The Thought Process Behind Token Backing
Kingdoms Beyond will allow tokens to be backed by Ethereum as well as DAI. In this article, we will go over the reasons and thought process over why we wanted token backing.
In our current society, most of our tangible goods comes from raw resources. We will consider the specific use case where society finds value in a rare resource such as gold. Gold is linked to money and has timeless appeal. Although gold by itself cannot be used in anyway besides being traded, if you consider it as just a shiny rock. Its value comes from what you can do with gold in society. Its perceived value is because it is scarce, and can be thought of as a suitable replacement for money. Gold is also used to make jewellery and has many metallic properties that makes it ideal in manufacturing and hardware products.
We can apply the same logic from gold to the blockchain. In theory, Ethereum and DAI are considered rare resources as they are clearly in high demand and there is a limited number of these tokens at any one point in time. As of writing this article, Ethereum is priced at $170 and DAI is pegged to the USD. If our heroes are created from a rare resource such as Ethereum and DAI, this provides value to the hero based on the base value of the backing token.
What is Token Backing?
Token backing refers to ERC-721 tokens having another token attached to them, giving it additional value. In our case, heroes are backed by Ethereum and DAI. This backing is attached to the ownership of the hero, so if you trade away the hero, the backing will be traded as well. The only way of retrieving a backed token from the hero is by calling a smart contract function to ‘burn’ it.
Although backing a hero will give it value, the backed value is not the actual value of the hero. We recognize that the value of this token comes from what they can accomplish in game and the desire for this hero in the current meta. We hope that this mechanism of backing provides a base value for the token. When people choose to sell these assets on the open market, they will sell it for higher than the backed rate, otherwise they will be losing money.
One of the major problems with blockchain gaming is that there is hardly any liquidity for the majority of the games in this space. It may take hours, days, or even months to sell an ERC721 token to the right buyer.
But what if you don’t have that kind of time?
The value of being able to cash out at any one point in time can be an important step in blockchain gaming. This offers gamers a sense of security within their assets, knowing that they have options. Of course, our main value for our assets come from the fact that they have certain use cases in game. However, by adding a second layer, even without a game, these tokens can be thought of as valuable.
Why did we choose to back our tokens with ETH and DAI?
Our first thought was to go with ENJ as they have done a phenomenal job with the idea of backing and have an amazing system in place. However, my main concern was that many users do not use the ENJ ecosystem and prefer ETH. Furthermore, by shoehorning our tokens to be backed by ENJ, we limit ourselves as a decentralized Dapp as the heroes are now representative of the base ENJ price. We back our tokens with ETH as the Ethereum ecosystem is something we truly believe in. As a blockchain developer, it streamlines our process as well since we will be accepting ETH in our Founder sale coming soon.
In the future, it is also possible to back our tokens with ENJ or any other ERC20 token if that is what the community is leaning towards.
We truly believe in the blockchain gaming space and are extremely excited to watch it grow. We want to give back to the community as they are the ones supporting us. A certain percentage of every sale will be put into a fund to back all the heroes for sale.
If a Founder series hero costs 0.2 ETH, then 10% of that, or 0.02 ETH will be put into a fund which will be distributed back to the user’s heroes in the form of a backing. The rarity of the hero dictates how much they will get backed.
NOTE: These numbers are subject to change
For example, if I get extremely lucky and purchase a chest for 0.2 ETH and open a LEGENDARY hero, it is backed by 0.23 ETH. In theory, you have made money on your purchase as you could burn the hero to claim 0.23 ETH and effectively make 0.03 ETH. This would benefit not only you but the entire community as well. Since there is only a limited number of LEGENDARY heroes available, this makes the existing heroes slightly more rare and as a result, increases the overall value of the other heroes.
By using ETH, we offer users the ability to convert their ETH backing to DAI at any point in time. We do this because we do recognize the volatility in today’s market. ETH has seen a fluctuation in price from $400 to $100 in the past year. By converting the backing to a stable coin such as DAI, users can ensure their hero’s base value as a result. We also believe that by backing tokens with a stable coin, the overall game ecosystem will be a lot more stable in terms of pricing of heroes. Since ETH and DAI are considered like cash, it is even possible to split up the backing to do a 50% ETH 50% DAI backing system in the future.
How can you trust us?
All of our sale data from chests will be published on the blockchain as well as online because we believe in transparency and honesty. We will release details into the exact percentages of the backing fund as well as how much each hero will be backed by. We will also release the distribution of exactly where each dollar will go if you choose to support us through our founder sale.
Furthermore, we will be building a smart contract which will hold all funds in order to ensure that the funds are secure and to do the necessary atomic swaps between ETH and DAI for each user. For now, we will be tracking the funds of each hero in our own server to ensure the convenience sake of the end user. That way users do not need to interact with the blockchain. In the future, we hope to bring this to an even more decentralized aspect by allowing the user control their own backing themselves.
What about heroes that are acquired in game?
From our brief overview, we mentioned that Kingdoms Beyond will be a completely free to play game. As such, you have the ability to earn heroes in game. For example, you defeat a raid boss and find an extremely rare hero. You can convert this hero to a token to be traded on sites like OpenSea. If you would like to convert your in game asset into a token, you can choose to back the token yourself, or level your hero up to a certain level beforehand and we will cover the cost of backing the hero for you with a special fund. What this suggests is that if you succeed at our game, you will be able to earn heroes with real monetary value.