Token Model for Energy — Part 1: Review of the Power Ledger token model
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Happy to explain Power Ledger in more detail below and address some your comments.

PowerLedger Token Sale

TLDR:

  • Solid team with energy background, which includes Australian blockchain app developer firm Ledger Assets
  • Moving from private EcoChain to an Ethereum-based Consortium chain — but no sufficient details are given on either.
  • Many ideas on applications, however only a few are detailed (or edited properly)
  • Very well written intro — especially because it hosts gems like “why society needs an energy trading platform” Spoiler: it solves a very prominent (even, or especially, in Germany!) problem of subsidies for solar rooftops and resulting side effect of rising network usage prices for the rest of the population who cannot afford solar rooftops. If you would allow the rest consume the excess solar power at competitive prices traded locally, then the burden is not so krass at least in the neighborhood of subsidized solar rooftops.
  • Overall, the impression is that people in the solar business, or solar roof top owners who have heard about “Blockchain” could be interested in being part of this token sale for its utility, especially in Australia
  • As of now too speculative for the rest: as it is also stated in the Whitepaper, whether the tokens and the network could be used at all in other markets is absolutely dependent on the local regulations — even in “deregulated”/liberalized markets (speaking here from Germany, which has an energy market that is being liberalized for 20 years now, and we are nowhere near a liberalized market, where you are allowed to deploy apps like p2p energy trading via software download — we’re working on it, but we are not there yet).

Actually, the system can be used immediately in embedded networks (and micro grids), we are currently doing this with some of our existing customers in a commercial setting.

We have designed it in a way to work within existing regulations and in a uniquely flexible and adaptable way, where we (or Application Hosts) are able to select the degree of disruption they and their regulators are comfortable with, it’s definitely not an all or nothing approach. We may not like it but it’s the reality of the highly regulated space we are in. By this approach we can gain traction immediately and in turn benefit from the incumbents existing customer base. Others may be dreaming of a more utopian reality (So are we!), however we aim to be around long enough to get there gradually and not disappear in puff of disillusionment due to lack of funding and an idea which may have been too ahead of its time.

We are already working with existing retailers offering a white labelled P2P trading solution that they can offer their customers and configure to their liking. It’s a brand new approach and product offering for forward thinking retailers with which to transition into the new energy economy and a point of difference which they can share and use to atrract like-minded customers.

The Whitepaper of PowerLedger does have a Disclaimer. I am not a lawyer, so I could not tell whether it is helpful or not. But we do have a diverse team at Bundesblock who will be able to give good recommendations in the final part of this series. Any lawyer will tell you it is a must to have a Disclaimer.

Pretty standard you will find with most serious Token offerings to have a Disclaimer.

Ideologically, tokens align the incentives of the founders, developers, users, investors, and any other types of contributors of value-add to the network. And mostly, anyone interested in participating in the token sale is as much skeptical as speculative about future outcomes. At this point in time, in this niche of the niche space of energy-related token sales, it is a given that the Whitepaper is written “in good faith, but no warranties or guaranties are given.” Still putting effort into creating a small print disclaimer, made me look more closely for effort they’ve spent on establishing that good faith in the writing of the rest of the Whitepaper.

I must say I’m disappointed in that regard, as the writing was obviously rushed, which made me wonder how many independent reviews and feedback it has gotten before being released to the public/community. So that information is completely missing.

(And I will make the few corrections and suggestions available to PowerLedger separately — this review is not about the quality of the writing, but its content, specifically its token model design)

We appreciate your corrections and suggestions and look forward to them.

Anyone thinking of participating in one of the countless upcoming token sales should read the Disclaimers carefully and then look at the people behind it and make a judgement as to whether there really is an existing team and business backing it. One that has credibility and commitment to their chosen endeavour , or are they just trying to tap into the next ‘Big Thing’ the token buyers have turned their attention to. The blockchain Energy sector seems to be attracting this behaviour.

Power Ledger was one of the very first true Blockchain Power companies in the world and has not pivoted or changed its team or company name. It is truly a specialist with highly experienced and incentivised power industry experts not just a tech heavy team, unlike some of the others that we see out there re-tooling which seem to have an ‘ICO’ for every industry. We have already experimented with and implemented some of the ideas we see in other Energy based whitepapers and rejected them based on practicality and real world trials, all funded with traditional equity capital. We expect some of the others will tread a similar path to discovery but for Power Ledger this means, post our Token sale, we will hit the ground running (indeed we already are) and not waste valuable time trying to figure this stuff out!

