The economic fundamental of Metaverse
Introduction
As a foundational technology rather than a disruptive one, Blockchain has the ability to permeate social and economic infrastructures and completely change our existing technological and business landscape. However, unlike the Internet, the fundamental attributes of Blockchain technology lend themselves to financial applications extremely well. A fascinating example of the financial potential of Blockchain technology is Metaverse, one of China’s leading public Blockchain projects. Metaverse aims to provide decentralized services based on digital assets, digital identity and value intermediaries to create an open ecosystem in which value can be freely circulated and proposed the concept of Blockchain As a Service (BaaS)[1], delivering Blockchain technology as a platform on which customers can develop, run and manage decentralized applications.
Metaverse’s development is separated into two distinct periods marked by two consensus algorithms: the system will initially be secured through Proof of Work, before transitioning to an improved form of Proof of Stake. Below, we analyze Metaverse during the PoW stage and discuss the Coinlock mechanism raised in its white paper.
About ETP
The base cryptocurrency of Metaverse is the Metaverse token (token symbol: ETP). There will be a maximum limit of 100 million ETP, distributed through the following three methods:
- Initial Coin Offerings (50 million)
- Proof of Work mining (30 million)
- ETP locking (20 million)
The smallest fraction of ETP that can be sent is 1 * 10–8 (a hundredth of a millionth ETP). On Metaverse, ETP will be used to interact with the platform, conduct trades and transfers, purchase services tied to the platform and will also play a major role in determining who gets to create a block when Metaverse eventually transitions to a Proof of Stake consensus protocol.
What can ETP be used for?
During the PoW stage, ETP can be used to 1) pay the fees incurred when using services proposed by the Metaverse Platform (e.g. identity verification by an Oracle), 2) measure the value of assets on Metaverse or 3) as collateral for financial transactions.
ETP Locking Mechanism
More interestingly, Metaverse pioneered a unique feature in its economic design — users have the choice to lock up some of their ETP in a deposit, and will receive ‘interest’ in return that is computed based on several factors, one of which is the current total circulating supply of ETP. According to the white paper[2], average block times are expected to be around 24 seconds, meaning that a deposit with a tenure of 26,295 blocks would take roughly 7 days to mature. Assuming that a user places a 100 ETP deposit, 100 * (1 + 0.10%) = 100.10 ETP will be credited to his or her address through a coinbase transaction when it matures.
Metaverse’s locking mechanism is a new approach to solve the problem of deflation caused by the accidental or purposeful loss or destruction of tokens so that sufficient ETP remains in circulation. Furthermore, the system’s inflation rate will be fed back into the algorithm used to determine locking interest rates, creating a robust economic model.
One clear issue with Metaverse’s current ETP locking function is that dynamic interest rates have not gone live — in other words, it is currently not based on market demand. However, it might be in the future. For now, the Chinese version of Metaverse’s white paper outlines a plan to incorporate trading pairs, trading activity, the number of accounts and the number of special transactions into the parameters used to compute the interest rate.
Conclusion
The Coinlock mechanism raised by Metaverse is an innovative way to overcome deflation that incentivizes investors through its ability to provide ‘interest’, and opens up possibilities for the development of new financial applications. Combined with the digital asset, digital identity and Oracle functions built into the Metaverse platform, it should allow Metaverse to occupy a unique position in the blockchain industry.
[1] https://medium.com/@mvs_org/metaverse-cto-chen-hao-talks-about-baas-and-the-internet-of-value-part-1-e293736b0815
[2] http://newmetaverse.org/white-paper/Metaverse-white-paper-v2.1-EN.pdf
