Partnered With:

Use or hold? Double Token Model Solve Classical Encryption Problems

Read this article in 10 Minutes

Governance Token and Utility Token

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, it is still a research topic of growing interest among blockchain developers.

The traditional single-token model favored by Bitcoin and Ethereum undoubtedly has its advantages— — High liquidity and simplicity, but only the dual-token model can solve the long-standing economic conflict in the blockchain, that is, the actual use of the network will hinder network growth.

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, most blockchain ecosystems rely on a single token, which reflects The value of the project, 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 encrypted assets - any token-based economic source - support the project and hope it succeeds. 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 contribution to the entire project ecology shares in. 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.

Actively using the protocol (and reducing their stake by paying Gas) and expecting to profit and The choice between holding tokens is an economic and emotional conflict.

There is one more important question. That is, in some ecosystems, users spending Tokens will lead to a reduction in their authority and influence in certain governance models. This makes users less willing to "spend" their hard-earned tokens on some on-chain protocol.

But there is an alternative.

Making economics work

You should not spend your tokens just for transaction value. It's like buying a cup of coffee with your Starbucks (SBUX) stock, or snapping up the latest iPhone with your precious Apple (AAPL) stock. It is especially painful when Gas spikes due to network congestion.

Back in February, Ethereum Gas broke the 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".

Double Token system is still a minority, this may be because the blockchain OG is not willing to Its Token model has been completely changed. We’ve seen several blockchain forks in the past, and the ensuing consequences are always nasty. Modifying the ground rules of the protocol by introducing a separate gas token is a decision not to be taken lightly.

However, second and third generation blockchains understand /Gas The benefits of issuing a separate Token. And it’s not just public chains: Many GameFi projects, Stablecoin protocols, and lending/funding platforms have adopted a dual-token system, meaning their users no longer need to sacrifice liquidity or compete for scarce on-chain resources.

Neo (my project), VeChain, Ontology, Axie Infinity and Frax are all in Experiment with different dual-token models, in my opinion, their business is future-proof.

As with any experimental technique, however, the protocol 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.

Researchers pointed out long before its collapse that the network's design created an incentive to short the Stablecoin Motivation, this problem will not and does not need to be repeated in other dual-token systems.

Double Token to support ecology

As several previous projects have proved, the economics of the dual-token system is reasonable. The dual-token model has the following common features.

First of all, the total supply of the main token 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 payments and Gas, and is rewarded to participants or master token holders of its ecosystem.

When the growth rate of economic activities exceeds its inflation supply rate, the price of utility tokens will decrease rise. As utility token yields rise, the demand and price of main tokens will rise until yields reach a new equilibrium level.

Finally, the utility token forms positive feedback to the main token through economic activities.

Following this model, forcing users to choose between actively using the protocol and long-term investment Financial/emotional conflicts are resolved. While utility tokens are used for ongoing incentives and system growth, primary token holders are simultaneously incentivized to participate in on-chain activities and secure the network.

< p>

With cutting-edge technologies such as blockchain, novel ideas need to be embraced. The dual-token model is no longer a bizarre fantasy, but a feasible solution to the maddening paradox in this article. As far as the blockchain economy is concerned, the dual Token model is indeed better than one.