$STAR 2.0 Tokenomics

Co-authors: Cranium Calvin & Brian Cordova

Contributions

Cranium Calvin twitter.com/CraniumCalvin
Designer of the Variable Generation Curve & $STAR tokenomics model
Brian Cordova twitter.com/CelloCordova
Inspirational contributor to the curve theory
MikeyMcB twitter.com/MikeyMcBNFT
A significant contributor to the Ethalien ecosystem and $STAR 2.0
Asteria Labs twitter.com/AsteriaLabs
Squeebo twitter.com/squeebo_nft
Patrick Hereford twitter.com/phereford
Web3 & Backend development of $STAR 2.0
Cory Cherven twitter.com/Animalmix55
Contributor of the Mathematical equations used for $STAR 2.0

Introduction

The revamped $STAR token has been designed to expand on the evolving Ethalien ecosystem while respecting the crucial aspects of $STAR’s origin story. To bring $STAR in line with our vision for the metaverse and maintain a sustainable ecosystem, we realized that a fixed supply wouldn’t give us the flexibility needed to continue the growth of the gamified Ethalien experience as the community grew.

Fixed supply tokens can be very limiting when it comes to scaling, and often struggle when there are too many variables at play. When creating a fixed supply token you either need to know exactly what you require or use a larger supply to allow for future expansion, and even then it may not be enough.

A lot of fixed supply models start by airdropping a large percentage of their tokens for free or via an ICO. Airdrops are fine, but they tend only to work when the project is well established, with a large amount of demand and liquidity, allowing them to withstand such a large amount of tokens entering circulation at one time. Otherwise, these tokens tend to suffer from a mass sell-off on launch and struggle to recover. If this is done as a free drop/claim to NFT holders, then the project also needs a way to create continued demand for its NFTs with the addition of more utility. In the case of Apecoin, this worked well as BAYC already has a constant demand for its collection even without the token.

For this reason, most projects release tokens to holders slowly via daily rewards, this slowly releases the supply over time, allowing demand to grow as the supply does. This method also offers long-lasting utility for the NFT holders.

But this can be very limiting when used with a fixed supply, these models generally stop distributing eventually, removing utility for the NFT collection and making future earning possibilities difficult. For projects to be able to find new earning options for the community they would need to recoup tokens; this usually requires a large or consistent amount of token velocity (the rate at which tokens are spent) to be able to continuously recycle tokens. Don’t get us wrong, this can work, but we feel it’s not ideal in most cases.

Fixed supplies also run the risk of becoming somewhat deflationary. Generally, as a community grows, so does the demand for the token; this can lower the overall availability of the token, making future growth difficult. HODL mentality can make this worse. As more people HODL the circulating supply of tokens become less and less, which just adds to this issue.

But ser! Surely that’s a good thing?! “Supply go down, price go up”

Firstly, that quote is missing an important factor; demand is required, hence ‘supply AND demand’. Secondly, $STAR is not designed to be a store of value. It is intended as a means of trade within the ever-growing Ethalien ecosystem. We want to give long-term utility to our community, and what better way to do this than provide them with ongoing $STAR yield, as well as future earning opportunities via our ever-growing gamified ecosystem. As we mentioned above, we don’t believe a fixed supply will allow us the flexibility we need to do this.

Of course, infinite supply tokens are inherently no better as they can create the opposite problem, tokens that forever provide a daily yield may well provide ongoing utility to NFT holders, but they run the risk of serious problems over time. If demand doesn’t grow at a similar rate to the token supply, these tokens will become worthless as more and more excess tokens flood the market. This creates sell pressure which usually results in a decrease in token value. Sadly, this issue plagues the majority of infinite supply tokens in the NFT industry. We only have to look to the real world to see what an ever-increasing money supply can do to the value of a currency long term.

The Perfect Hybrid?

$STAR token will operate as a hybrid model; it will provide infinite generation of the token while utilizing a somewhat max supply known as a soft cap. For $STAR this cap is set at 69,420,000.

What is a “soft cap” supply versus our original “hard cap” supply?

The simple difference is that in theory, a soft cap supply can be exceeded, but in the case of $STAR 2.0 it is unlikely to do so, as it is improbable it will ever be reached. Our calculations predict that if no $STAR is burned, it will take over 90 years to reach the soft cap of 69,420,000 $STAR.

So how does this wizardry work? I hear you ask

The Variable Generation Curve

We know that one way to offset an ever-increasing supply is to use a model that will burn all spent $STAR Tokens. This is nothing new, but it is not a perfect solution as the level of burning is dependent on token velocity (the rate at which $STAR is spent), which is dependent on the community’s interaction with the ecosystem. This can only be incentivized; it cannot be controlled. So we went one step further and implemented a safety net for times of low token velocity, something we have named the “Variable Generation Curve.”

Before we tell you how it works, let’s go through the main factors we had to consider when planning this model:

  1. Internal factors that impact the ecosystem itself.
  2. External factors that impact the value of the token on the open market.

Internally we don’t see any negatives when increasing the token supply. As long as token yield and the cost of items within the ecosystem remain static, we see no inflationary/deflationary effect on the ecosystem, as the time required to accrue enough tokens to buy an item remains the same. Remember 1 $STAR = 1 $STAR.

