In this article, we review the usage of the 2KEY token, how it works, its strong sources of demand, and how it is run and managed in the 2key network and 2key smart contracts.
2KEY Distribution Overview
The 2key economy is based on 2KEY, an ERC20 token. 2KEY will have a finite amount of 600 Million tokens that will be minted and used to operate and maintain the 2key network. (please note that 2key network is with small letters and 2KEY tokens is with CAPITALS).
This is how 2KEYs will be distributed:
Token Distribution and Pools:
(I) Economy Kickstart — 27% (162m 2KEYs):
- 21% (126m 2KEYs): will be sold, in chronological order, via seed round, private sell, and lastly IEO phases to early adopters of the network. 2KEY official price at this stage — USD0.06 (6 cents). Lock: IEO will be unlocked at the official DD (IEO Distribution Date), Seed and private sell rounds will have 10% unlocked at DD, 90% locked for 90 days, released weekly in 52 portions thereafter, governed by smart contract.
- 3% will be used for liquidity depth in the 2key exchange contract
- 2% will be reserved for DEX liquidity depth.
- 1% will be used by the 2KEY official Market Makers for their active liquidation operations.
(II) Team — 16%(96m 2KEYs): Locked for 365 days, then distributed over a 2 year period in 25 equal portions vesting monthly.
(III) Team Growth Fund—4% (24m 2KEYs): Locked for 2 years, will be utilised for funding the future growth of the team.
(IV) Advisors, Partners & Early contributors — 6% (36m 2KEYs): 3rd parties and contractors, advisors and early contributors supporting the development, marketing, and growth of the 2key network. Locked for 90 days, then distributed in 52 equal portions vesting weekly.
(V) Participation Based Mining — 31% (186m 2KEYs): will be used to compensate 2key network users for proactive, positive participation in the network and economy.
- 20% Participation Reputation mining — distributed over a decade — 2% each year. starting at DD + 90 days.
- 10% Multi-Party-State-Network mining — incentivising participants to turn their browsers into miners in MPSNs, will start roughly 24–36 months from economy launch.
- 1% Social Mining — distributed over 12–36 months.
(VI) Long Term Growth Fund— 16% (96m 2KEYs): tokens dedicated for future growth of the network and R&D. Might be used in the future for conducting additional token distributions. Locked for 2–6 years.
Sources of Token Demand & Strength:
2key tokenomics are engineered with built-in sources of demand and strength:
Network and product based demand mechanisms-
- Automatic Campaign Based Demand: Up to 20% of total volume worth of conversions on the network is automatically, via smart-contract, used to purchase 2KEY from the exchanges and then distributed to all referrers as rewards and to integrators as fees.
- Participation Remuneration: Users and integrators on the network are incentivised to actively participate by the community remuneration mechanism which awards more 2KEY for active participants.
- POS Mining: Proof Of Stake 2KEY mining will be introduced in the full 2key protocol, enabling users with regular web browsers (mobile/desktop) to passively participate in 2key campaigns as miners, gaining 2KEY as passive income.
More on each of these mechanisms later on in this article.
Building a Baseline for Utility-Based Demand
Creating a real and steady demand and value for a utility token is crucial for its long-term success. That’s why we believe that 2key network’s market cap must be based on actual utility-based circulation of the 2KEY token to ensure its value and viability over time. In other words, to create a viable token economy, it is crucial that 2KEY’s actual utility on the 2key network will be a main driver of token circulation on the network.
Towards that end, we’re building both an innovative protocol and autonomous mechanisms for utility token circulation and market-making. This approach is engineered to ensure there’s always a utility-based baseline for 2KEY token demand.
Building a Tokenomics Baseline for 2key.network
Our goal at 2key.network is to establish real autonomous demand and circulation for the 2KEY token economics. 2KEY’s token economy is based on a supply-and-demand feedback mechanism, ensuring the tokens will bear actual intrinsic value stemming from utility-based trading volume.
