SORA Research Report

A comprehensive research and overview of the current state of SORA, highlighting key use cases and trends!

It’s been two years since the SORA 2.0 network went live on the mainnet. A period in which relentless and consistent development has been carried out, regardless of the prevailing market conditions. The core development contributors have built and maintained the SORA infrastructure, developed several DApps, and created tools to enhance user experience and productivity.

Remarkably, during this period, the SORA network processed over 10 million finalised blocks and facilitated over 9 million transfers. Furthermore, the Polkaswap DEX, built on the SORA network, trades around 200 tokens which can be increased per community request. Even though the crypto space is still not fully out of the bear market, SORA builders performed well during this time, and the development to create an advanced supranational economic system is in progress.

Key Takeaways

• SORA, initiated in 2017, has made significant progress with achievements like launching its mainnet, introducing a unique crypto economic design, setting up the Polkaswap DEX, and testing the bridge between SORA and SORA Kusama parachain.
• The project leverages a fair launch model and its distinct crypto economic design, emphasising equality and sustainability, to establish a unique market position in the competitive crypto landscape.
• It adopts the Quantity Theory of Disaggregated Credit, differentiating types of money creation to drive sustainable economic growth without causing excessive inflation or asset bubbles.
• The SORA DAO leverages community-driven, token-based voting for resource allocation, incentivising productivity and economic growth by minting tokens for projects with potential productive use.
• Recognizing the need for price stability in cryptocurrencies, SORA implements the Token Bonding Curve, an economic incentive mechanism that mitigates price volatility and encourages wider merchant adoption.
• The Token Bonding Curve allows for a dynamic and flexible token supply, ensuring token value protection and fostering a balance between growth and stability.
• SORA network offers a variety of practical use cases, including staking, DeFi via Polkaswap, farming tokens, and community governance, among others.
• Future developments of the SORA 2.0 network include on-chain order books, a SORA Debit Card, a Synthetic Assets Platform, and a Trustless Multi-ecosystem Bridge, as it aims to utilise blockchain technology to redesign the financial system, focusing on adaptability, elastic supply, and stability.

Brief History of SORA

• In 2017, research began on SORA
• In 2018, Dr. Karoru Yamaguchi was invited to the research group. Yamaguchi had a big influence on the economic design of SORA.
• October 2019 The SORA v1 mainnet was launched, with its own wallet app
• In July 2020, the SORA cryptoeconomic design was released, and the SORA community passed the SORA NEO cryptoeconomics referendum.
• In April 2021, the SORA substrate mainnet, the Polkaswap DEX, and the Hashi bridge went live.
• In October 2021, XSTUSD Stablecoin launched on the SORA network.
• In February 2022, SORA won the 24th parachain slot on the Kusama network.
• In May 2022, The Demeter Farming DApp and NFT functionality launched on SORA.
• In June 2022, the SORA community published an open letter to Sri Lankan newspapers inviting them to adopt SORA economic system.
• In September 2022, the SORA debit card and XST platform were introduced.
• In January 2023, The TBCD token was introduced.
• In February 2023, the TBCD token and its tokenomics were implemented on the SORA network.
• In June 2023, the bridge between SORA and the SORA Kusama parachain successfully executed the first public testing XCM transaction.

Navigating the Crypto Landscape with a Unique Market Position

The crypto industry is highly competitive, as new projects constantly enter the space aiming to take a slice of the pie. An influential factor in the success of many projects is the support of VCs. This backing often provides an initial boost, connects projects to wide-ranging networks, gives development runway to build and maintain network infrastructure, and fosters rapid growth. However, VC support is typically a double-edged sword. The ultimate goal of a VC is to achieve a successful exit, characterised by a “pump” period and eventual exit or “dump” that leaves the project high and dry and users scrambling. It’s not unusual for VCs to extract more value than they put in. This leads us to question the long-term sustainability of such projects.

SORA chose an alternate route — a fair launch. The motivation behind this decision was not only driven by the desire to distance itself from the VC-driven Web2 funding model, but also grounded in the principles of equality and inclusivity, transparency, and long-term sustainability. Fair launch projects mitigate the possibility of insider advantage and create equal conditions for all participants. However, without VC support, SORA’s DeFi and DApps face challenges in competing with VC-funded projects in the early stage, and due to SORA’s unique crypto economics, lead to inflation with inexperienced or impatient token holders suffering dilution that leads to mass network exits. To grow, SORA must ensure a unique positioning and strong product-market fit.