So we agree, beware of cash grabs based solely on a whitepaper, Coming up with a slick and well manufactured whitepaper is not the number one team skill potential token buyers should be looking for, as this can easily be outsourced and indeed many of them are. (Definitely not ours!)

In fact Power Ledger has gone further than any Australian (and possibly worldwide) Token Sale and purposely not gone to an offshore jurisdiction and / or hide behind a Foundation structure. We will be conducting the TGE under the existing Power Ledger Pty Ltd Company and current Australian Regulations. We are that confident of the legitimacy of our business plan, company, purpose and products.

A Gem from the Intro

The introduction lacks conciseness when it comes to explaining blockchain concepts and usage (but that’s hard without scaring off the not-so-technically-inclined). It is aimed at the energy sector, who have seen their fair share of Decentralized Energy System concepts in the past decade. And Power Ledger does a good job in explaining why this time around it will be different, utilizing the characteristics of blockchain:

Reimagining the network as a decentralized and trustless trading platform

The image of the distribution grid as a trading platform instead of a copper platform, is truly inspiring — to many utilities though it may just be frightening. It already inspired a Dutch grid operator, Enexis, who are willing to give it a try: Disruptive Infrastructures towards basic income. However, the inspiration comes from a very creative innovator Jan Peter Domernik, and it is still up to the grid company decision makers to adopt that creative vision as company strategy, and possibly run it through many political instances and regulations.

Now, companies like Power Ledger are giving everyone the opportunity to express their beliefs by investing in a token that encompasses these ideals. The question is does the token design trigger enough of these idealists as token sale participants. If so, then Power Ledger might even raise enough funds to finance privately owned & operated physical grid connections between the solar rooftops that they are connecting virtually. (Which in developing countries by the way, is a good business model: here is my superhero example of Solshare in Bangladesh.)

However, nothing in that regard is mentioned in the Power Ledger Whitepaper. So, typically I asked myself, how far are they willing to go? And why is there not more of these potentials embedded in the token design and incentives?

One step at a time, perhaps in developing countries as mentioned above it is actually necessary, as there may not be existing infrastructure alternatives. However in developed countries like Australia and Germany, the transmission and distribution system connecting participants is already in place and at a cost of many billions of dollars and euros. We should use what’s there and try not to waste the earth’s valuable resources re-building our own, if at all possible. As Power Ledger becomes successful, high on our priority list will be our much vaunted Asset Germination Events (see below) in developing countries. We can’t wait!

PowerLedger’s Token Model and Embedded Incentives

The token model consists of two tokens: POWR and Sparkz. The rest is not so clear — and I do my best to relay what I understood (and writing about it clearly helped).

POWR tokens (tokens of the sale) are purchased on crypto exchanges. PowerLedger itself buys POWR on exchanges, and distributes them as rewards to electricity producers and consumers who settle their production & consumption through the PowerLedger platform. So both producers and consumers are incentivized, with the “incentive formula being weighted towards renewable energy generators.” The more users participate on the platform, the more PowerLedger has to buy POWR, so this kind of creates a base demand for POWR. But how does PowerLedger pay for buying those tokens? By “charging a small fee for all p2p transactions on the platform” and “part of that fee is used to purchase POWR tokens” for distributing as rewards. What happens with the other part?!

The remaining part of the fee is used to fund the operating costs of the Power Ledger Ecosystem. If we can’t make it sustainable, we won’t be around very long. A majority of the tokens will be distributed to participants to help create a network. After we have used up our sale proceeds the system needs to be able to run itself. The fee takes care of this. We are a disruptor but will be disrupted ourselves if we make the fee too onerous. The platform will also be mainly open source as it becomes practical to do so and we are designing it in such a way so as to allow and encourage 3rd party application developers to participate and potentially create better products than our own within the Power Ledger Eco-system

That brings me to the other question that should be answered in a Whitepaper, what is the business model of PowerLedger? Also in my opinion a Whitepaper intended for token sale, should inform whether mentioned quantities are thought through — or not. What formula? How big is a small fee? What percentage is retained? It is ok, if they cannot quantify yet. But then how do you attach an initial value to the token when offering it? Gut feeling? If the numbers exist, I believe it is fair to share them — for transparency reasons.

The Token sale is not a security it is a protocol token and so the profitability of the business model is not directly linked to the value of the POWR token and nor should it. The demand for POWR tokens will increase as the number of participants using the platform increases. This may indirectly cause token holders to place a higher value on their POWR tokens based on supply and demand and the requirement to own some, in order to transact on the platform.

Power Ledger will determine the correct fee and incentive structure as the system is tested and we receive feedback from the market. We already have an active user base so we can start the process almost immediately. We don’t see this as being particularly difficult to determine and to decide this prior to establishing the program would not be prudent or realistic. The Incentivizer program will reward all participants but will always slightly favour renewable energy producers (Prosumers). So in effect taking a little more of the fee from consumers and giving it to prosumers via the rewards program. We believe this may encourage more green energy production over time and reduce greenhouse gas emissions. This formulae may also be adjusted in different markets. For instance where there is an abundance of generation going into the grid and not enough consumers using it, we would give more POWR incentive to say electric vehicles that connect and charge their batteries at the right time of the day to take up the increased generation. The POWR token at that point becomes a very POWR-ful load balancing mechanism.

One thing is certain: if you are doing a token sale, you are committing to be a transparent company “to whom it may concern” from Day 1. The more transparent, the more value you get from the future participants and supporters of your network. That’s how the token sale designers are incentivized. The best performing token sales were the most transparent and responsive ones in their communication.

We can’t be any more transparent about who we are, where we came from and our plans and commitment to Power Ledger. This has been the case over the last two years since we first came together to realize our dream. (Check our website and Press page @ powerledger.io). As we said earlier we are conducting this token sale under Australian regulations in our own operating company, an Australian first!

POWR encompasses two more (indirect) incentive mechanisms:

  • Connecting with charity: you can gift electricity by transferring POWR (with which they can buy Sparkz to pay for electricity — we get to Sparkz later) and the charity’s intended usage is enforced.
  • “Access priority to Asset Germination Events” . I looked it up and still have no idea what an Asset Germination Event could be, Google neither, but it is “defined” somewhere in the Whitepaper. (I also had no idea what Ethereum guys meant by “Oracle” and why not call it something less Matrix-like and more CS-like — now we are building one at Freeelio. New concepts need other peoples trust, to give them a chance and look deeper. But those people need more than a few lines as an explanation to get going on… Maybe — hopefully — that parsimonious explanation style changes during the run towards the token sale. Btw. they just now created a dedicated site for it: https://tge.powerledger.io/.)

Here is a more generous explanation of AG Event’s — You’re quite correct you won’t find them in Google Search or anywhere else as we are creators and have invented them!

Asset Germination Events are like mini TGE’s within the Power Ledger Eco-System.

Power Ledger will use a portion of its funding towards buying renewable generation assets, like network batteries and small PV generation systems, to connect and bring into the Power Ledger Eco-System.

As these assets generate and sell their power, the proceeds from their generation will be distributed to the beneficiaries of the asset. Initially this will be Power Ledger however through our AG Event’s we will be assigning new beneficiaries to the asset and in turn they will receive the benefit of its generation.

In order to be considered and potentially become a beneficiary of the Asset (and its ongoing Sparkz distribution), participants will need to submit POWR tokens and be placed on the Asset priority list. The ultimate ‘germinators’ will be selected from the top of the list based on how many POWR they have submitted and whether they have bought them on the market or earned them through the Incentivizer program. Additionally there will be further preference towards the participant’s proximity to the asset to ensure the beneficiaries are as local as possible.

We envisage that these events will become hugely popular and the only way of participating in them will be through these AG Events.

The POWR tokens submitted will not actually be used to pay for the Asset’s Germinations. The legal structure of the Asset beneficiaries will be determined according to the legal advice we receive in each jurisdiction and set up accordingly to be fully compliant.

Having said that, there may be token friendly Countries where participants are able to purchase the Assets directly using their POWR tokens and in turn trade them with other participants and Application Hosts through the PL platform, creating a healthy and vibrant market place. In fact we believe including the utilities will help to add market depth and turbo-charge the TGE initiative.

More to come…

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