How the Token Economy will Power Internet Computer Adoption — Information on InfinitySwap’s Foundation Grant.
There can be no single classification of the crypto movement, which now spans so many unrelated areas of innovation. Entire spheres of influence from commerce to law are undergoing structural changes to adapt to crypto. Still, if we must characterize the movement, we can say that at its heart is the concept of tokenization — a new silk road on the web, free and permissionless, that enables the transfer of value. As the Internet Computer awaits its token standard, three questions remain foremost on our minds: what the standard looks like, who will build it, and who will be the next big winners from the new token economy?
If we consider Bitcoin as the core of the crypto movement, core to its utility was the concept of tokenization — a simple distributed ledger of numbers that the community recognizes as tokens. The basic value proposition has been and always will be about money. Fast-forward to 2013, and Ethereum had changed the story from digital money to a World Computer. It used a Turing complete programming language in conjunction with Bitcoin-like state replication and consensus, and initially had a different goal in mind than just enabling financial transactions. Ethereum was to be a platform for general applications, touching everything from IoT to identity verification.
Early in Ethereum’s development there were detractors: some did not think the project could scale to the throughput level required of a global computer, and so they branched off to work on alternative platforms. One such person was Dominic Williams of the DFINITY foundation who focused on developing a consensus mechanism based on random sampling. Today the Internet Computer carries the torch for that World Computer vision, with a platform capable of hosting web-speed smart contracts that scale. But perhaps we are getting ahead of ourselves — and neglecting major lessons from Ethereum’s journey to adoption. The key aspect still missing on DFINITY’s World Computer is the token standard.
It’s hard to imagine Ethereum as it was in 2015 — a modest and unproven concept backed by a foundation running dangerously low on funds — would become so outlandishly successful, reaching hundreds of billions in market capitalization. The turning point came at the end of the year with Ethereum Improvement Proposal 20, which set forth the ERC-20 token standard. It provided a standard interface that allowed Ethereum tokens to be re-used across wallets and other applications, and enabled third-party app developers to build reusable financial infrastructure. What followed was an explosion of interest in Ethereum-based tokens.
All of Ethereum’s widely adopted dapps are DeFi-based — exchanges, lending platforms, and recently the most usage comes from NFT platforms. But this wasn’t the project’s original intention. Looking back to the original Ethereum Whitepaper, the anticipated use cases were described much like conventional web applications adding blockchain-like features. Perhaps Ethereum will still reach that point, but the adoption-driving use cases have remained in the focus of DeFi.
Outside the Ethereum ecosystem, the same rules have applied. The most used dapps on alternative Web3 infrastructures are almost exclusively DeFi. What we’ve seen so far on the IC runs quite contrary to this, as gaming, social, and utility related projects are taking center stage as the ecosystem’s first movers. Entrepreneurs with ideas that go beyond what conventional blockchains can do are making the most of the IC. The IC’s speed and capacity give it a strong base in social and gaming applications, areas we haven’t yet seen blockchain dapps reach mass adoption. NFTs will likely play a large part in the IC’s specialty apps, representing everything from in-game items to badges for social profiles.
The Internet Computer (IC) has already brought the technical vision of a World Computer for general applications to fruition, but it hasn’t had the big moment where that vision penetrates the mainstream consciousness. Global web-speed dapps hosted end-to-end on a blockchain exist right now. Projects such a DSCVR, Distrikt, and OpenChat are fully functional IC apps that already rival the functionality of Reddit, LinkedIn, and Messenger. All of them are designed with tokenization in mind, but their token mechanisms are still lagging behind innovation as seen on Ethereum. Blockchain infrastructures tend to follow a similar progression, with the token stage being the last technical puzzle piece that precedes adoption. Right now we seem to be on the cusp of that moment for DFINITY, just like 2015 Ethereum.
The IC’s proposed Servous Nervous System feature will allow dapps to replicate functionality of the world’s most advanced blockchain governance mechanism. DeFi projects like AAVE and Maker generated multi-billion dollar valuations, in part from adding governance rights to their tokens. Imagine how well those value-generating principles of governance will apply to major social media dapps and functional DAOs. The foundation has been laid, but we’re still one step away from implementation.
The biggest roadblock to mass tokenization throughout the IC ecosystem is the absence of a widely accepted token standard. With that challenge out of the way, the development of native social tokens and the hubs through which to exchange and interact with them will follow. On the IC, DeFi for the time being has taken a backseat. There’s a technical rationale for this having to do with composability and atomicity that InfinitySwap’s own token standard means to address.
On Ethereum, every ERC20 token is essentially a smart contract that exposes exactly the same interface (a set of functions that can be called by other apps). This structure makes Ethereum highly composable, meaning pieces of code work like lego bricks — perfectly fitted when repurposed and stacked on one another. Furthermore, Ethereum’s chain-of-blocks type structure makes it atomic, meaning all the lego bricks of a given structure must be connected within a single transaction. Uniswap for example works by composing trade requests across multiple token contracts in a single transaction. The beauty and the magic of Ethereum composability is that all of these disparate services come together and run as a single transaction.
The IC, in contrast, has a blockchain divided into shards (subnets). This means smart contract code is replicated only across a select few private nodes, not publicly on every node in the network as it is with Ethereum. To communicate with other services, a shard must asynchronously call into another shard. This cross-shard communication makes composing transactions across services more difficult, as a failure on one shard will not automatically cause the others shards to fail and revert their state. Ethereum is like a Jenga tower of transactions, where taking one block out causes the higher levels to collapse. Not so with the asynchronous nature of DFINITY. Thus the struggle in replicating Ethereum’s most utilized properties — atomicity and composability.
InfinitySwap has recently been awarded a DFINITY Foundation grant to build a token standard that has the properties of composability and atomicity, something that’s been missing from the IC ecosystem. The goal is to eventually enable token mechanisms to seamlessly mesh with our platform as the central hub for DeFi.
More info to come. To stay up to date on developments at INFINITYSwap, join our Early Access Mailing list at infinityswap.one
