upgrade, allowing Kyber Network Crystal (KNC) holders to participate in governance and earn income through transaction fees on Kyber DEx.

Why do we need better token economic model design? For less hype, more logic.

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Introducing Zero Collateral Loans

Entering the new year, the hot topic around DeFi is still undercollateralization. Maker needs to be over-collateralized, and with this concept, the conversation becomes, can we guarantee loan repayment without requiring over-collateralization?

In this article we introduce Zero Collateral Loans, a new product created by FarbX.

All loans are capped at 30 days and have a predefined interest rate of 20%. Each wallet can only have one outstanding loan at a time, reducing the possibility of malicious activity. Likewise, the maximum borrowing capacity increases by ½ of the interest rate upon successful repayment of previous loans. Less collateral is required after each successful repayment. Theoretically, the borrower will not need collateral after 8 borrowing and debt service cycles (maximum borrowing).

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How Zero-Knowledge Proofs Are Changing Blockchains (In Non-Technical Terms)

That's a non-technical term, but it's quite a technical term. But some zero-knowledge proofs summarized by the author are very useful. Zero-knowledge proofs are not only used in privacy, but also have great uses in many aspects. for example:
– Make the blockchain more concise, compression from GB to KB

Examples in this regard: Coda's blockchain is of fixed size, compressed to 22KB, and the security can even be said to be more secure than traditional blockchains. .
– Zero-knowledge proofs increase efficiency and bandwidth

There is a way to cheaply verify computation results without redoing computations: zero-knowledge proofs (ZKPs). Not all (or even multiple) computers need to be running replay. Eliminates the need to redo expensive calculations, and no longer needs to download the blockchain
Verifying proofs is fast, but how do you create proofs? It turns out that it's not constant time, and it's much less computationally and memory efficient than traditional computing. With a little trickery, it turns out that recursive zk-SNARKs can be used. With recursion, we don't have to verify the blockchain from scratch, but we can build on previous states. That's much faster. This way, the network has more active nodes, increases decentralization, and gives programs many new possibilities to interact with the blockchain without requiring solutions like Infura or Metamask.

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The Securities Law Philosophy of Tokenized Networks

This is a series of four articles (maybe more than four because it is still being updated). Each part is very exciting, suitable for people who study law and discuss what cryptocurrency should be classified as.
Part 1: What Exactly Are Open Network Tokens?
Open Network Tokens are Shares of Network Assets

People who buy ETH or other open network tokens just want to use it as an in-network currency for a short time, and with a long-term holding plan, they want to use it to capture the benefits of growing network assets, even for BTC. That being said, BTC is undoubtedly one of the most money-like blockchain network tokens. Open web tokens are not primarily commodities, products, software or currencies, they are primarily shares of network assets.
Part Two: Tokenized Internet Stocks Hint at Securities Laws

Today, basic blockchain-based protections are completely non-existent, but getting rid of them in a traditional corporate environment is almost inconceivable. It's not that the blockchain development geniuses came up with some brilliant DAO-based way to encode world-wide conflicts of interest, it's just that no one is holding them accountable the way traditional corporations are in the world of regulated corporate finance. However, someone should hold them accountable, and the natural persons who do so are the token holders, who will need to receive good thorough disclosure.
Part Three: What is a "Blockchain Foundation"?

Many blockchain foundations, such as the Ethereum Foundation, Tezos Foundation, and MakerDAO Foundation, model what they call "prototype blockchain foundations." Interestingly, some for-profit companies, such as Block. For-profit foundation. There are also foundations whose blockchains deviate significantly from the prototype model - for example, the ZCash Foundation is funded not from an ICO, but from post-network launch founder rewards that are gradually generated by the protocol. Now that the Founder's Reward is over, the protocol is being updated to provide new block rewards directly to the ZCash Foundation. The Electric Coin Company has similar funding, but operates on a for-profit basis and may work on multiple blockchain projects rather than ZCash alone. There are other types of for-profit companies that have a lot of influence over certain protocols/networks, but have emerged after the network was launched and/or have a more diverse L2 or enterprise application focus, analyzing all of these slightly It is also interesting to have regulatory considerations for different types of companies and foundations.
In Part 4, the authors provide a complete framework for understanding how and why securities laws apply to open web tokens, and when they stop.

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NFT Game User Overlap Report on Ethereum

This is Alethio’s weekly data report. They specialize in analyzing the data on Ethereum, and the content of the weekly report is also good. They have written a lot about the overlap of Defi users in Ethereum. Last week they wrote about the growth and overlap of game users on Ethereum.

Start with four popular protocols: Cryptokitties (CK), Decentraland (MANA), Unchained Gods (GU), and Plasma Bears (PB).

Looking at ERC721 tokens alone, Cryptokitties [CK] still has ~55k unique addresses even after the late 2017 boom. However, considering Decentraland's MANA (ERC20), we found that there is a fairly large community behind Decentraland with >65k ERC721 LAND and ERC20 MANA token users. The ongoing focus behind Gods Unchained [GU] is a sizable community with >3k ERC721 token holders and another 1.5k tournament pass holders. Plasma Bears has barely been seen, with fewer than 200 unique addresses interacting in the past two years.

By looking at user overlap, we can see nuances in the Web3 gaming community. Although the story is incomplete - as a user can use two separate addresses to interact with different games - we can at least observe trends and behaviors. Decentraland and Cryptokitties have the greatest user overlap. If you only look at NFT overlap, you will see that CK and GU overlap, sharing 1.5k unique addresses. In early 2019, CK and GU announced a cross-protocol collaboration to enable users' Cryptokitties to become statues in the Gods Unchained game. This collaboration really highlights the interoperability and unique opportunities of gaming ecosystems built on top of shared platforms like Ethereum.