One of the constant discussions that surround blockchain technology and the associated tokens is whether projects have a need for a blockchain. That is, does the token solve a problem or is it a tacked on afterthought designed to take advantage of a new technology?
As Joseph Young said on Twitter recently;
The first thing any dApp user should ask is, does this app really have to be on the blockchain? Because decentralisation isn’t cheap, and as a database, blockchain is incredibly inefficient. Blockchain is for apps that absolutely require decentralisation.
It’s a valid discussion given that at least 59% of ICO’s in 2017 have already failed. 2017 was a digital graveyard of broken dreams and promises — all immutably locked to their respective blockchains.
What is the purpose of a token?
Now before we break down the many reasons that make the CanYa token defensible and sustainable, let’s define what a token is using William Mougayar’s definition;
“A unit of value that an organisation creates to self-govern its business model, and empower its users to interact with its products, while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders.”
Tokens are a representation of a particular asset or utility, that usually resides on top of a blockchain. They can represent basically any assets that are fungible and tradeable, from commodities to loyalty points or even other cryptocurrencies.
Tokens are multi-usage instruments that are essentially designed to incentivise behaviour that supports a set of rules, and penalise, often asymmetrically those that try to game that same set of rules. Put simply the penalties are far more severe than the incentive, which deters attacks on the network before they happen.
Token models take influence from traditional economic models, but also from more dynamic behavioural economic models such as game theory.
Even the United Nations is realising the incredible benefits utility tokens and blockchain have to offer humanitarian aid. In June of 2017, the UN used a voucher system, developed by Parity, to distribute funds for food to 10,000 Syrian refugees.
Tokens such as bitcoin (btc) were designed to be single purpose (digital cash), and this simplicity has actually been to their advantage. It could very easily be argued that this singular purpose has not come to reality due to issues with network costs and speed of transaction, but the singular use-case mechanics remain.
However, these types of tokens are very much the exception. Tokens have an infinite amount of use-cases but some of the most useful include; governance, staking, access to a platform or information, trading etc, which all influence and govern human behaviour.
Tokens also have the added benefit of creating new markets that will radically change the dynamics of global trade. This is because things such as electricity, voting and marketplaces for freelancers and many more will all have their own economies that do not directly rely on a single ubiquitous financial market or currency. This is a tremendous thing, as money is designed to be distributed, not concentrated in the hands of the few.
What utility does $CAN provide?
First and foremost, $CAN is the native currency of the CanYa serviceplace, CANWork, and extended ecosystem including the CANApps. This is important for a number of reasons, see Chris McLoughlin’s post on why CanYa needs a token for a more in-depth token analysis.
Having a token allows CanYa to only have 1% fees, significantly lower than similar legacy options. This is because CanYa is not a strictly revenue based model, as traditional business models dictate. Instead, the CanYa ecosystem operates on a token economy model, whereby everyone in the ecosystem is incentivised to participate and all experience reward at the same time.
Token economies operate on similar principles to much larger economies, where we have a large amount of existing research and known principles. One of these principles is the Monetary Theory of Inflation, or MV = PQ; where M is the Monetary Base, V is the velocity, P is the price of the resource and Q is the quantity of the resource.
Rearranging we get M = PQ/V; which is the size of a crypto-asset valuation necessary to support an economy PQ, with velocity V. If CanYa desires a strong economy, with a valuable token price (P), we need to increase M.
Let’s see how.
- Stakers and hodlers (speculative investors) reduce Q by taking tokens out of circulation. Reducing Q with no change to other parameters, will naturally increase P (price).
- Reducing the velocity of tokens, V, with no change to other parameters, will require an increase in P.
- Increasing P (price) and reducing V (velocity), with fixed Q (supply) will increase M (cryptoasset monetary base).
So as the budding economists we are, we need to find actionable ways to increase both the monetary base (M) as well as the price (P), but without manipulating the price. So we can look at V and Q. We do this by two ways.
We can reduce the velocity of CAN, where velocity = the number of times an asset changes hands in a given time period, by slowing down how quickly it changes hands in a transaction. This may seem counter-intuitive, so we can explain it another way.
If we encourage users to get liquidity into CAN, but discourage them (directly or otherwise) from immediately flipping it out into another currency we can slow down velocity and increase buy-side pressure. We do this primarily by having a great product that people want to use, and then with specific instruments such as the CANPay service and the marketplace escrows.
Firstly, the CANPay service is an incredibly easy and seamless way of getting almost any (hopefully soon) currency into $CAN. This directly increases buy-side pressure. Secondly, whilst the $CAN is escrowed between parties, it stops movement for hours, days or even weeks. So put simply, to reduce velocity, we need to provide attractive opportunities to users to buy CAN and place it into the escrow between two parties in the marketplaces.
We can also look to reduce Q, which is the number of circulating tokens. We do this by encouraging users to stake tokens in our HODL club and our DAO (decentralised autonomous organisation). This is a great option for our users as by staking tokens they get the opportunity to earn by completing micro-tasks in our DAO, which helps maintain and operate the ecosystem. It also means they are economically aligned to improve the ecosystem, so it discourages bad actors. Win-win.
So there you have it. We need to reduce Q and V to allow the Price and the Monetary Base to increase. Economics can seem so simple (sometimes).
What is a DAO and what is it’s significance to CAN utility?
The DAO is central to the long-term utility of CanYa. To again quote Mougayar;
“The key objective of a DAO is value creation or production, and to make that happen, there needs to be a specific linkage between user actions and the resulting effects of those actions on the overall value to the organisation.”
To simplify this quote into a sentence is that, the key to a DAO is an aligned incentive structure.
In short, DAOs aim to hard-code certain rules that a company would use to govern from the get-go. This could be setting aside a certain percentage of earnings for a cause, penalties for unreliable behaviour or determining a process by which a rule could be changed.
Following the principles of game theory, the more you are invested in a project, both financially and emotionally, the more likely you are to act in good faith to the network. This is because you are incentivised by your own position.
DAO’s follow the same logic, and are generally tiered based on your stake. The definition of a stake is the portion owned or invested in a business venture. But this needn’t be a purely about money, as that is too easy to manipulate.
Therefor DAO’s rely on other metrics, such as how long you have staked your tokens to the network, or how many tasks you have completed on behalf of the DAO and how accurate/helpful those completed tasks were. These metrics help to demonstrate evidence that you are a good actor to the network, and can therefore be considered for higher responsibility and reward in the network.
The most important benefit however of leaderless organisations is that they are fully transparent, fluid and based on merit. There are no elections, and no promises.
If you were to be elected to be in the highest rung of the DAO and then started acting disingenuously, you would be immediately voted out of that tier and lose some of your tokens for acting in poor faith.
This is the future of organisation, and we are putting the pieces in place to start building it today.
Key Takeaway Notes
I realise this note was a little heavy at times, leaning on some of Chris Burniske’s token evaluation models, so lets re-iterate the important information from a CanYa perspective.
A token is a representation of a particular asset or utility, that is usually designed to incentivise following a certain set of rules.
In the case of $CAN, having a token allows the serviceplace to only have a 1% fee. This is because it follows a token economic model and not a traditional revenue model.
The Monetary Theory of Inflation or MQ=PV explains the methodology behind token economics models. Staking and HODLing tokens reduces Q (circulating supply) and V (velocity of the transactions) which both have the added benefit of increasing P (price) and by extension M (essentially market cap).
These types of network architecture are purpose driven mechanisms of incentivised economics. By staking you are rewarded with higher responsibility in the DAO, which in turn leads to higher incentivisation as reward. The added benefit of course is that you are also stabilising the price of the token you are staking. This is one of the reasons that the CanYa DAO is so important.
The main benefit of course though, is that DAO’s are autonomous and based on merit. Nothing is promised, and the most useful and well intentioned actors are duly rewarded.
This is the essence of what good network architecture and vis-à-vis tokenomics is all about.
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