Example:

Mikey receives 20 $STAR per day, the item he wishes to buy costs 200 $STAR, regardless of the token supply it will take Mikey 10 days to accrue enough tokens to purchase the item.

Externally this isn’t the case, we generally find that an excessively increasing token supply generally causes a decrease in value on the open market. As we mentioned above, If demand doesn’t grow at a similar rate to the token supply, then excess tokens tend to flood the market and cause sell-pressure, thus tanking the price. Sadly external factors such as token value can be critical drivers in the adoption and sustainability of an ecosystem and its native token, so we have to take them seriously.

How are projects currently attempting to combat this issue?

A common approach some projects have tried is to increase the cost of items within the ecosystem to increase burning, thus attempting to lower supply. By doing this you aren’t solving the problem, you are just artificially increasing token velocity. The result of this is inflation within the ecosystem. You can attempt to combat this by increasing token yield, but this increases the token supply even more, making the issue even worse. Alternatively you can wait for token supply to drop back to a desired level and reduce prices, but this just adds work for the team, as well as creating confusion for the community. Overall, keeping prices static is the best option.

Another option is to create a large burn event by creating a new NFT collection for example. The issue here is the effects are temporary and it is unrealistic to do this frequently enough to solve the issue long term without creating burnout within your team. They also need to get paid right? So you can’t always do drops that require burning of your token, you’ll need to earn some $ETH at some point.

Even with ongoing utility for the token, there will always be times of low token velocity. Tokens that infinitely generate a daily yield are a constant, demand is not. It is likely that in times such as bear markets, interaction with the ecosystem will be low for prolonged periods. In times like these, the combination of consistent token generation and low burn rates will result in a runaway token supply, even if token velocity eventually increases it’ll likely be too late to fix things, and your supply will most likely far outweigh demand.

We aren’t trying to create another fiat currency, so what’s the plan?

Knowing that token velocity would constantly fluctuate we needed a solution that would control token generation based on the level of token velocity at any given time, thus controlling supply.

The VGC is as a hardwired, automated solution, preventing excess token generation. In times of slow token velocity, the VGC will prevent the token supply from increasing too quickly by decreasing token generation. But that is only half of the story. In times of high token velocity, the supply of $STAR should fall, and unlike some tokens that use decreasing token generation models, the VGC works both ways. As the supply of $STAR drops, token generation will increase.

This dynamic yield will help to prevent excessive increases in token supply, whilst providing ongoing yield to the community. As supply increases and yields drop we believe holders will be incentivised to do two things that in turn, will help the overall stability of the external token value;

  1. Buy more tokens to afford more stuff, increasing demand and removing sell pressure on the open market.
  2. Spend more tokens, reducing supply, thus increasing generation/yield.

Sadly, we found that you can’t solve the external issues without affecting the internal economy. The internal effects of this model are that whenever token generation changes, the items within the ecosystem become effectively more/less expensive in terms of time. So by doing this, we force inflation and deflation into the ecosystem. But here is the good news, by introducing both inflation and deflation we allow them to continuously offset one another making the effects of each temporary.

Additionally, implementing a ‘True Curve Formula’ rather than a stepped curve will help to smooth out the changes in token generation and the effects of inflation/deflation within the ecosystem, rather than having sharp drops that can create supply shocks and dramatic inflation/deflation within the ecosystem. Stepped curves can also result in people being able to time and manipulate the market, like when Bitcoin experiences halving events.

We predict that token generation will level out in time as this model’s inflationary and deflationary mechanics find an equilibrium. Simply put, this should happen when the ratio of newly generated tokens and token velocity start to balance out, and token supply becomes relatively stable. There still may be times when this balance is temporarily lost, for example, in times of higher/lower than average token velocity.

Now for some crazy mathematics. For this section, we will assume the soft cap to be a ‘Max Supply.’

Whilst the supply of $STAR is less than or equal to 10% of the soft cap (6,942,000 tokens) then the coefficient is 1 (token generation is fixed at 100%). If the supply exceeds this amount, then the VGC kicks in and starts to reduce the token generation. For example, if supply reaches 30% of the soft cap, token generation will fall to around 35% of the base amount. This can be seen on the graph below.

Adding a New Earner

All Genesis Ethaliens will continue to receive a base yield of 5 $STAR per day, additionally, Ethalien VOX will now receive a base yield of 1 $STAR per day when you hold both a Genesis Ethalien and Ethalien VOX in the same wallet.

The maximum yield Ethalien VOX will earn depends on the number of Genesis Ethaliens you hold. The ratio between the two is set at a maximum of 5 VOX to 1 Genesis. *

Example:

Mikey owns 1 Ethalien and 5 VOX; he will have a base yield of 10 $STAR per day.

  • 5 $STAR for the Ethalien
  • 5 $STAR for the VOX

All NFTs in Mikey’s wallet will be included, as they all fit within the 5:1 ratio.

Calvin owns 2 Ethaliens and 12 VOX; he will have a base yield of 20 $STAR per day.

