FinNexus Will Use Business Development & Innovative Monetary Policy to Bootstrap Network Effects
True DeFi ecosystem development takes time, dedication and, most importantly, proper incentivization methods.
DeFi is a movement. It is the collective vision of all of the entrepreneurs, programmers, researchers and project team members all over the world that are working feverishly towards bringing about a viable alternative to the global financial system. After all, it’s a brrrrr brrr world and, for now, we’re just livin’ in it.
At FinNexus, we firmly believe in the ideals of DeFi, or decentralized finance. Particularly at this exact moment in history, DeFi represents a satisfying potential way forward. As we said in our whitepaper,
“the ultimate goal of FinNexus is to become a fully decentralized open collaborative financial protocol, and a distributed self-evolving business community with open governance.”
However, one does not just snap one’s fingers and say “Decentralize this!” If it were that easy, we’d already live in a world ruled by Moloch DAOs everywhere. But we don’t.
True decentralization must be bootstrapped. The distribution of the token supply must be wide. The nodes in the network must come from all over the world. The participants in the ecosystem must be diverse. In the long run ideal state of a decentralized network, governance should not be concentrated in the hands of a few people. But that ideal state cannot be created by fiat. (And it is even harder to create by fiat with fiat!) Nay, true decentralization takes time. In a rapidly growing industry like DeFi, in a landscape that changes by the week, flexibility in a token economy is critical.
Towards Full Decentralization in 3 Phases
In FinNexus’ whitepaper, we outlined a three-phase path to achieving true decentralization. By observing the path of great projects that walked down this path before us, we came to the ultimate conclusion that the best path to true decentralization was by bootstrapping it. Of course, we’ll begin by offering truly decentralized services, but we hope that in the long run, we can also achieve that which has eluded even the most accomplished cryptocurrency projects: decentralized token distribution and decentralized governance. Services, token distribution, and governance are the holy trinity of true decentralization.
We are currently in Phase 1, which involves developing a Diversified Crypto Asset Platform. We are firmly on that path, having planned the UM1S real world asset token on Wanchain and later we will have UMnS tokens on XRP Ledger. We’ll constantly be expanding the categories of products, and the number of products within those individual categories, that we have on offer on the platform. We’ve even begun developing other protocols to create other types of products for the FinNexus Crypto Supermarket. You can find our long-term roadmap to stocking the shelves of this supermarket on page 30 of our whitepaper. For a more recent granular look, please take a look at Boris Yang’s “2020 Roadmap” post.
Once we have a solid foundation in place, with multiple DeFi protocols operating on-chain and being constantly improved upon, we can expand into Phase 2 of our roadmap, which we call in the whitepaper Collaborative Peer-to-Peer Protocol. What we really mean by this phase is that it is at this point that we will begin to ratchet up Business Development. Right now, we have 7 software engineers toiling away on our 3 main products, all at various stages of production. Once these are on fine footing, we will turn our attention to “emergent use cases and application scenarios.” At that time, we’d like to explore creating localized offices to focus on enterprise adoption and localization. As we have learned over the past year with our growing community (now with 11,500+ members on Telegram and 9,500+ Twitter followers!), our comprehensive vision for building a cross-chain DeFi ecosystem can take a bit of discussion before it is fully understood. After the COVID-19 crisis is finally over (whenever that is), we still think that complex conversation is best had face-to-face. But until then, we’re fine leaving the devs in the lab to keep making new and innovative DeFi protocols. After all, we have a whole supermarket to fill up!
By 2024, we hope to begin the transition to, as we say in the whitepaper, “fully decentralize the P2P open sharing protocol network and develop an effective community governance model for the entire ecosystem.” We aim to have built out our own protocols and our own local offices. At this critical juncture, we hope to have also helped to achieve a fair and wide distribution of our FNX token. Initial whales will have reduced their position. New whales will have invested. And the years of onboarding platform users will hopefully have granted us the long fat tail of token holders that makes true decentralization possible. At that point, we feel that such accomplishments will have laid a solid foundation for decentralization.
The Role of the FNX Token
During this three-phase journey, the FinNexus team and our lovely community will have a constant companion — the FNX utility token. As the project evolves, we will need the use cases for the FNX token to evolve as well. As we initially disclosed in Ryan Tian’s original “Token Economics” post, our token economy will have a potential maximum of 500 million FNX tokens in the total supply. If you’re interested, information about the various lockup periods is also found in Ryan’s post, so I won’t repeat it here.
