The 2019 Rate3 Manifesto Part II: Our Approach to Building a Protocol
Our manifesto is split across several parts:
- PART I: Rate3 Network’s Three Primitives
- PART II: Our Approach to Building a Protocol & Token Utility
- PART III: Key Strategic Focus for 2019
PART II: Our Approach to Building a Protocol & Token Utility
In Part I of our 2019 Rate3 Manifesto, we explained in depth the goals of Rate3 Network, what we seek to enable with this protocol, and also unpacked the basic primitives comprising it. Additionally, we did a brief summary of the various MVP applications which we have open-sourced, and explained why they form the basic building blocks for constructing the Rate3 protocol.
What Defines a Protocol
The following definition succinctly sums up what it means to be a “protocol” (aka a standard):
“When computers communicate with each other, there needs to be a common set of rules and instructions that each computer follows. A specific set of communication rules is called a protocol.”
With this definition applied contextually, Rate3 too represents a “specific set of communication rules”.
- Rules that are interoperable across multiple blockchains.
- Rules through which stakeholders use to create, destroy or transfer asset tokens.
- Rules surrounding built-in identity management attributes.
Standardizing Standards: Top Down versus Bottoms Up?
We would like to tip our hats off towards Stefan Thomas of the Interledger team for bringing to our attention the “Law of Standards” by John Sowa, detailing how attempts to impose new digital standards never went quite to plan historically:
“Whenever a major organization develops a new system as an official standard for X, the primary result is the widespread adoption of some simpler system as a de facto standard for X.”
“…the overwhelming majority of successful standards are clarifications and revisions of interfaces that have proved to be effective without the support of a major standards body. What has consistently failed are the “proactive” attempts to design new systems from scratch that are declared to be standard before anyone has had a chance to implement them, test them, use them, and live with them.”
Also, without going into specifics, there is at present a whole litany of security token standards out there; in light of this, here’s another great read — and quote — by Jesus Rodriguez around his rebuttal against this trend:
“Technological history shows us that the best standards evolve from innovation and competition between market participants…Unfortunately, many times standards become a vehicle for bureaucracy and for technology vendors to project fake thought leadership positions by creating the “rules of the game.”
To summarize the views of those who also fall into their camp (us included), standards need to be streamlined and simple for adoption, need to be battle-tested under the stresses of open market competition & innovation, and need to avoid being a vehicle for bureaucracy.
Why We’re Going Bottoms-Up
Blockchain is a fast-evolving space. We feel that it is integral to maintain a healthy degree of flexibility for the direction of our project, in order to best position Rate3 to capitalize from emergent breakthroughs in this space. We have learnt many lessons from the ground while chatting with interested “tokenization customers”. Combined with the above research, we’ve concluded that it is more crucial to monitor and respond to the developments in the industry, and offer lightweight standards which would cater to the mass majority of such future customers.
Ultimately, it was this thinking which led to us opting against creating another tokenization standard of our own, or committing to other existing standards out there. Creating our own blockchain would also have been counter-intuitive. We wanted to keep the Rate3 protocol as just a set of lightweight standards around tokenization, identity and cross-chain interoperability (our three primitives). As we gather more feedback from users over time, and as the best practices from the various successful champion use cases emerge, deciding on which attributes to incorporate and standardize for the Rate3 protocol will become a natural decision.
Think of Rate3’s eventual goal as a protocol aspiring to become the “Stripe for tokenization” that will solve for a comprehensive list of pain points faced by issuers of tokenized asset.
The Rate3 Mainnet
It is also important to note that the targeted 2020 Q1 Rate3 mainnet launch does not equate to the Rate3 protocol only being usable next year. Our Rate3 mainnet is the summation of all the iterative improvements made to each of our three primitives, integrated together in a production-ready state. Developers will then have one point of interaction to build Dapps on the Rate3 protocol.
