Lotos in-house currency (KRM)

Why does Lotos depend on a new token to execute its vision?

The Lotos project aims to create a complete ecosystem for meditation on the Ethereum blockchain. Out of all the initial feedback we received, the foremost question was why we need an in-house economic currency.

To explore this, we first should establish a choice within Lotos between 1) Fiat and 2) Crypto, acknowledging both offer advantages and disadvantages.

To learn more about our project, visit our Whitepaper hosted on Google Docs. Feel free to leave comments.

Exploring Lotos currency choices

Fiat vs. cryptocurrency

Cryptocurrencies in general offer three compelling advantages to the Lotos network:

  1. Immutable transactions record — Places strong limits on potential economic corruption in line with our vision to introduce openness and transparency to spiritual communities.
  2. Borderless transactions — Students can pay teachers in other countries directly without middlemen.
  3. Extremely low fees — Allows microtransactions for content like live video, on-demand audio etc.

The argument against cryptocurrencies is the barrier to entry. However, this barrier is expected to decrease over time. Lotos has two processes to limit the effects of this barrier now:

  • Teachers are granted free case managers to handle crypto withdrawals
  • Students deposit fiat, and a smart contract converts to KRM behind-the-scenes

We also offer a temporary incentive to early adopters:

  • Teachers are paid $1 per class per student (fiat)

These processes should remove the barrier effectively, as it removes the need for 1) cryptocurrency education and 2) additional manual user steps external to Lotos. Since over time the barrier to entry for cryptocurrencies is expected to decrease, the argument against using cryptocurrencies should weaken, and the one in favour of cryptocurrencies should strengthen.

Choice of cryptocurrency

Given these facts, there are three advantages to using cryptocurrencies that are necessary to executing our vision of decentralized spiritual communities. The chief argument against them (barrier to entry) is reduced by processes (case managers, and automatic conversions) and expected to further reduce over time as cryptocurrencies become mainstreamed.

For these reasons, the choice refines from whether to use cryptocurrencies, to which cryptocurrency to use. The important distinction between cryptocurrencies is made between Ethereum based (ERC20) and non-Ethereum based cryptocurrencies because of our dependence on Ethereum smart contracts.

Decentralized spiritual communities in Lotos are created by entities called organizations based on smart contracts. Basing organizations on smart contracts ensures openness and transparency, for example in the distribution of wealth among its followers, and in voting rights within the rank of its members. Smart contracts limit corruption and increase trust and efficiency, which are improvements over centralized spiritual communities key to executing our vision.

Since the execution of our vision depends on smart contracts to govern communities, it makes the case for Ether or ERC20 tokens strong.

Advantages for use of ERC20

  • Integration with our smart contracts
  • Easy adoption on public exchanges

Choice of Ethereum-based currency

Allowing the use of multiple cryptocurrencies within Lotos creates unnecessary complexity for users and offers no justifiable advantages. Therefore we seek one cryptocurrency as the sole medium of exchange.

Ether

Ether was designed to finance internal processes in Ethereum, and not as a general purpose currency. In other words, its purpose is consumption rather than a store of value. That being said, in practice Ether does just as good a job, or even better (transaction time, security) at storing value compared to Bitcoin. However, its inflationary nature creates some uncertainty. The chief disadvantage to using Ether is its exchange rate fluctuations, which can easily reach 20% or more per week. It also does not offer any of the benefits of an in-house currency explored below.

Stablecoins

Stablecoins allow protection against exchange rate risk. Where in Lotos, student subscriptions in (fiat) would be converted to a cryptocurrency at the time of subscription, large negative currency fluctuations (potentially caused by speculation) would decrease a student’s purchasing power. Using a stablecoin as the medium of exchange on Lotos would protect students from such exchange rate variations. However, ERC20 stablecoins are in their infancy and still have many issues to solve (projects like NuBits and Tether have had problems on more than one occasion) making them prone to existential risk. While stablecoins are a compelling way to solve exchange rate risk, they do not offer the advantages of an in-house token explored below.

In-house Karma Tokens (KRM)

Our own proposed in-house token allows users to reserve a username and signal participation in the network with KRM. The most compelling argument to use an in-house currency comes down to a “users-as-stakeholders” model where network effects create powerful incentives for network growth.

Users-as-stakeholders

  • Tokens accelerate social and economic network effects; incenting all users to add value to the network leads to improved adoption. Increased users and transactions increase the value of the base currency only if the currency is exclusive to the network.
  • Owning KRM is akin to owning “equity” in the Lotos P2P network and betting its popularity will rise.

Subscriptions support price

Lotos’ unique subscription model (students monthly fiat subscription purchases KRM on public exchanges) strongly supports KRM’s market value and incents participants to grow the network. Furthermore, the effects on market psychology of automatic scheduled market buys introduce predictability, reduces uncertainty, and further supports KRM’s value.

These positive effects are completely lost if another currency is used.

Decentralized governance

KRM governs the direction of our software development and Karma Fund through a DAO, where KRM represents voting power and the ability to submit proposals. Dual purpose use of KRM as both a currency and for governance is useful, whereas if we did not use KRM as currency, it would still be necessary to issue KRM for decentralized governance within the network.

Insulation provides protection

An in-house token insulates Lotos from the effects of other tokens for the benefit of both stability (price movements of Ether and other tokens we have no control over) and user-friendly redemption.