  • 10 $STAR for the Ethaliens
  • 10 $STAR for the VOX

Calvin will only receive yield for 10 of the VOX as the other 2 fall out of the 5:1 ratio.

These values are fixed while the supply of $STAR is less than or equal to 10% of the soft cap (6,942,000 tokens). If the supply exceeds this amount, the VGC kicks in and starts to reduce this yield, as seen in the graph above.

* All VOX will continue to accumulate 1 $STAR per day, regardless of the owners eligibility to claim them. Once a VOX is in a wallet where it is paired with a Genesis Ethalien and falls within the required ratio, all previously accumulated $STAR will be available to claim.

Accumulated $STAR will only be visible if it is eligible to be claimed.

Liquidity Pool

The team will always value 1 $STAR = 1 $STAR. However, we are aware that we cannot control the trading of this token & that the implementation of a liquidity pool on a decentralized exchange is something that can be created without our input.

A liquidity pool effectively creates a decentralized trading pair allowing the exchange of tokens on the open market. To do this, liquidity is provided by token holders in the form of $STAR tokens along with another asset to create a trading pair, for example, $ETH. The value ratio between both assets determines the amount of $ETH provided.

Example:

Brian wants to provide 1000 $STAR of liquidity; at the time, the value of 1 $STAR according to the Liquidity Pool is 0.0001 $ETH, so Brian would need to pair that $STAR with 0.1 $ETH.

Even though this isn’t the intended use for $STAR, we are aware some holder’s may be interested in setting one up. We know that the more people who provide liquidity, the stronger the pool becomes and the more stable the trading experience will be. At this time we will NOT be providing any liquidity to a liquidity pool nor are we giving any incentives to anyone who chooses to do so. Still, due to the decentralized nature of the space, we want this to be a safe experience for everyone involved. For this reason, we are discussing options for us to do so in the future, as well as the potential for some sort of liquidity pool reward scheme for contributors; we need to make sure this is discussed with our legal representatives as we want to make sure this works in line with any potential regulations in the future.

If you are planning to start a liquidity pool, provide liquidity to an already existing pool, or interact with a liquidity pool, please make sure you are doing so with the correct $STAR contract address. This will be displayed in the Ethalien Discord server.

Gas Fees

The gas fees required to claim the current $STAR tokens are one of the main reasons we wanted to migrate to a new contract; we believe they have been a massive contributor to the low usage of $STAR and in turn the Ethalien ecosystem. By migrating to a new contract, we can make some changes to how the contract works when claiming your $STAR. This has dramatically reduced the Gas required when interacting with the new $STAR contract.

What do you need to do?

Nothing, we have handled it all for you:

  • On the 07/22 at ~ 02:00 UTC a snapshot was taken, this collected all relevant data for claimed and unclaimed $STAR.
  • $STAR (NEW) has now been airdropped to all wallets holding $STAR (OLD) at the time of the snapshot.
  • Unclaimed $STAR has now been migrated over to the new contract, this will be claimable once the new claim page goes live.
  • Do NOT claim any $STAR from the old contract, it is pointless and a waste of gas.

In Conclusion

Our goal has always been to create a sustainable ecosystem that will bring actual value to the community, and we believe this new version of $STAR will help us achieve this. This token model is the result of almost 10 months of research, planning, building and testing. It was no easy task, and we wanted to make sure it was perfect before shipping it to the community. Thank you for waiting patiently, the time has finally come for $STAR and the Ethalien ecosystem to start living up to its true potential. Thank you for reading.

TLDR

  • $STAR 2.0 is not designed to be a store of value; it is a means of trade within the Ethalien ecosystem
  • $STAR 2.0 is a dynamic economy, capable of scaling within blockchain games and providing unlimited NFT experiences, without adding stress to the tokenomics thanks to VGC (variable generation curve)
  • VGC = reducing/increasing the token generation as the token supply increases/decreases
  • Genesis Ethaliens will continue to receive a base yield of 5 $STAR per day
  • Ethalien VOX will receive 1 $STAR per day when you hold both Genesis Ethalien and Ethalien VOX in the same wallet. The maximum yield Ethalien VOX will earn depends on the number of Genesis Ethaliens you hold. The ratio between the two is set at a maximum of 5 VOX to 1 Genesis.
  • The project is NOT providing a liquidity pool or incentives for others to do so. We may set one up in the future.
  • Migrating to a new contract dramatically reduces gas fees.
  • On the 07/22 at ~ 02:00 UTC a snapshot was taken, this collected all relevant data for claimed and unclaimed $STAR.
  • $STAR (NEW) has now been airdropped to all wallets holding $STAR (OLD) at the time of the snapshot.
  • Unclaimed $STAR has now been migrated over to the new contract, this will be claimable once the new claim page goes live.
  • Do NOT claim any $STAR from the old contract, it is pointless and a waste of gas.

Calvin will be following up on this article with a deep dive into the research and theory behind this new tokenomics model. The following article will look at the inspiration behind the Variable Generation Curve and how he has attempted to use both the strengths and weaknesses of economics from the real world, cryptocurrency, and NFT-based economies to create what we believe to be one of the most innovative tokenomics models in the NFT space to date.

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