What Makes a Tokenomics Model Best-in-Class?
In decentralized computing networks, tokenomics, the incentivization for behavior, is THE critical, atomic-level component of what differentiates distributed databases from self-generating economies. Without tokenization there is no capacity for a unified and consistent method of value exchange in these networks, including no disincentive for flooding the network with requests. Tokenization has long been useful for discouraging DDoS attacks and rewarding network participants. However, the larger field of tokenomics has only recently been defined, and its scope solidified with the inclusion of different tokens (Liquidity Pool, Network Reward, and NFT) and economic touchpoints (percentage of LP reward, membership benefit, ownership).
Tokenomics refers to the various tokenized functions within a network economy that enable it to become self-regulating and self-sustaining.
Tokenomics describes, amongst others, the source of tokens, the drivers of supply and demand, the basis for fees, the implementation of regulations, and the market dynamics that define the circulation of a token. Essentially, it provides the operational framework and mechanics of a network’s “monetary policy.”
Each tokenomics model has something novel relating to token usage, token supply, special privileges, and special purpose tokens. Tokenomics are usually the primary element scrutinized by investors, developer, and community members because it defines the network’s overall workings, reach, intent, and ambitions.
In this regard, Everest’s tokenomics model is unique, having capitalized on the best practices and combined components of each of the below best-in-class tokenomics models. In doing so, it has created the basis for a self-sustaining economy that is also uniquely regulatory-compliant. This model doesn’t exist anywhere else and given global trends towards increased regulatory oversight, will ensure its future resilience for users.
Some of the top networks whose tokenomics models from which Everest drew inspiration are Avalanche, Solana, Terra Luna, and Ethereum. To be clear, we considered ETH2.0 Ethereum with EIP 1559 in place and validators replacing miners.
Terra Luna
Terra Luna, a network focused on payments, uses an algorithmic-based stablecoin (currently considered as a commodity by most regulators) to perform and track transactions (similar to Everest’s CRDT, a regulated and licensed stablecoin for ANY fiat). Transactions on Terra calculate the price of the transactions as a function of an underlying pegged value. Their UST token is an algorithmic stablecoin that works in conjunction with their LUNA reserve token to make the cost of transactions predictable and the value tracked and consistent.
Solana
Solana launched its testnet in February of 2020. Solana rewards validators with SOL tokens, of which there is a fixed supply of 272 million tokens. Solana attempts to balance inflationary and deflationary forces. Staking rewards create inflation by adding tokens to the ecosystem, however, in the Solana model, they eventually normalize with inflation rates reduced to 1.5% over a 10-year period. In order to counterbalance this planned inflation, there are simultaneous deflationary forces at work, which include burning a percentage of tokens collected for network fees. This transaction-driven deflationary model counterbalances the ongoing inflation driven through its validator block reward structure.
Ethereum London Hard Fork
Similar to the mechanism in place within Solana, the Ethereum London Hard Fork upgrade, called Ethereum Improvement Proposal (EIP)1559, changes the way that gas fees are calculated across the Ethereum network. This change, coupled with the move from a Proof-of-Work network to a Proof-of-Stake network, will dramatically change the tokenomics of the network. To date, the POW network has been trying to solve ever-increasingly difficult math problems — a consistently inflationary process without a corresponding offsetting process. With EIP-1559, a portion of the reward to the staker is burned. This means that Ethereum tokenomics has become both inflationary and deflationary. There is, however, a built in safety valve here because the Ethereum Foundation has reserved the right from day one to mint more Ethereum tokens, thereby obscuring their overall supply.
Avalanche (AVAX)
Avalanche has further refined the process of network participant rewards by allowing the community to vote on delegator rewards. This enables the users and participants of the network to find the appropriate balance between inflationary and deflationary forces within the network in a more nimble way than via platform improvement planning like Ethereum. There is a proposed idea to add sub chains over time inside of Avalanche. This is similar to the specialty chain system in use at Everest, whereby identity data resides on the ID Chain, regulatory transactions on Reg-Chain, and open transactions on EverChain. Additionally, similar to Everest, Avalanche has a limited supply of AVAX tokens which means that there is a ceiling on the size of the economy, helping to create and reinforce the dynamic tension between inflationary and deflationary policies.
Everest (ID)
Now let’s take a look at Everest’s tokenomics model and how it leveraged areas of others for an improved system. Everest has a limited supply of 800M ID tokens and the tokenomics model is designed to reflect a “real,” self-sustaining economy. The ID token is utilized not only for access to the network, but also to pay for a bevy of services, ranging from payments, buy, trade, sell, send internationally, eKYC, and mint & issue NFTs; all with various price points — considerably more than mere transactions on a ledger. The Everest community voted for the validator’s rewards structure at launch. It agreed to burn 50% of ID tokens collected in transaction fees for services on the Everest Network, essentially taking them out of circulation. Rewards are also simultaneously paid to validators to manage the inflationary process. The Everest validator rewards structure builds on the Solana’s transaction driven deflationary model counterbalanced by the consistent inflation driven by validator rewards. The burning of validator rewards, not just transaction fees, is an enhancement that EIP-1559 introduced, and which Everest is also using. Like Avalanche, Everest gives the community the ability to vote on validator rewards, creating a tighter feedback cycle than what is possible with an improvement protocol methodology.
Everest’s CRDT Token is similar to the native UST tokens in the Terra ecosystem in that stablecoin-centered networks create a predictable fee structure. Everest’s CRDT token also delivers the benefit of predictable costs and consistent value representation because it is a stablecoin that can represent any fiat currency. Additionally, the CRDT Token is backed 1:1 by fiat that is held at partner financial institutions, and is programmable to limit the use to a specific purpose, person, time or place. The license as a Virtual Financial Asset (VFA) by the Maltese Financial Services Authority further reinforces the need for such a robust tokenomics model.
In sum, transactions and fees are conducted with a fiat backed stablecoin, ensuring predictable costs and comparable value. A limited supply of tokens along with the ability for the network to balance between inflationary and deflationary forces creates control points for the economy to be self-sustaining. These controls are driven by the community’s definition of the validator rewards. The result is a best-in-class leveraging, tokenomics model that, when integrated into various vertical stacks and the plethora of use cases, truly makes Everest truly unique in its intent, execution framework and operational mechanism.
Learn more about Everest tokenomics here:
- https://everest-foundation.medium.com/everest-ecosystem-the-next-generation-of-blockchain-crypto-and-identity-db4830941271
- https://everest-foundation.medium.com/tokenomics-summary-8c7e5517698c
- https://everestfoundation.net/
Thank You!
