Part I — Context
Horizon State’s platform is B2B focused — targeting organisations, businesses, institutions, councils and governments rather than individuals.
Our platform operates as an interface between a public blockchain and organisations running votes. As such, it calls for token mechanics that are not common in standard B2C blockchain-oriented businesses.
Let’s use a highly probable real world example to explain the situation. Imagine a government that has not yet finalised legislation pertaining to cryptoassets or tokens. This government may be constrained by its own laws, or lack internal capability to purchase any cryptoasset. They would only be able to use the platform if Horizon State accepted payments in the government’s local currency, otherwise referred to as “fiat” (e.g. USD, Euro or GBP).
Offering a fiat solution in what would otherwise be a purely Ether and token based ecosystem would introduce a set of problems from a token holder point of view, if not for the mechanisms we’ve created to counteract them.
For example, the introduction of fiat into the ecosystem could result in a reduction in the demand for tokens, stifling token price appreciation, and decreasing possible returns for token holders.
The alternative is that we could target only the limited subset of customers who are already in the cryptoasset ecosystem, or wait until businesses, councils and governments came up with their own frameworks and structures to participate.
Of course, we did not feel cutting out a large portion of the potential customer base was a viable path for our business, and would likely be to the detriment of who will most benefit from the services we provide. Nor did we think this would be in the best interest of our token holders.
In creating a better outcome for all parties, we had to consider the operational challenges posed to us:
- The expectation, in good faith, of token sale participants and post-sale participants for potential return on their contribution
- The magnitude of a single instance of usage (e.g. a small national election where there are 3 million eligible voters)
- The inflexible nature of cash flow and expenditures experienced by customers who structure their budget and operations in fiat. Typically the organisational inertia of governments doesn’t allow them the agility to deal with natural fluctuations in the value of tokens. This in turn translates to an expectation of a fixed price in local currency
- The different pricing expectations across various industry and public service verticals
- The likelihood of institutional, non-crypto entities introducing cryptoassets, legislation and financial handling of non-fiat currencies in the immediate future
- The health of Horizon State’s financial and moral standing
- The capability of Horizon State to fulfill our mission and drive positive change
In order to accommodate these points, we made, and communicated, a decision early on to facilitate customers payments in fiat and to structure the business in a way that allows us to provide clear and accurate dollar figures for the services required from us.
This allows us the flexibility to address different price points for local economies, and their unique budgetary considerations. It also enables us to shield customers from self inflicted token price fluctuations that their purchase of tokens in bulk could drive in the market.
To protect our token holders, and to improve possible token value appreciation, the platform provided to customers will include an exchange where they can pay for campaigns with fiat. Horizon State’s platform then purchases HST from the market to cover the intra-system HST cost to run that campaign or utilise other features and functions. This guarantees the price for our customers per-campaign, and retains the value of the token at the same time.
The key to reconciling the apparently mutually exclusive goals of protecting our token holders while enabling budget constrained customers to use the platform is the divisibility of the HST token.
A campaign is quoted for in fiat, and uses as many tokens as that fiat figure buys in the market, based on the token price at the time. If an election was quoted at $4 per vote, and the price of the token at the time is $0.40, then a vote will consume 10 HST tokens. If the price of the token at the time is $5, then a vote will consume 0.8 HST. The body running the election is guaranteed to pay what they have signed up for, and any token holders who decide to sell at this point receive the dollar amount quoted.
As the platform grows with new modules such as deliberation, audiencing, analytics, fundraising, incentivisation, social impacts, submissions etc, HST will be used as access rights for more services in this same manner. As the customer savviness of the cryptoasset ecosystem improves, they will also have the opportunity to manage their own reserves of HST. The greater success of the platform and its features, the greater the demand for the token.
Part II — The Exchange
An integral part of the platform is the internal exchange where customers can buy tokens — or use fiat to pay for feature and function use (access rights) which in turn buys tokens — directly through the Horizon State platform.
The usage of modules in the platform requires the customers to acquire HST through either of the above avenues. This creates a flow where tokens will be used on an ongoing basis for the actions those customers perform in the system. Different modules will have different pricing structures — not unlike the pricing structure used by services such as AWS (Amazon Web Services).