How the 2KEY circulation system typically works:
(1) Automatic Token Demand Mechanism: the 2key campaign contracts will automatically send ETH/DAI to the 2key Exchange contract to buy 2KEYs:
- when a conversion occurs — if the conversion entails raised funds or a purchase — the portion reserved for referral rewards will be automatically sent to the 2key exchange contract for purchasing 2KEY and/or
- when a contractor purchases/inputs 2KEY stake at contract creation time — for campaigns in which the conversion event doesn’t involve money transfer — e.g. leads generation, signups, content consumption, installs, information delivery etc… — all referral rewards must be bought in advance by the contractor (that’s the campaign’s budget).
(2) Automatic Decentralisation and Hodling Mechanism: The reward 2KEYs automatically purchased by the campaign contracts are then distributed within the campaign contracts to the balance of the multiple referrers within the 2key campaign contract, and kept in the 2key campaign contract until each of the referrers decides to withdraw them.
(3) Rewards can (almost) always be cashed out to stable coin: while referrers looking to cash out 2KEY will have to wait for the public trading release date (anticipated to be coming very near to the network launch), they can always cash out their 2KEY back to stable coin and into their private wallets, as long as these 2KEY originated from an ETH/DAI purchase or stake.
(4) 2key Exchange Contract — Auto-Generating Demand and Stability: The 2key exchange contract automatically hedges every ETH or other volatile currency sent to it into stable coin (DAI), and uses granular balances per campaigns to maintain withdraw rights of 2KEY as stable coin in the pre-hedged rate. This safeguards and incentivises 2KEY hodlers while their 2KEY is held by campaign contracts. In parallel, each time a referrer withdraws 2KEY to their private wallet, the hedged DAI balance is freed up on the exchange contract and immediately used to purchase more 2KEY from DEXs (e.g. Bancor). This way, the exchange contract acts as an automatic mechanism to generate both automatic demand and stability.
Controlling Public Trading Release
It’s crucial to control the release of tokens for public trading so that it coincides with the formal token release in big exchanges. However, we want to avoid being dependent on releasing 2KEY to public trading for the deployment of 2key network to production. Therefore, we’ve engineered the 2key Admin contract to maintain a parameter that will be set to allow withdrawing of 2KEY to user wallets only once a formal IEO or public distribution date has been set. Until then, 2KEY circulation system will work as a closed-loop system between 2key campaign contracts and 2key’s exchange contract, allowing 2KEY to be earned by referrers and incurred in campaign contracts, and also to be withdrawn as stable coin (if they originated from an ETH/DAI purchase/stake). This will allow the 2key network to be released to production regardless of exact distribution date, while safeguarding that the public trade release date will be set to sync with the formal IEO date.
Liquidity Supply & Market Making
The 2key TDE (Token Distribution Event) will reserve 6% of total supply for liquidity:
- 3% will serve as initial reserve in the 2key exchange contract,
- Up to 2% will be distributed as liquidity supply to decentralised exchanges (e.g. Bancor), which will be used by the 2key exchange contract to fulfil the automatic demand generated by the usage of 2key campaign contracts.
- Up to 1% will be distributed to formal 2key market makers operating in the major exchanges in which 2KEY will be traded.
Following the opening of 2KEY for public trading (i.e. the IEO date), the 2key exchange contract will determine the current price quotes for the automatic purchases of 2KEY made by campaign contracts, by directly relaying to viable exchanges/dexs with the best liquidity depth for 2KEY tokens, or otherwise implementing a proven algo-based price discovery mechanism (e.g. Bancor)
The 2key exchange contract will not sell 2KEY on exchanges, but only buy 2KEY from exchanges. In this way, 2key exchange contract will only contribute to the demand of the 2KEY token, by using viable decentralised exchanges to fulfil demand for 2KEY. In case the liquidity depth in the decentralised exchanges isn’t enough, there will be an automatic web2.0 process which will purchase 2KEY from centralised exchanges and fill up the liquidity inventory in the 2key exchange contract, so that the exchange contract reserve of 2KEY will always stay at 3% of total supply.
Accounting for Volatility —
Hedging & Stability Mechanisms in the 2key.network exchange contract
The following are the basic accounting and hedging mechanisms at play in the 2key exchange contract:
- ETH Available to Hedge per contract: each time ETH is sent to the exchange contract from a campaign contract (as part of a conversion event or contract activation staking event), the ETH balance is updated for that campaign.