“Rather than positioning itself as just another blockchain infrastructure or suite of DApps, SORA identifies as a cryptoeconomic system. Its unique macroeconomic design, coupled with the efficient network infrastructure established by SORAMITSU, sets it apart in the crypto industry.”

This unique positioning allows SORA to serve as more than just a provider of accessible and easy-to-use applications; it strives to be a monetary system with the principles of the “Quantity Theorem of Disaggregated Credit” pioneered by economist Richard Werner. In the following section, we will detail this theory and illustrate its relevance to the SORA economic framework.

The Core Concept: Bad Money Creation Vs. Good Money Creation

Before we dive deeper into the Quantity Theory of Disaggregated Credit, it’s essential to have a basic understanding of the Quantity Theory of Money. This theory is a core economic concept that provides a basic equation to explain how the money supply affects price levels and the economy’s overall output.

The equation states that the money supply (M) multiplied by the velocity of money (V) is equal to the price level (P) multiplied by the level of economic activity (Q). So, if the money supply increases (M), then either the velocity of money (V) will increase, the price level (P) will increase, or the level of economic activity (Q) will increase.

In simple terms, the theory implies that the greater the amount of money circulating in an economy, the more goods and services can be produced, triggering economic growth. In other words, if the money supply increases, then the level of economic activity will also increase. This is because an increase in the money supply will lead to an increase in spending, which will lead to an increase in production, which will lead to an increase in economic activity.

“For economic growth to occur, there must be an expansion in the money supply.”

Professor Richard Werner’s “Quantity Theory of Disaggregated Credit” introduces an entirely new perspective on economic growth, money supply, and inflation. Werner’s theory is based on research into the different types of credit creation and their effects on an economy.

Money creation can serve three primary purposes:

Consumption: This occurs when money is lent to consumers, who then spend it on goods and services. This can stimulate demand in the short term, but if an increase does not match it in production, it can lead to inflation, as more money is chasing the same amount of goods.

Speculation: This refers to money created for speculative activities, such as investing in stocks, bonds, or real estate. This type of money creation can lead to asset bubbles, subsequently leading to boom-bust cycles.

Production: This is money lent to businesses for productive investments, such as capital expenditures to expand production capacity or invest in new technologies. This kind of credit creation can lead to sustainable economic growth without causing negative inflation (dilution), as an increase matches the increase in money supply in output.

This perspective ties into Werner’s analysis of Japan’s high-growth miracle in the post-war period. In his research, Werner indicates that the creation of productive credit primarily drove the Japanese economic miracle. Banks lent to businesses that invested in expanding their production capacities or upgrading their technologies. This led to a surge in output that matched the growth in the money supply, enabling Japan to achieve high growth rates without causing inflation.

What makes this theory so significant, especially for SORA, is that it provides an effective mechanism to control the money supply by understanding the type of credit created.

“The allocation of tokens for productive use drives sustainable economic growth without triggering excessive inflation or asset bubbles.”

SORA adopts the Quantity Theory of Disaggregated Credit in its economic design. This framework allows SORA to monitor and regulate its economy more effectively.

After understanding the principles of the Quantity Theory of Disaggregated Credit and its application in the real-world context of Japan’s economic miracle, it’s now time to see how these principles are being leveraged in SORA.

The SORA DAO mechanism offers a practical implementation of Werner’s productive credit creation. In the following section, we elaborate on how the SORA network’s DAO mechanism functions.

SORA DAO Mechanism Explained

The SORA DAO is architected to facilitate community-driven decision-making, governance, and execution of project development, maintenance, funding, and upgrades. This mechanism ensures SORA’s long-term vision of creating a novel economic system.

A key feature of SORA’s DAO is its focus on resource allocation. Participation in the DAO is open to all SORA users, who can influence decisions through token-based voting, which ensures diverse perspectives and robust decision-making.

Contributors like SORAMITSU can request funding from the DAO for development. By presenting their projects to the SORA community, the contributor and developers open up a funding pathway. XOR token holders can vote on these funding requests, ensuring a fair, transparent, and community-led resource allocation process for the development.

The SORA DAO system is built based on Polkadot on-chain governance. This will be upgraded later to SORA Parliament, a more sophisticated governance capability.

Taking our understanding of the “Quantity Theory of Disaggregated Credit” into account, the SORA DAO has a unique ability. It can “mint” tokens and allocate these newly created resources to productive uses. The contributors are then incentivized to deliver productivity and stimulate economic growth within the SORA economy.