Customers signing up to use the platform will have a wallet with HST balance on the exchange. As the customers use the platform, this balance will reduce by the tokens being consumed. The exchange will include a mechanism to buy tokens on the customer’s behalf from the external exchanges, at the price that is available at the time of purchase as discussed above.
It is likely that from time to time customers may have a credit in their balance with no immediate plans for its use. For example: a city decided to run a local council election using the platform, estimated a 90% voter turnout, and purchased HST to accommodate for that. When the vote is completed, only 86% turnout was achieved, resulting in a quantity of HST left in credit on the platform’s exchange.
The city could retain these tokens for the future, but may not wish to — or budgetary regulations may dictate that the leftover budget has to be used for a specific purpose. In this case — the city would be looking to sell the leftover tokens back to the market.
To prevent the possibility of massive sells, the platform exchange will restrict the rate at which those tokens are allowed to flow back to the market. This will help shield token holders from large dumps which could depreciate the token value.
Part III — Use and circulation
Many blockchain protocols or platforms employ tokens that are in perpetual motion between users. In these scenarios, all tokens that were not left in the hands of the team who ran the token generation event are forever in the hands of users or token holders. Horizon State’s platform is different, as the tokens are used to pay for services provided primarily by the platform (until dApps are developed atop of it).
This creates a situation where Horizon State itself could quickly become a large holder in the market, to the detriment of other token holders. To avoid this possible eventuality, we have created the following token mechanics model which we believe to be fair and transparent. It splits the tokens used as access rights for platform features and functions by Horizon State customers into the following four groups:
- Up to 8% of HST used will be sent to the purgatory, never to return to circulation again. This will slowly reduce the total number of tokens circulating. The actual percentage will not be constant, but will vary based on the total number of tokens used in a scenario (eg. a shareholders meeting). There is an inverse correlation between the number of HST used and the percentage that will be removed from circulation, so as not to remove too many too fast.
- 5% of HST used will be recycled into charitable purposes. We will initially have several hand picked charities whom align with our company values: equality, democratisation, and justice. Looking forward — and in the interests of enabling decentralised entities — we plan to feed these tokens into a charitable decentralised organisation (DAO). This would enable the community to be directly involved in the decision of where the tokens should be spent, and enable the level of transparency on spending that is sorely lacking in today’s charity space, ensuring the funds go to those in need rather than as overhead. We are exploring a mechanism where some of these 5% may be nominated by the customer themselves, allowing a very straight-forward way for businesses to give back to the community. These tokens will be added to the charity’s balance inside the platform’s exchange, and would be available for the charity (or nonprofit) to either use in the system, or sell on the market under the rate restrictions described above.
- 5% of HST used in the non-government, public services domain (e.g. city council elections) will be recycled back to the community voting. We intend to partner with a global organisation that provides access to funds for public infrastructure projects to help us achieve this. The plan is that councils wishing to participate will run their voting on the platform, adding a specific question inside the ballot that will have people selecting which public infrastructure project they would like the tokens used to go into. A percentage of the tokens used in that vote will then be converted to be used for funding for that project specifically. This programme, which we lovingly call The Pure Initiative will be detailed in a separate post.
- The remainder of the tokens will be liquidated on the free market by Horizon State. As tokens are used and come in, they will be entered into a pool of ready-to-be-recirculated tokens. This pool will be returned to the market at a rate of up to 20% per month. This means for example that if customers used 100,000 tokens at a specific month, up to 20,000 of those will be sold to the market the following month. Because tokens are used to pay for the use of the system, and as the platform is going to be using resources outside of the blockchain — the income from the sale of these tokens back to the market will be used by Horizon State as working capital, to pay the software and infrastructure providers for resources consumed, as well as other operational expenses.
Amendments to these percentages may be required in future, to protect the interests of token holders, and sustain the Horizon State business. We believe the mechanics detailed above address those needs, and will have a huge impact for good on society.
We want to thank the members of our community who listened, suggested, debated and supported us so far, and we look forward to even brighter horizons.