- DAI Available to Withdraw per contract: a periodic processes hedges the available ETH across all contract balances, and the amount of DAI that was ultimately received for the ETH is then proportionally distributed to a new mapping tallying the available DAI that participants in each campaign can withdraw as referral rewards in the contract.
- ETH 2 DAI Average Rate per contract: As the hedging occurs, an average rate from ETH to DAI is updated per contract, to manage the exchange rates available when users come to withdraw DAI from the exchange.
- ETH to 2KEY Average Rate per contract: Every ETH sent to the exchange contract is an automatic purchase event in which a 2key campaign purchases 2KEY for ETH, and the average rate of these purchases is dynamically updated with every purchase event. The rates themselves are static prior to the public trade opening, and thereafter, the rates will directly reflect those in formal exchanges.
- 2KEY to DAI Hedge Rate per Contract: From the above two rates per campaign/contract (ETH2DAI, ETH22KEY), it will be possible to get the active hedge rate from 2KEY to DAI per campaign. This will be the effective rate in which the exchange contract will allow referrers to sell their 2KEY from the campaign contract back to the exchange and redeem it in DAI. This ensures a viable hedge mechanism that safeguards the fiat value of referral rewards for those contractors who wish for it.
- DAI Available To Fill 2KEY Reserve: There are many incentives to hodl 2KEY, such as community rewards that enable users earn more 2KEY based on their reputation for staking and participation on the 2key network. Therefore, it’s anticipated that many referrers will choose to withdraw 2KEY directly to their wallets. Each time a user will withdraw 2KEY to their wallets from the closed-loop circulation system between campaigns and the 2key exchange, hedged DAI in the exchange marked to the balance of this contract will be freed. The amount of freed DAI will be no more than the worth of the redeemed 2KEY in the 2key-to-DAI hedge-rate achieved for this specific campaign contract. This DAI balance will then be moved to the balance of available DAI for the exchange, specifically allocated for purchasing more 2KEY to fill up the 2key exchange’s reserves. These reserves will be designed to be kept at a constant 3% of total supply.
Step by Step Token Flow — Purchase/Donation Conversions:
The following is a step by step flow of how the circulation system will work for 2key campaigns in which the conversion event is defined as the payment of ETH by the converter.
This step-by-step flow applies to token sale, donations, crowdfunding and patrons campaigns.
(1) Campaign Activation —
- Contractors will require to stake 2KEY for activating 2key campaigns, in varying amounts depending on their reputation on the network.
- In token sale campaigns, contractors will be required to input an inventory of tokens to be sold in order to activate the campaign. It will be possible to create the token itself via the 2key network or use an externally created ERC token as inventory. In donation, patron and crowdfunding campaigns, however, 2key will create a unique invoice token for the contractor.
(2) Conversion event: The campaign will circulate until it generates a conversion event. In this type of 2key campaigns, a conversion event will be defined as when a converter inserts ETH to the campaign contract. The contract will then allocate the referral reward for that conversion, as a percent of the conversion amount.
(3) Referral reward and the 2key exchange contract: The referral reward for the conversion is then sent to the 2key Exchange Contract — a singleton contract that accepts requests only from valid 2key campaigns. The exchange contract accepts ETH from the campaign contract and then:
- Exchanges the ETH via an external DEX contract to a stable coin (DAI) and keeps the stable coin in the 2key exchange contract for supporting future withdrawals by referrers.
- Sends 2KEY back to the campaign contract.
- The exchange rate from ETH to 2KEY will be determined by 1 of two mechanisms:
- If the volume of trade on the 2key exchange contract is on par with the volume of trading on the DEXs, the price discovery mechanism of the DEXs will be used.
- Otherwise, an automatic price discovery mechanism will be employed (e.g. Bancor open source) from within the exchange to directly modify the price according to supply and demand on the exchange contract.
(4) Referral reward distribution: 2key Campaign Contract then holds the 2KEY and distributes it internally to the balance of the referrers who took part in the referral chain leading to the successful conversion.