I do, however, want to highlight the role of the inflation pool, which includes 75 million FNX tokens. Unlike other interoperable protocols that offer an unlimited token inflation schedule, we have adopted the mindset of one of our founding investors, Wanchain. Although WAN employs a cutting-edge Ouroboros-based Proof of Stake (POS) system, the inflation that secures the chain will not last forever. It comes from a predesignated pool of WAN tokens, thereby capping the inflation. The idea is that, within the 5- or 6-year runway those inflationary tokens provide, validators will be incentivized to secure the network purely for a portion of the on-chain transaction fees. That perspective is the essence of bootstrapping. And it is a significant source of token value for any digital asset.
At the beginning of this essay, I said we lived in a brrrr brrr world. But that doesn’t mean we should recreate QE Infinity on the blockchain! The proper ethos of crypto, inherited from bitcoin, is that of disinflationary assets. We feel that that is an important theme to guide us.
The FinNexus token economy employs a similar mechanism as WAN. In the FNX token contract, we designate an inflation pool of 75 million FNX tokens. At the end of our token distribution event this month, the inflation of the FNX token circulating supply will not begin. That landmark will only begin once fees start to be earned on our platform. However, we do promise that we will never have “inflation for inflation’s sake.” Such a strategy would ruin the value of the token. We plan to jealously guard our FNX like a dragon hoards his gold.
Learning from Synthetix
We have observed the token economies of other second-layer DeFi niche ecosystems, namely Synthetix (SNX). As with any good student, we hope to apply their lessons learned to our own path. To explain myself, I’ll need to tell a little story.
I remember standing in a Seoul hotel lobby on a hot night in the summer of 2018. It was Hashed Night and there was a throng of crypto insiders at that event, all milling about trying to nosh on the premium spread provided by one of the luckiest crypto funds in the world. The guys at Hashed had miraculously parlayed $600,000 into $250 million. No idea what they have left these days. Back then, there were just tons of shady folk in the industry, no doubt attracted to the supposed millions of Hashed like moths to a flame. There was even a former US Olympic speed skater there, Lord knows what he was doing selling blockchain assets. But he had an entourage and throngs of people asking him what he, of all people, thought about crypto. Turns out he didn’t know much. He’s no longer in the industry these days.
I saw Kain Warwick all alone there at Hashed Night. He was standing up against a column with all these kinds of characters swirling about him munching on a plate of some of those primo appetizers. There was no one around him, but I knew it was him because he was wearing his project’s t-shirt. Stablecoins were the big innovation that year and @kaiynne had probably the least loved, but most innovative, of all of them. At the time, his project was called Havven and the only reason anybody had even heard of his Australian team was that they had done this quite successful massively viral airdrop campaign. But then, like all projects of that era, it listed on a couple of China-related exchanges and then its native HAV token dumped 90% or 95% or 99% or whatever it was. People didn’t care anymore.
It’s not a criticism. It’s just what tokens did back then. But that price action explains why Kain was up against the wall, all alone. I had some HAV tokens from that airdrop. I figured they’d just become worthless.
However, within a year, Mr. Warwick had completely revitalized his project. What was an also-ran back on that balmy night in Seoul in 2018 is now SNX, a top-50 token with about a $150 million market cap. How the heck did he do that? The turnaround began with 2 important decisions:
- Rebranding to Synthetix (Nov 30th, 2018): The team made the critical decision to become “so much more than just a stablecoin.” And with that system redesign, Synthetix pivoted from stablecoin to Crypto Supermarket. That’s how SNX arguably became the first truly DeFi project, way back before DeFi was even a thing. In fact, the word “DeFi” is not even mentioned once in this rebranding blog post.
- Establishing SNX Inflation Pool (Feb 15th, 2019): The team made the tough decision to inflate their existing token supply over the next five years by 150%. On its face, it sounded like an awful decision, especially to bitcoin maximalists and traditional finance guys, particularly occurring when it did at the deepest depths of the crypto winter. But this ultimately proved to be a very sound decision. That’s because the inflation pool “adds incentive for people to participate and contribute at an early stage in the system’s life, which is when it’s most important due to the compounding nature of network effects.” At that time, the nadir of the bear market, it was virtually impossible to get any token holder to be an active participant in your project. But get them to stake their tokens and earn some more by interacting with your platform? Boom! DeFi in the Synthetix ecosystem was off to the races.
