Metrics Series Part 4— The Traction Based Reserve Model
Dear Ferrum Network Community,
In our last Metrics Series article, we explained how we will make our low hard cap work for us and previewed an innovative structure designed to align the interests of the project and the community…
It is now time to release the first details of this structure and explain the theory behind it….we’re calling it The Traction Based Reserve Model.
The Basics
Put simply, the Traction Based Reserve Model means decreasing the amount of tokens sold during the token offering, and locking percentage of unsold tokens in the Traction Based Reserve. But rather than simply releasing those tokens whenever we feel like it, the releases are conditioned on the network gaining utility and traction…
You could also call it, betting on ourselves.
The Theory Behind The Traction Based Reserve Model
Its been shown time and again that it is harmful for a project to raise more than it needs. A higher hard cap almost always increases sell pressure and hurts the project and investors in the long-term.
On the other hand, an ultra low cap also comes with risks, since it could make it more difficult to hit roadmap targets in the face of unexpected costs.
Some projects “solve” the problem by selling an outrageously low percentage of tokens. But this is also unreasonable because it results in unacceptably high supply rate growth down the line.
We wanted to strike a balance — allocate a reasonable amount of tokens for the utility token sale, while reserving a similarly reasonable amount for future development.
But here is the element that brings it all together: instead of simply unlocking all those tokens at a later date, the Model ensures we will continue to work hard and deliver on our promises. Why? Because the unlocks are conditioned on the network gaining traction…
The Structure Details: Conditional Unlocks
In this new structure, 17% of all tokens will be locked in the Traction Based Reserve for one year. Then, the Reserve slowly and predictably unlocks based on transparent and pre-set conditions.
These conditions take the interests of the token holders and the project into consideration, while also employing proper risk-management strategies. For reference on how this works within the larger structure, 23% of tokens will be sold in a utility token offering, and 17% are locked in The Traction Based Reserve.
The Theory Behind Traction Based Unlocks
As stated above, The Traction Based Reserve will stay locked for one year then slowly released upon achieving pre-defined traction-based milestones. At this point you must be wondering what are these “traction based milestones”? This section describes those details, but first, some background on nature of the network.
Ferrum Network is unique in that we built useful products (such as Kudi Exchange and UniFyre Wallet) and acquired users before launching the main net. Once the main net launches, those products will run on top of our network, which is powered by our native utility token — FRM. A small amount of FRM is spent and burned for each transaction.
Therefore, based on our existing users, on day 1 of main net launch, the FRM token will have immediate utility and be spent/burned daily. Utility will only continue to grow as we release the Infinity DEX and Sub-Zero Wallet…
How does this tie into The Traction Based Reserve Model? We thought about different milestones that could result in unlocking tokens from The Reserve. Should it be number users? Hitting roadmap targets? Number of daily network transactions? A combination of the above?
All would be reasonable, but none would accurately capture the true value of the network and the FRM token and tie it to our efforts in a fair way…
Linking Traction Based Unlocks to the Value of the Network
Therefore, the traction-based unlocks will be directly tied to the value of the network. But what does this mean exactly?
This is how it will work: as tokens are burned through daily transactions and economic burning, a similar amount will become unlocked from The Traction Based Reserve. The amount of tokens burned and subsequently released will be calculated on a monthly basis and revealed in a transparent way.
While the exact ratio of burned to unlocked FRM will be determined once we have more data on daily transactions, it will look something like this: if we burn 10,000 FRM in a month, then 5,000 FRM will be released from The Reserve at the end of that month.
By tying the releases to the amount burned, not only are we focused on the most important metric (i.e. the value of the network), we are ensuring that supply rate growth remains low because the amount released will be similar to the amount burned.
Risk Management Strategies
At this point you are probably wondering, what happens if the network has a low number of transactions/token burns, especially in the first months of main net launch, and a large unexpected expense arises?
While a fully traction-based unlock is theoretically possible, it would expose Ferrum Network to too many external risk factors. Fully relying on future unknowns is problematic for the financial planning of a project.
Therefore, to manage unexpected risks, a minimum amount of FRM will be released from The Traction Based Reserve each month. The exact amount of monthly risk-management FRM will be announced closer to the date of the first unlock, but it will be a reasonable number considering project’s financial situation at the time, and will not result in detrimental supply rate growth. And of course once the traction-based unlocks exceeds the value of the risk-management unlocks, then the latter will not be necessary.
The combination of traction-based unlocks, plus a sensible risk-management strategy, represents the best of both worlds. The former motivates us to strive for the adoption of the network, acquire users, and make Ferrum Network a huge success. While the latter ensures a degree of financial security and means we will not go bankrupt covering an unexpected cost.
How the Reserve Model Supports the Overall Structure
Finally, The Traction Based Reserve Model not only supports our values, but also strengthens the overall proposition. For us, it’s important that every single piece of our structure forms a synergetic relationship with our overall strategy. The Model demonstrates proper commitment to long term growth, but also allows us to do even more:
- It allows us to drastically reduce the hard cap and initial circulating supply, optimizing for current market conditions;
- Offers more room for future unpredictable spending and a constant cashflow, but primarily on the condition that we deliver on what we promised;
- The Traction Based Reserve Model puts more skin in the game for us: how much the Reserve will end up being worth is directly correlated with the success of Ferrum Network.
Conclusion
In sum, we believe that the Traction Based Reserve Model is an optimal structure for aligning the interests of the project and the community, while also incentivizing us to bring value to the network and the FRM token.
After all, if you don’t bet on yourself, why should anyone else?
But we are not done! In our upcoming article on economic burning, we will explain how the applications that run on top of Ferrum Network will contribute to the overall health of the ecosystem. Stay tuned!
Very Truly Yours,
The Ferrum Network Team
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