(5) Cashing out rewards as 2KEY: once a referrer wants to cash out their rewards, they can withdraw rewards as 2KEY directly from the campaign contract
(6) Cashing out to stable coin: In cases the rewards are in 2KEY bought from the exchange contract (the common case in these types of campaigns), referrers can choose to cash it out back to a stable coin via the exchange contract. This will be possible in the following cases:
- When the 2KEY rewards originated from a purchase made via the campaign contract following an ETH/DAI purchase conversion event.
- In cases the contractor bought the 2KEY rewards inventory using an ETH/DAI purchase at contract activation time.
- In cases where 2KEY rewards were inserted directly into the campaign by contractors (relevant only for offline fiat purchases), referrers won’t be able to redeem 2KEY for DAI directly via the 2key contracts.
- When a referrer chooses to withdraw their rewards as DAI, the campaign contract will send their reward balance, from the campaign contract back to the 2key exchange contract (which only accepts requests from valid 2key campaigns), in 2KEY. The exchange contract will then buy these 2KEY, exchange them to stable coins and send this stable coin balance directly to the private address of the referrer — i.e. to the referrer’s wallet. The 2key exchange contract will maintain a spread between 2KEY buy-rate and sell-rate , to maintain its economic viability.
- The base rate for selling 2KEY back to stable coin when withdrawing rewards will be the active hedge rate for that campaign plus the spread.
(7) RefillIng the 2KEY reserve by buying 2KEY from dexs: Whenever a referrer withdraws 2KEY from a campaign to their wallet, the hedged DAI marked for that campaign will be used to purchase more 2KEY to fill the network 2KEY reserves.
Step by Step Token Flow — Non-Monetary Conversions:
Many campaigns on 2key network will involve conversion events in which converters don’t insert money into the campaign. Such campaigns include lead generation campaigns, signup campaigns, install campaigns, voting and petition campaigns, information campaigns and more.
Such campaigns will require the contractor to insert the rewards inventory at campaign activation time, this will act as the budget for rewarding conversions in the campaign. In such campaigns, the step by step token flow will act slightly differently, namely:
- 2KEY balance for rewards inventory is deposited by contractor into the campaign at activation time, in one of 2 methods:
- Direct 2KEY deposit — in such case, the 2KEY may not be withdrawn as DAI by referrers.
- Purchase of 2KEY with ETH/DAI — in such case, the contractor deposits ETH, and the campaign automatically purchases the required 2KEY from the exchange contract. In such case, the referrers can withdraw their rewards as stable coin.
- Converters don’t need to pay anything for converting
- The exchange contract hedges any ETH given to it — same as for the purchase contracts, with the slight difference that the time and rate of hedging corresponds to the time of setting the budget, so that the contractor may peg the rewards to actual stable coin / fiat at contract creation time.
In each conversion there is also a network maintenance fee paid to the 2key.network admin contract as the default moderator. The fee amount is set in the 2key Admin contract and affects network wide, and is currently at 2% of conversion event in campaigns with purchase/donation conversion, or 2% of referral reward in campaigns with non-monetary conversion actions. This network fee is sent in 2KEY form to the admin contract’s balance, upon each conversion event and kept there as network staking. Some of these 2KEY may periodically get sent to 0x (“burnt”). This mechanism basically acts to dynamically reduce circulating supply as a way to positively affect the token viability with each new conversion made on the network.
2key.network is open to integrators, which are for-profit service providers which may be elected by contractors to provide services within the campaigns, e.g. KYC, AML, conversion validation for offchain conversions, incentive model optimisation etc.. These integrators charge an agreed fee per-conversion, and thus have a viable business model as long as contractors choose them to serve in their campaigns. The fees may be openly set by the integrators, via supply and demand market forces, as the contractors have to elect integrators to serve in their campaigns, so without competitive pricing there will be little demand. The integrator fees are paid in 2KEY, and purchased automatically from the exchange contract if needed, by depositing ETH or DAI.