“This mechanism holds immense potential. By effectively converting token minting into economic growth.”

The SORA DAO’s possibilities are not limited to specifically funding within the SORA protocol; in fact, its extent can reach to dimensions of actual countries. Just imagine, countries could propose funding requests for initiatives that aim to foster productive utilisation of resources, be it infrastructure development projects, or other social development programs such as industry and commerce. These proposals would be reviewed and voted upon by the SORA community. In the future, the decision-making process could be through the SORA Parliament.

Now, let’s examine why stable prices are important for cryptocurrencies and the SORA economy.

Understanding the Necessity of Price Stability

For a cryptocurrency to function effectively as a medium of exchange, store of value, and unit of account, price stability is an essential factor. The main barrier to the widespread adoption of many cryptocurrencies is their high price volatility. Because cryptocurrencies are not state-owned and are decentralized, they obtain their purchase prices from secondary markets ( e.g., crypto exchanges). While this is a desirable characteristic, it makes them highly susceptible to market sentiment and speculative activity, resulting in dramatic price volatility triggered by fear, uncertainty, and doubt (FUD) or Fear Of Missing Out (FOMO) factors, which also has the secondary effect of fostering distrust from banks and governments.

“Merchants who accept highly volatile cryptocurrencies face the potential risk of exchange rate volatility.”

This unpredictability, fueled by the impossibility of accurately predicting future price movements, creates significant barriers to the long-term adoption of cryptocurrency by businesses. The few businesses that accept such volatile cryptocurrencies must constantly deal with uncertainty surrounding the crypto price.

This roller coaster ride of adoption is graphically illustrated by Bitcoin’s fluctuating fate, with numerous cycles of rising adoption followed by a decline in adoption directly related to the volatility of its price.

Realizing the need for stability in cryptocurrencies, the SORA network has implemented an economic incentive mechanism to foster price certainty. SORA Proposes and implements the Token Bonding Curve to mitigate price volatility and increase merchant adoption.

The Token Bonding Curve: A Solution for Stability and Elastic Token Issuance

Think of launching a movie theatre. Before operating it, you’re tasked with predicting the demand for films and tickets over the next five years. Undoubtedly, a nearly impossible challenge with similarities to the launch of most of today’s tokens, where developers pre-determine token issuance timelines that often extend over hundreds of years. This is where the transformative paradigm of the Token Bonding Curve (TBC) comes into play, enabling elastic adaptation to the ecosystem’s needs.

“The TBC mechanism simplifies the minting and burning XOR tokens, providing an automated issuance and redemption system to adjust token supply dynamically.”

By changing the token supply in response to demand and holding deposited assets in an automated smart contract reserve, the TBC ensures that each token is backed by a proportional amount of reserve assets, supporting its redemption value.

But why is an elastic token supply critical?

Most tokens today move between the extremes of the issuance spectrum — a fixed supply on one side and an unlimited supply on the other. Each paradigm has advantages and disadvantages and serves specific purposes. Fixed-offer tokens offer holders protection against dilution from additional issuance. However, such inflexibility could limit the ecosystem’s ability to allocate tokens to meet the evolving needs of the ecosystem.

Similarly, tokens with unlimited supply can incentivize actions such as token deployment, but unlimited supply increases the risk that existing token holders will be diluted and trust will evaporate over time if network productivity and token price do not grow with supply.

This is where token bonding curves create a harmonious balance representing the midpoint between the two extremes. By leveraging the advantages of both paradigms, bonding curves provide flexibility in expanding supply through dynamic issuance and tie this expansion to deposits of reserve assets.

This symbiosis enables TBC to provide a flexible token supply to SORA that can respond to growing or shrinking demand while maintaining token value. The issuance mechanism, inherent in TBC, ensures that the token supply increases as demand for a particular service increases. At the same time, each token in supply remains value-protected to some degree, which ensures the integrity of the token and builds trust in the SORA ecosystem. This is the essence of elastic supply — a balance between growth and stability.

The token bonding curve consists of two basic mechanisms:

1. Mint: Users deposit reserve assets (such as DAI or ETH) into the TBC smart contract reserve pool, which in turn mints the appropriate amount of XOR tokens according to the price currently reported by the bonding curve and sends them onwards to the participant.
2. Burn: Users burn their XOR token by selling the XOR token into the TBC and redeeming it for the reserve asset (such as DAI or ETH) This redemption price is defined bc TBC.

