Sweetcoin vs DQN Token. Differences between discount and cahsback economy models

Yuri Kovalev
Sep 6, 2018 · 4 min read

Introduction

In this article, I want to tell you about cashback tokens. We created this model while working on the Digital Quality Network — a decentralized ecosystem for software testing. We were searching for a way to increase the token’s value, while at the same time increasing utilization of the DQN network.

Cashback tokens can be considered a subtype of discount tokens, so let’s first recall what those are.

Discount tokens

Discount tokens cannot be used for payments like Bitcoin and Ether. And they are not backed by something physical like bananas, which back Bananacoin. Instead, they guarantee their owners a discount when performing transactions using cryptocurrency.

There are a variety of discount token models. In some models, a token can only be used once. In others, they can be used many times, similar to a discount card at a store. If you want to learn more about the types of discount tokens, read this article.

Let’s take a closer look at the discount token model used by Sweetcoin.

Sweetcoin discount tokens

This is a great idea: the discount amount that one token provides depends on the network’s utilization. The more transactions that happen, the larger the discount provided by one SWC.

Let’s take a look at the discount function for one SWC:

Sweetcoin discount function

where t is the number of discount tokens activated, X denotes the global network state, XT is the total number of tokens activated across the entire network, and XU is the total number of service units utilized across the entire network.

Note that the discount can reach 100%, making it possible to receive valuable services for free. Another important advantage of Sweetcoin tokens is that they provide their owners with dual benefits: initially, by giving their owners a discount on services, and then later, by becoming a valuable financial tool when they appreciate in value as network utilization grows. This means that discount tokens have a potentially higher ROI than other utility tokens.

However, with all their advantages, discount tokens also have disadvantages. I’d like to focus on one of them.

The SWC discount model’s weakness

According to the discount function, the discount depends on the number of active users and the number of activated tokens. But these values vary: they have fundamentally different values ​at different times. Sweetcoin solves this problem by restricting the period of time used for calculating the XT and XU parameters. The team is experimenting with different periods: months, days, etc. The problem is that the precise values of XT and XU ​can only be known for past periods, but the discount needs to be given to customers in the present (during the transaction).

Of course, after the network operates for a sufficient length of time, the variables will stabilize, will be easy to predict, and can be approximated with reasonable reliability. But first, this isn’t actually true. And second, the high volatility of these variables in the first months (or years) of the network’s operation during the period of active growth will make the discount amount very inaccurate and can deter users.

As a result, in my opinion, the SWC model’s main problem is the absence of a perfectly accurate way to calculate the discount, which inevitably causes a non-zero balance at the end of each period. If the balance is positive, the project will be accused of accumulating profits, which undermines the non-profit philosophy that characterizes decentralized systems. If the balance is negative, then the network may develop a cash shortfall. Thus, the discount model clearly requires the development of serious defense mechanisms.

DQN: Cashback Token Model

In our network (DQN), we were the first to use cashback tokens (DQN Tokens). A token allows its owner to receive a partial refund of money spent on services within the DQN network. Funds are returned once a day (exactly at midnight) and the amount depends on the network’s utilization.

DQN runs on the Hedera Hashgraph platform, so payments are made using the H-Bar currency (HBAR). Customers buy testing services in the DQN network, paying with HBAR and optionally activating DQN tokens.

Depending on the number of activated DQN tokens, they receive a certain amount of cashback. The exact amount is unknown until midnight. Precisely at midnight, exact network utilization values become clear, i.e. the total number of tests performed on the platform, and the total number of DQN tokens activated in the last 24 hours. The network always has a zero balance once all the cashback is paid out.

You can read a detailed mathematical specification of the DQN protocol here.

You might note that one of the DQN token’s drawbacks is that a token owner does not know the exact amount of cash back at the time of the purchase. One of the unquestionable advantages of this tokenomic model is its absolute liquidity. On our website, customers will be able to access complete statistics regarding how the value of DQN tokens has changed over time, which will allow customers to understand the current discount for one DQN token.


If you liked this piece, please hit that clap button! Also, leave notes, comment and highlight as much as you want. Finally, if you want to know more, or get involved, reach out at yk@digitalquality.network

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