Why Is PolySwarm Using a Token and How Does it Work?

Token terminology is thrown around a lot in the blockchain and ICO world and it can be confusing to know the difference between them. While the differentiations are blurry and not yet concrete, one thing we’re sure of is the idea of using a utility token within the PolySwarm ecosystem, Nectar. You may be wondering: what does that even mean? Here’s what you need to know about our token, Nectar, and how it works within the PolySwarm ecosystem.

Nectar: Token-Enabled Market Isolation

At PolySwarm, we chose to create our own utility token, called Nectar, which will be used to power transactions within the PolySwarm ecosystem. As explained in our FAQ: Nectar serves to isolate PolySwarm from external market forces including the value of Ether (ETH) and the performance of applications that transact in Ether.

Here’s what we mean:

If PolySwarm participants transacted directly in Ether (ETH), Ambassadors would be incentivized to buffer a number of Enterprises’ artifacts until the value of ETH diminishes sufficiently, minimizing the Ambassador’s Bounty placement cost and in turn maximizing profit.

This selfish behavior might be good for the Ambassador in the short term, but would trigger a tragedy of commons condition in the long term, potentially causing gridlocks via delayed Bounties (or even delayed Assertions placed on Bounties).

When considering the ground truth feedback mechanism, we expect PolySwarm bounties to operate on day or week timescales: orders of magnitude longer than minute fluctuations in ETH value.

Conversely, in a Nectar-based PolySwarm, we are able to peg the price of Bounty placement (in terms of NCT required) independently of ETH value fluctuations, unlocking stability strategies and diminishing return on micro timing choices that would otherwise amount to perverse incentive.

Our newest video explains how the token is used between users within the marketplace:

Looking Ahead

As the market grows, we suspect the differentiation between tokens to become more clear and tied to specific regulations that dictate how they can and can’t be used and purchased. For now, we’re focused on Nectar and how we can make the PolySwarm marketplace strong and reliable for all users who participate.

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