A Breakdown of The Ontology Dual-Token Model
Foreword
Ontology uses the VBFT consensus algorithm, which can be considered a PoS algorithm. Therefore, in the Ontology system, the three types of tokens mentioned in the previous article, including governance token, security token, and utility token are all necessary. Ontology adopts ONT as the governance token and ONG as the utility token. Ontology is able to integrate stable digital currency and has launched stable coin PAX on its blockchain.
Our focus today is on the ONT/ONG dual-token model and its logic for serving the Ontology infrastructure.
1.1 Ontology Dual-Token System
The Ontology dual-token design uses ONT for staking and ONG as gas. In the Ontology infrastructure design, ONT is used as the staking tool, and the time cost of staking and the operating costs of the nodes are considered to be inputs and ONG is distributed as revenues. ONG is the utility token used as a value anchoring tool for on-chain applications.
Ontology’s VBFT consensus algorithm is a PoS consensus algorithm and its advantage is that staking has the functions of both the utility token and governance token:
• When the market is booming, people will prefer to use it as a utility token, which brings more liquidity; when the market is unstable, the function of the governance token allows people to “lock” or stake their token to avert risks;
• The liquidity caused by the utility token function causes instability in stake value, which is a particular concern for PoS public chains. In this case, the design of Ontology’s dual-token system, which generates profits for staking but decouples volatility, would be much better.
Ontology decouples ONT and ONG to alleviate the influence of violent fluctuations of the native “asset” value on the gas fee.
The potential positive logic is as follows:
• ONT is for staking and ONG is used in the transactions on the chain;
• Control the speed at which ONG is generated to serve the demand of the on-chain business. As the demand increases, the total amount of ONG transaction fees increases, and the nodes can receive more ONG revenue;
• The nodes receive ONG, and in order to pay for the operating costs, they will sell the ONG on the market. This promotes the circulation of the ONG. As the number of on-chain applications increases, the ONG circulation rate also increases, which in turn drives up the ONG return for node staking. As a result, it is safe to expect the value of ONT will rise.
To put it simply, the high circulation rate of ONG is a result of a huge number of on-chain applications, which can increase the returns on ONT staking. Moreover, as the amount of ONG generated each year will be reduced proportionally, the value of ONG will accordingly increase. As ONG appreciates stably, the consensus node can independently lower the gas fee accordingly.
1.2 Ontology Token Design and Governance Model
The blockchain nodes are the foundation of the platform. The relationship between nodes still meets the governance requirements of “competitive cooperation”. The token model of the Ontology infrastructure needs to serve the governance model.
• The current challenge for PoW is not leveling the playing field for the nodes, but a waste of resources;
• The challenge for PoS is not a waste of resources, but the so-called “oligarch effect”.
In order to avoid waste of resources, Ontology chose a PoS consensus algorithm for network governance, and the algorithm of Ontology token is to avoid the “oligarch effect”.
Ontology divides the consensus group into the consensus network and non-consensus network, which take up 50% each. The non-consensus network receives ONG revenue based on the stake ratio, while the Triones incentive curve in the economic model of the consensus network is designed to prevent stake oligarch, and determines whether ONT is locked up or circulates through node consensus. For nodes with a large stake size, too much staking will reduce the revenue and they will choose to release part of the stake to be circulated or split itself into multiple node “miners”, which accelerates the formation of a sufficiently distributed network and can thus prevent monopoly.
In this way, it not only shares some similarities to PoW but also avoids the waste of resources to a certain extent.
1.3 Design of the Ontology Incentive Curve
The logic of Ontology’s Triones incentive curve is shown in the figure below.
To put it simply:
- The blockchain network tends to be stable and the nodes are equal in performance. Each node is compensated based on the stake size and point A is in line with the interests of network nodes to maximize benefits;
- Receive more stake through network promotion (point B);
- Meet the need to increase the circulation of ONT (point C);
- Prevent malicious competition by any single node (point D/D’).
At present, the average position of the Ontology incentive curve is set at point B, which is the point that promotes ONT staking.
1.4 Dual-Token System is a Better Solution
The blockchain is currently in a period of rapid growth. On the one hand, the enormous value of “economic governance” of public chains has been more widely recognized and has resulted in a division of labour in different businesses. The scaling and performance issues of public chains are proposed to help the blockchain infrastructure meet business needs; on the other hand, it exposes the lack of diversity of on-chain applications, and the lack of public chain business is a bigger problem. This is also the direction the blockchain industry is working towards: to seize high-value asset business and develop diversified businesses.
The dual-token design not only ensures the development of the infrastructure system but also provides more services to justify the value of the infrastructure. Staking is both a fundamental governance model and can develop a range of value-based businesses.
At present, there aren’t many types of applications on the Ontology blockchain and the entire blockchain industry is still in the stage of trial and error and cross-sector promotion. It is foreseeable that in the early stage, the gas revenue of the nodes is unable to cover their operating costs. Therefore, Ontology offers a node incentive plan (10,000,000 ONG is used as node incentives every year for the first three years) and ensures nodes can receive enough ONG revenue to cover the operating costs by the orderly expansion of the node network in the early stage.
In addition, based on its infrastructure, Ontology’s DDXF solution enables traditional Internet applications to move to the Ontology platform and provides an effective technical support for the rapid development of on-chain businesses.
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Find Ontology elsewhere
Ontology website / Ontology GitHub / ONTO website / OWallet (GitHub)