From each fee paid to the moderator or an integrator, a pre-set network tarrif in 2KEY is taken and sent to the deep freeze pool which is locked for 10 years. The taarif is defined network wide in the admin contract and is currently set to 2%. This network tax effectively links between the for-profit business model of integrators and the value of the token economy for the rest of the token holders, by taking some of the 2KEY earned as profit by integrators, and putting it out of circulation, resulting in a decrease of tokens in circulation (thus an increase in the value of remaining tokens)
Deep Freeze Pool & Feeding Back into the Community Rewards Pool
The deep freeze pool is locked for 10 years and thus effectively takes all tokens sent to it out of circulation, in a way that any for-profit business models active in the network also produce direct positive effects on the viability of the token, for the benefit of all token holders. After 10 years, the community rewards pool will have dried up, and the deep freeze pool empties into the community rewards pool, so that it pumps the new reserve into the community rewards pool. This has two main benefits:
- Continuous circulation — the reward pool dries up every 10 years, and the deep freeze pool replenishes it every 10 years in an ongoing cycle.
- Gradual Release of frozen 2KEY — the gradual release of frozen tokens acts to viably maintain the original effect of freezing them up — taking out of circulation, while still enabling the 2KEY token economics to act as a viable closed loop system.
2key Exchange Contract Fees
The exchange contract maintains a spread between the buying and selling of 2KEY, to maintain its economic viability, and might also adjust rates to safeguard against hedge-risk.
2KEY : Sources of Token Demand & Strength
- Referrer Rewards on the network are always in 2KEY — campaign contracts must either be supplied with a 2KEY stake or else ETH/DAI must be paid to trigger automatic purchase of 2KEY for allowing to activate the campaigns.
- USD Hedged Rewards can only be activated if purchasing new 2KEY in the context of a campaign — so even if a contractor has 2KEY, he might prefer to purchase more via the campaign in order to hedge the rewards against a stable coin.
- For campaigns with a purchase/donation/contribution conversion event — more 2KEY is bought with each conversion
- The atomic action of distributing the 2KEY per conversion from a single source (contractor/converter) to many referrers (per the length of the referral chain) causes the 2KEY economy to become more distributed, and the price level to drop (token becomes more viable and valuable) with every conversion. Check the full tokenomics paper for more info on that.
- To activate campaigns a contractor needs to stake 2KEY relative to the type of campaign and the contractor’s reputation (more reputation — less stake)
- POS 2KEY mining in the full blown MPSNs — Once the MPSN solution is launched the state channel per campaign will be maintained by browsers, both of participants as today, but also of miners, these miners will be chosen to participate in campaigns in a POS manner, whereby the more 2KEY they stake, the higher the chances they will be raffled to validate and mine transactions in the MPSNs (Which will earn them more 2KEY). Check 2key Labs for more info on that.
- The monthly community rewards model optimises for 2 parameters: (A) Work-in economy — the more you participate — the more reputation you earn — the more 2KEY you get, and (B) the more 2KEY you stake that month, the more 2KEY you get in the rewards, and the monthly rewards greatly favour both. This ensures both hodling that makes the economy stronger, and actual users actually participating in the economy which also makes the economy stronger (hence — STAKEin, WORKin economy).
- Integrators are a major part of the network — they are for-profit service providers, who earn 2KEY as a fee per conversion — meaning they can be chosen by contractors to serve in campaigns, and they make a predetermined fee per conversion (also per reputation, the higher the more you can charge as integrator). Of these integrator-earned 2KEY, some are taken out of circulation, to hardwire the for-profit viable business model of integrators, with the value of the 2KEY token for all token holders. In this we drew inspiration from Binance, for which it works amazing, and implement the same model just for all integrators on the network, the first of which is 2key New Economics Ltd.
How 2key network will function before 2KEY is released to public trading
In case we roll out to production before the formal trading release date, there is a special mechanism in place to make sure the 2key network can be used without risking 2KEYs starting to trade prior to the formal release. In short, the 2key admin contract will maintain a parameter depicting the formal release date, and until such date, 2KEY will be able to move only between the exchange contract and campaign contracts, without being withdrawn to private user wallets. In such case, referrers with rewards may either wait and withdraw the 2KEY after it is released to public trading, or withdraw their rewards as DAI in case the originating conversion was hedged via the auto-hedging mechanism on the exchange contract.
We expect the 2KEY token to be traded soon, and its demand mechanism to grow along with the growth of the network functionality and its usage.
If you’d like to read more on the 2KEY Token Economics: