An Ideal Token Model — Legal, Inside Smartcontract, 4x-40x-400x of service provided per token?
An analysis and a solution
As the number of ICOs grow, companies conducting ICOs are trying to come out with different token/coin models in order to convince buyers to do the purchase. Generally, the interest to buy token is stimulated by the combination of the following mechanisms:
- Tokens which has limited or no emission, and which can be used to pay for company services. It is often declared that due to increase of ICO company market/market share, the coin would be in demand, which would cause an increase in a price of that coin.
- Promise of a buyback, where a company which organizes ICO, promises to perform tokens buyback for a higher price.
- Dividend based, where a company promises to distribute its revenue across token holders.
- Ownership based, where owners of tokens receive additional tokens proportional to the amount they own/freeze at some account.
- Voting rights based, where owners can vote on decisions made in a company with the help of tokens.
Unfortunately, all these mechanisms have their own problems which raise the risks for both the buyer and the company. Some of the challenges include:
- Legal framework for buyback and dividend based tokens. Tokens which use these solutions would be eventually declared a security. Without proper registration, this will ruin the businesses funded through ICO of these tokens. Even if US and Singapore buyers are not buying these tokens right now due to limitations enforced by ICO companies (which are easy to break), it is not clear if this would give enough protection.
- Even if issue of legality is ignored, for dividend based tokens it is hard to build a solution where payment of these dividends can happen, especially when the company which promised these dividends receives revenue in fiat currency.
- App tokens generally rely on a market growth to provide increase in their valuation. While markets which are being attacked by these tokens are huge, and theoretically growth is possible, it looks like people underestimate (or don’t estimate at all) the turnaround speed for their tokens. One token may be used multiple times during one year going back and forth between service providers and service users. If for example, for a market size of $10B, where service provided by ICO company covers 10% of whole market, each token is used 20 times, there is no reason for a price of that token to grow in case if more than $50M worth of tokens have been minted. The lesser number of tokens may be enough to make price to increase, but it may also happen that it will just increase turnaround speed.
- For “ownership” type of reward for tokens, there should be a way to generate additional tokens to pay this reward, generally making these tokens similar to tokens which rely on a market growth.
- Voting right tokens can also be assumed to be a security (a question for debate), and they seldom offer a model which is interesting for many buyers.
Often companies combine many of these approaches, making estimations and due diligence very complex. Which brings one more, very important problem to the table — for complex models it is hard to determine where the rules may be/will be broken. Also, in complex cases, implementation issues raise the possibility of hacks.
Another problem associated with models described above, is that in many cases, the model for token doesn’t depend very much on the success of ICO/ITO. Companies mostly promise the same behavior whether they raise 3m or raise 30m, while it is obvious that if there are 10x more tokens market behavior will be different.
Of course, there are cases when problems described above are not applicable, or when ICO authors solve these problems, but per my observations this is less than 10% of all ICOs happening. Others seems too deep in a gold rush, not caring much about what will happen in the future.
To solve these problems we believe tokens should be:
- Application Tokens, so not regulated.
- Deflationary, with the speed of deflation dependent on turnaround.
- Market price agnostic for daily operations, ensuring that changes in a token price and market up/downs wouldn’t cause ICO company to stop operations.
- Capturing all or most of the promised logic inside smartcontract.
- ICO/ITO Performance dependent, protecting buyers from too huge initial emission.
Our team believes that the token model which we are using in Dogezer ITO is able to satisfy all of these requirements. We use application token model, which per our opinion passes Howey test, so is not a security. The model is beneficial for buyers, both long term and short term, doesn’t have a negative impact on our users and will allow us to be able to pay for daily operational expenses.
We are a disruptive software product which is going to provide services to our users. We invite you to visit our blog at https://medium.com/@dogezercom to find out more about our product and what problems we are trying to tackle.
Our DGZ Token is an application token which allows the consumption of variable amounts of resources from our platform, and actual amount of resources provided per token is defined in smartcontract. We express these resources through UoS (Unit of Service) internally, and we require customer to bring 1 Premium or 1 Basic License to receive 1 UoS.
- Basic Licenses are always sold at our site for a $1 per License, making base price for 1 UoS to be equal to $1.
- Premium Licenses can only be acquired by sending a fraction of DGZ token to appropriate smart contract address. Premium License, in addition to providing 1 UoS to customer, also provides a Premium status for a given period of time to the user, which gives some benefits on a platform, so we expect users to prefer use of Premium Licenses. There is always fixed number of Premium Licenses in existence.
The actual value of Premium Licenses per one DGZ Token is determined by a formula inside smart contract which depends on the total number of tokens in existence at the time of calculation:
When someone uses a DGZ Token to receive services at our platform (i.e. present DGZ token or fraction of it as Premium License), we will burn part of the received tokens, again based on a formula defined in the smart contract:
Let us assume we sold 9,803,921 DGZ Tokens during our ITO event. We will add 1.5% on top for our bounty campaign, and 0.5% for Founders, which would result in 10,000,000 DGZ tokens in existence. This would mean 40,000,000 of Premium Licenses would be there, and this number will never change. The first user of our product would need to present 0.25 DGZ token for the first dollar of service he is going to consume, and we are going to burn 25% of it. The total number of tokens in circulation after this would be 9,999,999.9375. We would return the non-burned part of the token to market, gathering money to finance daily operations. For a second dollar of service which this or any other user will decide to consume, 0,2499999984375 of DGZ Token would need to be presented. For a third dollar of service — 0,2499999981875000015625, and so on.
Eventually only half of DGZ Tokens will be left unburned, and when this happens, it would be enough to present 0.125 of DGZ Token for one Premium License, so 1 DGZ Token would represent 8 Premium Licenses. When there would be only 10% of DGZ Tokens left in the world 1 DGZ Token would represent 40 Premium Licenses. When there is just 1% left — 1 DGZ Token would represent 400 Premium Licenses.
There is a logic inside platform for such behavior for Premium Licenses and described burning, described in our whitepaper at https://dogezer.com/static/files/Dogezer_Whitepaper.pdf. In a few words, we want to ensure that big percentage of users can be primary users when platform starts. We also don’t want end users to pay additional money for premium status, as in such case platform will start to favor the rich.
We start from 4 in our formula, making it at least 4x more expensive to use a Premium License versus a Basic License. This makes it quite beneficial to buy tokens short term for further use as Premium License on platform. Long term buyers should have a good return if they hold on to their tokens and use them later than sooner as they will get greater number of service per License. If token buyers will decide to hold tokens, and don’t use them on a platform or sell them to our users, our users will switch to Basic License, eventually making token owners to start selling.
We feel that we solve such token model solve all of the problems described above, happy to provide additional clarifications and are interested to hear your thoughts!
- Website: https://dogezer.com
- Slack: https://slackpass.io/dogezer
- Twitter: https://twitter.com/dogezerCom
- Telegram: https://t.me/dogezer
- Facebook: https://www.facebook.com/dgzcom
- Medium: https://medium.com/@dogezercom
- Bitcointalk.org: https://bitcointalk.org/index.php?topic=2100916
Dogezer preITO is going to start September 1st, 2017, at 13:00 UTC. Please visit https://dogezer.com , checkout our whitepaper and subscribe to our mail list to stay updated.