Holo’s ERC20 token (HOT) and Mutual Credit Cryptocurrency (HoloFuel)
DISCLAIMER: The following includes predictions and estimates. While these forward-looking statements represent our current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only. Please note that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.
How to understand the prices of HOT and HoloFuel? What is the interplay between the two? Remember that HoloTokens (HOT) act as temporary, transferable receipts which can be redeemed for HoloFuel when Holo is launched. The supply of HOT is small and temporary, whereas the supply of HoloFuel is dynamic and designed for long-term economic viability. Please see the Currency White Paper for details about the self-adjusting currency supply.
Nevertheless, HOT and HoloFuel are both informed by 5 key pricing considerations that drive the value of HoloFuel that matter upon the ICO launch, prior to the launch of the Holo network, and after it. Please note that HOT holders are subject to pre-launch and short-term drivers, like the token market and general health of the crypto-community, before HOT is redeemable for HoloFuel.
5 Factors drive HoloFuel’s value
- Current market for decentralised and centralised hosting through Ethereum, Amazon Web Services, and others
2. Demand for distributed computation, personal data ownership, and hosting
3. Number of hosts, and their prices based on ability to run on cheap hardware
4. Popularity of apps and usage levels of hosting power on the Holo network
5. Relative demand from hosts for redeeming out into each reserve currency
You will notice that neither demand for nor supply of the currency was on the list of key pricing dynamics. Patterns of thinking about currency value based on token supply simply do not tell the story about HoloFuel value — that is by design. It is optimized as a value-stable medium of exchange rather than a store of value, so that it can grow an active economy, rather than just have people parking their crypto assets .As a mutual credit currency, the net supply of the currency is always fixed at zero — positive balances offset negative balances. No currency is created from nothing. The active supply expands and contracts based on real market demand to keep value stable, while still being limited to the productive capacity of the network to provide hosting power.
The Hosting Market
The first two factors have to do with the fact that today, we pay a premium for hosting because of the complexity of scaling software and server infrastructure, and the high cost of the expertise to do so. The introduction of Holochain as a self-scaling P2P crypto architecture paired with commodity hardware for running Holo may bring hosting prices for decentralized apps from where it sits today on Ethereum at 400 million times the cost of cloud hosting, down to the price range of cloud services or even below that price.
The Holo Hosting Market
If you buy HoloFuel before Holo hosting prices drop, then as Hosts charge less fuel for hosting, you can purchase more hosting with that same fuel. As buying power of HoloFuel grows the market price for HoloFuel also grows. The value of the currency is tied to its buying power in a productive economy of hosting services. If you buy HOT before HoloFuel is available, then again as Holo hosting prices drop, then as Hosts charge less fuel for hosting, you can purchase more hosting with the same fuel that you bought (for later use) during the ICO. Because holders of HOT will be able to redeem their tokens for HoloFuel for a 1:1 unit swap for at least six months after Holo launches.
Initial Pricing Relative to Ethereum Performance
To predict the costliness and efficiency of the Holo network relative to the Ethereum network, we measured the computational load, price, and timing of running dApps on Ethereum, made counterpart apps on Holochain that accomplish the same things, and ran benchmarks to compare performance. Read more about this process here for details of how we established the value of a unit of HoloFuel and pricing for hosting dApps (at 1/10,000 the cost on Ethereum).
We can summarize the short-term and long-term price dynamics in terms of influences that will drive the value up and influences that could drive value down.
Short-Term Possible Influences on HoloFuel
- Hosts may to receive massive revenues at ICO or token market rates (which will yield aggressive pricing)
- Initial rapid fall in hosting prices could mean a rapid rise in buying power = currency value
- Migration of noteworthy projects from blockchain will boost Holochain’s credibility
- News of high hosting revenues would attract many hosts causing a glut of hosting supply
- Non-token HoloFuel may not accepted by many exchanges
- Bugs in early Alpha releases of Holochain
- Attacks on security model of hosting and currency
Long-Term Expected Influences on HoloFuel
- Easy use of HoloFuel from Holo P2P Apps will expand application and reach of currency usage
- Once supply and pricing algorithms have reached reasonable equilibrium, prices should stabilize making more users feel safe to try cryptocurrency.
- Alliance with other emerging asset-backed currencies expand safe/stable crypto user base
- If regulators shut down cryptocoins, HoloFuel may continue to operate because it is crypto-accounting and provides direct clear utility.
- Many competitors may enter the market once Holochain’s architecture has been proven
- Attacks on value stability and pricing algorithms
- Governments that restrict use of cryptocurrencies
Hopefully this helps explain the dynamics of HoloFuel, why it is so different from crypto-tokens — even from Holo tokens, from where they begin. We aim to be forthright about the likely drivers of price increases and decreases, so that you come away from this piece with a clearer understanding of how asset-backed mutual credit cryptocurrencies work. This is knowledge we want to spread because this design choice is more likely to lead to a healthy ecosystem, post-ICO.