The value storage function and the circulation function of protocol token is a pair of contradiction in the token economic model. If the design of token economic model is partial to the value storage function, due to the anticipation that the price will increase, the token holders will tend to hold but not use such tokens, which further weaken their liquidity. Such self-reinforcing positive feedback will result in high entry threshold for new users, and hinder the expanding of protocol use range. Such situation has been verified in the bitcoin system. It can be predicted that when such self-reinforcement reaches a limit, people will no longer use such tokens in the market, and no new users enter the market; so, the whole token economic model will be close to the edge of breakdown. The token transaction is completely driven by speculation demand, and the token price may suddenly collapse at its peak point. If the design of token economic model is partial to the circulation function, the users will lose the motivation to hold tokens, but select to complete the transaction as soon as possible, especially when the predicted price increase of protocol token is lower than other tokens with value storage function. Under such circumstance, the average time users hold the protocol tokens depends on their prediction about the token price, the use value and use frequency of such token, and the transaction cost between such token and other currency. The decrease of any factor may cause that the users tend to trade, but not hold the tokens, which will further result in the falling anticipation of token price. Such reverse positive feedback will cause the collapse of protocol token price, and even the death of whole protocol ecosystem.
Based on above analysis, we can draw the conclusion that the balance is maintained only when a protocol token has both value storage function and circulation function at the same time, and the price can be stably maintained. Vitalik Buterin discussed this problem in a blog in 2017, and put forward a formula to assess the token price:
MC = TH
- M represents total supply quantity of tokens.
- C represents token price.
- T represents token transaction volume.
- H represents average time of users holding tokens.
Our design objective of VENA Token economic model is to maintain token price C at a relatively stable long-term increase rate, and to maximize the total market value of tokens MC/TH at the same time. For this reason, we need to pay attention to two aspects. First, enlarge the token transaction volume T as far as possible, and increase the average time of users holding tokens H; second, ensure that the increase rate of total supply quantity of tokens is lower than the increase rate of TH. In the phase when the user volume increases rapidly, the token transaction volume T shall grow at the same time, and the growth of TH is mainly driven by newly increased users T; when the increase of user volume slows down, and even stops, T and H show a negative correlation, and TH has a maximum value. Therefore, in the early stage of Vena Network development, the most effective method to maximize the total market value of VENA Token is to attract more new users to join in Vena Network, and encourage users to hold more VENA Tokens. Only when Vena Network is developed to cover most cryptocurrency users, and the increase of total number of users in the whole cryptocurrency ecosystem slows down, we need to consider to make TH close up to maximum value by promoting the inner liquidity of the system.
After full consideration about the factors mentioned and the usage scenarios of Vena Network, we design a very ingenious and unique token economic model for Vena Protocol. In the design of Vena Protocol, there is a special type of token transaction – token deposit. When the VENA Tokens are deposited, we still can treat them to be held by users, because the liquidity in the market is not increased. By encouraging users to use VENA Tokens as deposit, we promote their demands for VENA Tokens and prolong the time when they hold such tokens. It is named as a “using and holding” token economic model. Obviously, such model shall greatly stimulate the increase of VENA Token price, so we need to design an additional token issue mechanism to control the increase of VENA Token price within a reasonable range. Fortunately, there are abundant scenarios in the Vena Protocol ecosystem enabling us to motivate users to jointly construct and maintain Vena Network by issuing additional VENA Tokens. Some specific examples and additional issue scenarios are given in the subsection 4.2 and 4.3.
In addition, we also design an additional community incentive mechanism based on the VENA Token model. By establishing Vena investment funds, we will invest in the enterprises and DAO in the Vena Protocol ecosystem, and use a part of incomes from investment to pay back to the community through events, including but not limited to hackathons.
D U have any question?
find us: r/http://t.me/vena_network
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