Buddhist economics

Core to executing our vision, complete insulation allows an in-house currency to reflect the true values of a Buddhist economy. Any value stored in KRM is compliant with Buddhist economic principles, in that KRM is accumulated and spent in ways helpful to the Noble Path. The psychological and socioeconomic implications of this facilitates the adoption and marketing of Lotos.

The purpose of Lotos is not about making money or affluence, rather it is about building the infrastructure, including a system of incentives, for allowing people to meditate skillfully and consistently in accordance with their beliefs.

In the past weeks we have introduced the Lotos concept to many Buddhist practitioners. The foremost objection we encountered was the combination of wealth accumulation with spiritual practice. However, the Pali Canon (the first known and most complete early Buddhist canon) praises and encourages wealth, with Buddha abandoning poverty in order to become enlightened. The central issue is that wealth should not be blamed or discouraged, but that it is accumulated and used in ways helpful to the Noble Path.

In this sense, for Buddhists to fully embrace our economy, its currency needs to be compliant with Buddhist principles. KRM is not only an economic currency, but a token that reflects the values of the community it is used in.

  • Value of KRM is in accord with “right livelihood”: the currency is driven by psychological and spiritual values rather than by consumption and desire.
  • Value of KRM is in accord with the “middle way” 1) economic activity must take place in such a way that it doesn’t harm oneself by causing a decline in quality of life 2) must be balanced to an amount appropriate to the attainment of well-being rather than the satisfaction of desires 3) in economical terms, “the marginal productivity of labour utilized in producing consumption goods is equal to the marginal effectiveness of the meditation involved in economizing on consumption without bringing about any change in satisfaction”. In other words, the “middle way” says people should allocate their time between consumption (in Lotos all consumption of content aims to improve meditative ability) and meditation — with optimal allocation occurring when meditation lowers the desire for consumption with no change in satisfaction.
  • Value of KRM represents a form of the “gross happiness” of the network since KRM value increases with the number of transactions made reflecting time spent practising and studying meditation which purport to increase happiness. While trade volume attributed to speculation may distort underlying real supply and demand, the law of large numbers guarantees more stable results as the amount of market value data increases.

Fundraising

There are many advantages to crowdfunding our development through an “initial coin offering”. Negative sentiment towards ICOs is high from scams and frauds. However, that does not mean we should abandon the model because of a few bad actors. The ICO has many important advantages over traditional funding models which we can utilize for Lotos’ success. Having our own token allows:

  • Lotos to raise development funds outside of venture capital. 1) opens up our project to a global audience, and distributes stake in our project to anyone who will be using and/or wishes to support the network. 2) allows all participants to be stakeholders and builds our community. 3) sovereignty preserves our mission to create an economy in accordance with Buddhist values
  • Lotos to offer early adopters preferential rates for commensurate risk
  • Participants to access our platform and any features we create with our token, including direct convertibility to live classes on-demand content.

Where the exchange value KRM comes from

KRM is a free floating currency backed by subscription fees. KRM has convertibility to live classes and other content in our marketplace.

Increase in value comes from two major network effects that encourage all participants to grow the network:

  • Since KRM is in fixed-supply, and Lotos is a P2P marketplace using KRM as the sole medium of exchange, the value of KRM increases with the popularity of the network.
  • Unique to Lotos, student subscriptions automatically purchase KRM on a public exchange every subscription period (one month). This supports the exchange value of KRM based on the number of subscribers.

Conclusion

The argument as whether or not to use an in-house currency for Lotos is complex. There are advantages and disadvantages to weigh on both sides.

Cryptocurrency vs. fiat

Advantages

  • Immutable transactions record
  • Borderless transactions
  • Extremely low fees

Disadvantages

  • Barrier to entry

In-house cryptocurrency

Advantages

  • Network effects incent adoption
  • Unique subscription model strongly supports value and incents adoption
  • Insulation for the benefit of stability and user-friendly redemption
  • Facilitates central governance model
  • Compliance with Buddhist economic principles
  • Fundraising incentives

Disadvantages

  • Exchange rate risk
  • Negative ICO sentiment
  • Unknown unknowns (Lotos is the first of its kind, very experimental, and allows for emergent properties. Thus predicting its outcome is difficult.)

When stepping back, the advantages to in-house currency seem likely to outweigh the disadvantages. Not only that, but there are compelling reasons why cryptocurrency, and KRM is ultimately critical for executing our vision. The standard arguments for an in-house currency apply to Lotos (insulation for stability and user-friendly redemption, network effects, fundraising, incentives), and in addition and unique to Lotos are the benefits of central governance, compliance with our user’s spiritual values, and incentives brought forth by the Lotos subscription model.

The first negative, barrier to entry, will decrease over time and Lotos has processes to minimize its negative effects. Likewise, negative ICO sentiment affects the perception of our project but does not affect its foundational principles and advantages. Finally, for the unknown unknowns argument, we believe our project ought to be done because of important problems Lotos’ decentralized spiritual communities solve. Exploratory missions are important, even if their outcomes are difficult to predict. These three disadvantages (barrier to entry, negative ICO sentiment, and unknown unknowns) are therefore not weighed heavily as they are deemed surface-level rather than foundational issues.

The most compelling argument put forth is whether to use stablecoins or our own in-house currency. Stablecoins have some risk from their infancy. However, the bottom-line is, when we weigh all the advantages to an in-house currency against their disadvantages, the advantages outweigh them.

We very much appreciate your comments and feedback.