These two very tough decisions are a big reason why SNX is now the #2 DeFi project according to Defipulse.com. Oh, and in the 2 1/2 months between those two blog posts, all of a sudden “DeFi principles” became a thing to abide by. Things move fast in the digital asset industry. Real fast!
FNX Monetary Policy
The monetary policy that will initially govern the FNX token supply will be a capped inflationary model similar to SNX. Initially, the FNX token inflation pool upon launch of our platform will comprise 75 million FNX tokens. How these inflationary tokens get distributed will be somewhat experimental. On pages 26 and 27 of our whitepaper, we outline a basic model based on a “fee scale” formula that will be “automatically adjusted according to the usage of the platform.” We also have committed to allocating 25% of all fees collected via this formula to a “Buffer Fund” that will serve as kind of an insurance “to compensate user losses when an uncontrollable factor causes FinNexus users to lose their assets.”
The remaining 75% of value collected via the “fee scale” formula will be returned to FNX token holders who are active participants on the platform. They will receive a pro-rata portion of the FNX inflation pool. On page 26 of the whitepaper, we call this apparatus the Dynamic Inflation model, which employs a market mechanism to determine the appropriate level of token supply inflation. How the Buffer Fund might work in theory is presented in a graphic form on page 28 of our whitepaper. A further explication of the initial elements of value capture that will populate the Buffer Fund and affect the variable issuance of FNX are discussed more broadly in a forthcoming post, “Capturing Value with the FNX Token.”
For true decentralization to be bootstrapped, there is another 150 million FNX tokens, representing 30% of total supply, that we have reserved for “operations.” This bucket is locked for one year after the first listing on Bitrue. After this one-year waiting period, our intent is to unlock 30 million FNX tokens each year for 5 years. How we use these tokens once they are unlocked is another question.
Here again we look to Synthetix’ experience for guidance. They currently distribute SNX inflation across multiple categories of active platform participants, the need for which was not apparent until they ran across operational issues while operating their platform. We will incentivize people with FNX tokens from the FNX inflation pools (the operational reserves and/or variable issuance reserves) to stake FNX (and other assets, if necessary) in our ecosystem as we perceive a need for those assets or as issues inevitably arise. After all, this is DeFi. And it’s still early on in the industry.
In the case of both of these buckets of tokens, we reserve the right to tweak the monetary policy in the future. We want the flexibility to point a “bazooka” (to use a highly technical monetary policy term) wherever it can provide the most functionality to the project. At the outset, we expect that it will mostly be our team that puts forth Finnexus Improvement Proposals (FIP). But any FNX token holder could make such a proposal and we hope to hear from all of the intelligent folks we have in our many localized communities as we evolve our cross-chain DeFi ecosystem. Our overarching intention is to reward those token holders for their active participation on our platform. These two token buckets — the Variable Issuance and the Operational Reserves — will be used to, like Synthetix, bootstrap network effects.
Initial FNX Token Distribution Event
This month we will distribute a maximum of 8.8% of our total token supply, for a total of 44 million FNX tokens, in the Bitrue event and via Wan Wallet. Please consult Ryan Tian’s other tokenomics post, “Deciphering the FinNexus Token Offering Model”), to understand more about the flexible initial burn model of FNX. Basically, there are two ways that FNX tokens from that 44 million will be burned:
- Unsold FNX: Unsold tokens from the 44 million FNX available this month will absolutely be burned, permanently removing that unsold FNX from circulating supply.
- Converted FNX: Those FNX tokens that are sold to participants and subsequently converted to UM1S will also potentially be burned at the time of conversion if the token holder chooses to convert them within the first 90 days after Bitrue listing. Such converted FNX tokens would forever be removed from total and circulating supply.
If you’ve made it this far in this lengthy post, thank you very much for reading. I hope it clears up any questions you might have about how the FinNexus team plans on bringing value to (and keeping value in) its crypto-economic ecosystem. If you have any further questions, please reach out via our social media channels listed below.
The FNX token will be available for purchase on Bitrue starting May 11. More info here and here.
About FinNexus
FinNexus is building an open finance protocol to power hybrid marketplaces that trade both decentralized and traditional financial products. The FNX token will live on the Wanchain blockchain to take advantage of the most robust cross-chain capabilities currently available in the industry. The first products FinNexus will release are innovative tokenized assets with value based on real world cash flows that live on Wanchain and XRP Ledger. The second product to be released is a fully decentralized bitcoin options model.
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