Our Thoughts on Token Economics
In our last article, we explained why it makes sense for DropChain to ride the blockchain wave. Today, we dive deeper into our token economics and explain why we are tokenizing global food supply chains.
By way of background, the DropChain Network (DCN) is the ecosystem within which all supply chain stakeholders interact. The DCN facilitates traceability and transparency of food and beverages along their journey from source to supermarket trolley. We believe that by reducing fragmentation of logistics and business data along the supply chain, we can solve the USD$40 billion problem of food fraud and counterfeit beverage.
Many skeptics question a blockchain startup’s need for “tokenization”. Rightfully so, as most blockchain projects utilize poor token design. While these projects raise funding through the sale of utility tokens, they wrongly project their tokens to be stores of value instead of convenient mechanisms to access network utility.
This is all backwards. Under single-token economic models, projects spend more on marketing than they do on project development. The result? A majority of ICOs are unable to deliver the sustainable ecosystems they had promised investors.
What Makes DropChain Different?
When we were designing DropChain’s token economics, we examined the practicality of having a single token serve as both a store of utility and store of value. We quickly realized the shortcomings in this approach and its potential impact on the long-term viability of our project. The question, then, is how do we create true utility tokens that both incentivize development and attract investors? How do we create an economic structure where a token’s value is dynamic in nature whilst maintaining stability for utility purposes? This paradox presents a significant challenge for the entire industry.
Token Economics in the DropChain Project
For many companies leveraging blockchain technology, the creation of a cryptocurrency has stolen the limelight from their network’s underlying utility. DropChain’s business model is contingent upon the token’s ability to perform diverse functions within the DCN ecosystem. Accordingly, we propose a dual-token economic structure, with a utility token to access the DCN’s products and services (TRACE); and a limited-supply network token (BUZZ).
1. Utility token (TRACE)
TRACE incentivizes each stakeholder to engage and contribute to the DCN ecosystem. The token serves as:
- A data tracking mechanism for brands, retailers and end-consumers;
- Consumer marketing opportunities for brands;
- A mode of payment for DropChain service provision and DCN maintenance fee; and
2. Network token (BUZZ)
In addition to TRACE tokens, DropChain will issue a second cryptographic network token called BUZZ. Key stakeholders can access DropChain’s services by acquiring BUZZ tokens. For example, if a brand owner wishes to track a product shipment along its supply chain, they will need to obtain BUZZ to access DropChain’s product traceability engine. BUZZ is a limited supply cryptocurrency and no additional BUZZ will be created after the initial token generation event.
Holders of BUZZ tokens enjoy two primarily benefits. BUZZ tokens can:
- Provide holders access to the core functionalities of DropChain’s supply chain tracking ecosystem. Brand owners (e.g. Budweiser) would be the target user in this instance. The more BUZZ tokens a user holds, the more shipments they can track.
- Be converted into TRACE tokens to obtain access to services and goods specific to DropChain’s ecosystem. Stakeholders along the supply chain (distributors, retailers, and end-consumers) would be the target users in this scenario.
Maintaining the Ecosystem
With tokenization at the heart of the DCN, DropChain will ensure its utility token (TRACE) preserves its inherent value by keeping it distinct from the BUZZ network token. TRACE tokens will be an uncapped stable cryptocurrency, providing direct access to goods and services in the DCN and acting as a reward within DropChain’s ecosystem.
The autonomy between utility & exchange tokens means cyclical market movement and pump and dumpers won’t disrupt the everyday operation and stability of the DropChain Network. This structure will enable DropChain’s token economics to remain dynamic in nature (via BUZZ tokens), yet deliver a stable ecosystem through a secondary currency (TRACE tokens) for users to transact in and earn. Notwithstanding, TRACE tokens may experience slight value fluctuations due to inflation.
This was just an introduction to our token economics. Over the next few weeks, our blockchain development team will expand on this topic, covering issues such as specific integrations with public chains (other than Ethereum); unit transaction costs for inserting data into the blockchain; and the relationship between TRACE and BUZZ tokens.
For all the information on our token economics, check out our website for the updated white paper. If you have additional questions, feel free to drop our executive team a message in our Telegram group.
We’re making strong progress in the design and development of DropChain. It’s been a lot of fun, and we welcome our community to chip in and provide support and feedback on our work through our various community channels below!
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