Until then, real world use cases that prove to be a good fit for at least one of Rate3’s primitives can and will be deployed onto mainnet. Our IOST iStablecoin initiative is one such example — it relies upon the cross-chain interoperability from the Rate3 protocol mainly. We will be deploying on the Ethereum and IOST mainnets, upon the full IOST mainnet launch. A greater number of such mainnet applications getting traction will allow us to determine that common stakeholder requirements that will then be standardized into the Rate3 protocol.
Coordinating Protocol Incentives with Tokens
Much has been discussed around the topic of “tokenomics” (or “cryptoeconomics”, among other names) — the design of how a token’s utility fits with a crypto-network. The idea is to structure a token so integral to the functioning of the network, such that as its network value grows, there are incentives causing either the demand for the token to go up, or for the supply of it to go down, or both.
Rate3’s RTE token is presently designed to perform the following functions:
- Payment for Cross-Chain Swaps — A good example of this would be our IOST iStablecoin service, which lets users swap ERC20 stablecoins to Token20 stablecoins on IOST and vice versa in exchange for a small fee. Users will pay fees with the ERC20 stablecoin, and they will receive a discount on those fees for holding a certain amount of RTE. Similar services involving Ethereum-Stellar and Stellar-IOST cross-chain swaps will be rolled out in future, which will further add to the demand for RTE. In the near future, we will be looking to build in the function to instantly convert the fees collected into RTE tokens and subsequently burning them (or locking them up), thus reducing the supply.
- Payment for Minting & Burning of Tokenized Assets — Asset issuers will pay a fee in RTE when they are to use the mint or burn smart contracts from the Rate3 protocol to issue or redeem asset tokens. These issuers could come from any of the respective Ethereum, IOST or Stellar ecosystems. Similarly, we are also be looking to build in the function to burn (lock up) these RTE fees in the near future to further reduce supply.
- Asset staking — Certain tokenized asset issuers may wish to add more validity to the value of the underlying asset backing the tokens issued by them (or want the option to not use a trust company). The Rate3 protocol allows those issuers to allow for other RTE holders to stake their tokens behind what is being issued, in exchange for a percentage yield paid out by the issuer (the issuer themselves can also be the ones to stake their own RTE tokens in lieu of paying out a yield). For instance, a musician wishing to tokenize royalty rights (lets call them ROYAL tokens) could offer RTE stakers a 5% p.a. yield in exchange for them collateralizing ROYAL. Seeing a sizeable amount of RTE token collateral would then give purchasers of ROYAL greater comfort when making their investment. The yields and collateral amounts will over time be determined by the free market, based on the demand and supply for staking.
- Identity Creation — RTE will be used as a mandatory form of “staking deposit” when a user wishes to create a Cross-Chain identity with the Rate3 protocol. This small fee is to deter spam Sybil attacks. We anticipate there to be much demand coming from Cross-Chain Dapps, requiring a means to verify a user’s identity across two different blockchains. For example, a Cross-Chain security token exchange looking to enable trading of Ethereum-based security tokens, on a much faster Stellar DEX, could get its users to leverage on the Rate3 protocol for a single source of identity management.
Lastly, we will also be building in governance features for RTE stakeholders. Over the long run, stakeholders could include players such as Dapp developers, security token platforms, exchanges and security token investors (among others). Voting decisions could include the future blockchains that are to be integrated with the Rate3 protocol for cross-chain interoperability, along with other upgrade features that are to be made to the protocol.
In our next post, we talk about our key strategic focus for 2019, including the topic of governance, to round of this series of blog posts.
About Rate3
Rate3 is a decentralised dual protocol for cross-chain asset tokenization and identity management. The Rate3 Tokenization Protocol is an end-to-end protocol for tokenization on both Ethereum and Stellar, while the Rate3 Identity Protocol is a protocol to create and manage a unified cross-chain identity.
Website: https://rate3.network
Twitter: https://twitter.com/officialrate3
Telegram: https://t.me/officialrate3