With an understanding of the token bonding curve and the importance of elastic supply in maintaining resilience, let’s now turn our attention toward the real-world implementation of these principles. We’ll examine the eight most used cases of SORA.

SORA Use Cases

The SORA network is not just a theoretical model but a practical ecosystem with a range of use cases. Let’s delve into some of them to understand how they contribute to the ecosystem’s vitality and productivity:

1. Staking: Staking offers an opportunity for users to earn passive income securing the SORA network by locking the native XOR token. There is no minimum XOR requirement to stake, which offers flexibility to all participants. You can even stake XOR fractions. As a staking reward, users earn the DAO token VAL while retaining full ownership of their tokens in Fearless Wallet, a non-custodial wallet.
2. DeFi: Polkaswap is built on the SORA network, an DEX for the Polkadot ecosystem. Polkaswap allows users to swap tokens and provide liquidity, thus earning passive income. This user-friendly platform epitomizes the innovative capabilities of DeFi within the SORA ecosystem.
3. SORA Debit Card: The SORA Card aims to offer a complete neobanking experience with known features such as SEPA transfers, Mastercard debit card, foreign exchange, and more, along with unique and innovative self-custody over crypto assets and Polkaswap DEX features.
4. Farming: The Demeter Farm within the SORA ecosystem introduces an innovative concept of farming tokens. This mechanism allows users to generate a sustainable passive income stream, contributing to asset growth and ecosystem vitality.
5. Governance: As explained before, governance plays a pivotal role in the SORA ecosystem. The on-chain governance system has considered over 250 proposals to date, giving token holders a say in the direction of the SORA network. This participatory governance system ensures that SORA’s evolution is shaped by its community.
6. Trustless Bridges: Bridges are infrastructure components that connect different networks, allowing r interoperability. The introduction of the Trustless Multi-EVM Bridge represents a significant enhancement to the existing infrastructure, extending its compatibility with multiple Ethereum Virtual Machine (EVM) networks. Users will be able to Transfer assets between multiple chains seamlessly.
7. Validator Role: SORA offers tech-savvy users the opportunity to become validators who contribute to securing the network. This crucial role strengthens the network’s resilience and reliability, facilitating efficient and secure operations and is complementary to the aforementioned staking.
8. Development Opportunities: The SORA Builder Program welcomes developers to participate in the growth of the network by creating or porting dApps to the SORA platform. This initiative provides rewarding incentives for builders, fostering innovation and ecosystem expansion.

Future Prospects

The SORA 2.0 network witnessed important key upgrades of its core technology, functionality, and economic model, such as Polkaswap DEX, the Ethereum to SORA bridge, the Stablecoin XSTUSD, and the SORA Wallet. It also saw over $1 Billion worth of swaps carried out on Polkaswap, where SORA continues to prove its capacity as DeFi-centric infrastructure.

Development of SORA and Polkaswap has exciting plans for the future: On-chain order books, SORA Debit Card, Synthetic Assets, and Trustless Multi-EVM Bridge.

• The on-chain order book functionality is close to being available for public testing, bringing the comfort of CEX trading into a DEX. This function could be the first fully decentralized order book functionality in the Polkadot ecosystem, where trades are not only limited to order books to be filled, but also aggregated from the AMM and TBC market, providing a superior trading experience on Polkaswap.
• The SORA Debit Card will greatly reduce the entry barrier to the SORA network and will be integrated into Polkaswap, SORA Wallet, and Fearless Wallet for payments and fiat and token purchases.
• The Synthetic Assets Platform will expand the range of assets for traders and be directly implemented in Polkaswap. Real-world assets like stocks, commodities, currencies, and bonds can be added via on-chain governance while being fully decentralized. This will allow the community to diversify its portfolio without leaving the crypto world.
• Trustless Multi-EVM Bridge and the SORA to SORA Kusama parachain bridge are key infrastructure components for the communication between external Blockchains, such as BNB chain or Polygone. The bridges will make the SORA network flexible and easier to enter.

Overall, SORA economics are heavily focused on adaptability, with the key theses of elastic supply and stability. The fundamental functions and productivity of the SORA economic system are still in its early stage, but the potential to solve important economic problems is part of SORA’s mission. The debt monetary system has caused and still causes multiple booms and depressions, but with the advantage of Blockchain technology and SORA as a new monetary system, we can redesign the financial outlook and explore monetary and financial stability.

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