Two Token Model TTM – A Cryptoeconomic Approach For (ICOing) High-yield, Stable Decentralized Networks

On December 6, 2017, game company and distributor Valve announced that its gaming platform Steam is no longer accepting Bitcoin as a payment method. The company explained that Bitcoin transaction fees have gone up to nearly $20 per transaction last week, “compared to roughly $0.20 when we initially enabled Bitcoin.”

At the same time, CryptoKitties burned up 15% of Ethereum’s gas, causing a mid-level congestion and increasing in-game fees.

Since we have been working on some ICO projects over the last months, focusing on cryptoeconomics and token design, we felt the need for a model that would allow a high-yield return for investors on the one hand, whilst guaranteeing the stability and a proper functioning of the specific application(s) at the same time.

Two Token Model TTM Thesis
Decentralized networks need a token model that

  1. guarantees a stable cryptoeconomic mechanism to exchange assets, services, time and money between peers, and, at the same time,
  2. allows investors to reap large economic benefits, and, therefore
  3. allows an overall story of combining a cooperative/post-capitalist model with a pure capitalist play by technically separating both aspects through the representation of two dedicated tokens.

Proposed Solution

A) Two-Token Model

The network features 2 different types of tokens:
a) a core token (CT) that is tradable at crypto-exchanges,
b) an application token (AT) (per application)

CT
The only function of the CT is that of a currency. In all of the network’s potential applications, there is one overarching CT.

AT
The AT is designed depending on the respective application’s requirements. It is the only token that allows the usage of the respective application. It is not listed at any exchange. Potential listings of ATs probably could not be prevented technically, but by regulation: The network defines the listing of AT’s as not allowed and will exclude applications that behave otherwise. Organizers of applications that already have a token will be offered to exchange their tokens for AT. Additionally, they can be awarded CT depending on their applications’ asset values.

B) Token Issuance Mechanism

Initially, there will be two events that happen at the same time:

  • SAFT of CT to (accredited) investors
  • One-time distribution of (free) AT to interested potential network application users (comparable to a basic income)

The Token Story

A (revenue-driven, high-yield) SAFT will finance the development of the network and serve as the initial AT supply of the network. Within the first applications running, AT holders can earn additional AT, and, directly derived from that, additional CT. The intensity of use and supply of AT represents the intrinsic value of a CT.

This model of a clear, technical separation into  – and combination of – a speculative and an application part should serve the initially conflicting interests of both categories of the network‘s stakeholders: the potentially application-interested majority of AT holders and the potentially solely commercially driven and high-yield-driven investors who hold and trade the CT.

Every app token holder (ATH) will receive CT’s additionally to their AT’s, if the intensity of use of the application reaches a certain threshold. As long as the intensity of use is above this threshold, the ATH will receive additional CT’s, scaling with their intensity of use. When the intensity of use sinks below the threshold, there will be no CT’s awarded further on.

Definition of Intensity of Use IoU Criteria

As mentioned, ATH are being rewarded CT depending on their intensities of use of the application(s). There are several aspects of defining an “intensity of use (IoU)” in a good way. First, an ATH could use a specific application very frequently. This could add to her IoU. Then, the ATH could move huge assets within an application. Again, this could add to her IoU. Further on, an ATH could use an application in a way that leads to a higher IoU of another application. This would lead to trans-application elements of the IoU’s algorithm. Then, there are further aspects, s.a. hoarding/inflation, etc..

Model Attractiveness

The definition of the IoU algorithm is one key aspect of this token model. On the one hand, it seemingly is the most complex problem to solve for the network. On the other hand it offers the opportunity to create one single algorithm that is completely variable in design and can be tweaked throughout the lifespan of the network without any need for changing the structure.

Due to the fact that the AT is not tradable, and the IoU algorithm prevents the ATH from hoarding and other unintended use, it can be regarded as stable.

The CT, in turn, is a tradable token that entails no other rights than being exchangeable with other currencies. The prize of the CT will be defined by market forces alone. This pure market-driven nature of the CT, combined with the value(s) of ATs, makes the network’s model highly attractive for application-focused users, as well as for investors.

We have intensely discussed the TTM within our network, and we have not found severe weaknesses that could prove to become showstoppers. However, we invite you to prove otherwise! Please provide us with your feedback on TTM – thank you!

Incentivizing Blockchain Ecosystem Development

The final decision has been made: We will not ICO through our brand Crowdstart Capital. After having worked on the preparation of a token sale based out of Germany several months we’ve reached the conclusion that such an ICO is not advisable at this time.

Two issues have been the decisive factors: First, an ICO based out of Germany would have to be done in the environment of a legal limbo. Other project teams may decide to take the risk of selling a virtual currency to professional and/or individual investors in Germany but we’ve decided that the regulatory uncertainty and risk is too high. With our parent company Datarella, we have built a solid brand reputation within the blockchain ecosystem and we are not willing to put this at risk.

Second, we think that we can better meet our goal of contributing to the blockchain community by giving our Crowdstart Coins away.  Instead of selling tokens to investors and using this cash to provide blockchain-based startups with consulting, services and solutions, we will reward Crowdstart Coins (XSC) to developers who add valuable code to the blockchain ecosystem.

We gained this insight to change our model while working on the cryptoeconomics; i.e. the inventive mechanism within a specific community. Finally, we have come up with a 3-step-process of distributing Crowdstart Coins – “XSC” – to the blockchain community:

A Blockchain Evolution Incentive Scheme

Phase 1 – Initial Token Distribution

In the first phase, we will distribute tokens to developers at conferences, events and hackathons. This activity will occur primarily in Europe and the distribution will be at the discretion of CSC. The goal of this phase is to get tokens into the hand of active developers and blockchain early adopters/enthusiasts.

Phase 2 – Smart-Contract-Based Token Distribution

Developers committing code to key blockchain projects can opt-in to receive XSC tokens for every line of code that is accepted for their respective projects. CSC will set up a smart-contract-based system that will pay out tokens according to the accepted commits. CSC will programmatically monitor the git repos of major projects.

Phase 3 – Liquid Feedback Mechanism

In the third phase, members of the community will be able to suggest projects to be included in the incentive scheme, a model known as liquid feedback. Token-based ballots will be used to enable community voting and determine which blockchain projects should be included.

In this phase, we’ll also be rewarding developers to contribute to our code base. Essentially, over the course of the three phases of the incentive program, it should morph from being a mostly manual process to a fully automated process.

If you’re a developer who committed code to advance Blockchain technology at-large, you’ll be eligible to receive XSC tokens. You can request XSC by filling out the form:

Developer Incentive Program: Claim XSC Rewards

Show us that you’ve got the right stuff!

„Traditional VCs Are Dead“: Full House at The State Of The ICO Ethereum Meetup

„I can honestly say my industry is being disrupted beyond belief right now. The funny thing is, I like it“, said Jamie Burke during yesterday’s Ethereum Munich meetup „The State of the ICO“. Jamie is betting his Outlier Venture’s fund on the idea to launch a handful, large ICOs to invest in communities and therefore in economies, rather than in startups.

Jamie’s fireside chat (no, there was no fire but it was hot as hell) with Datarella’s founders Michael Reuter and Joerg Blumtritt was a fascinating tour de force towards a potential next level of venture investing in general, and a new breed of investors focusing on communitarian, anti-fragile investments rather than amassing a portfolio of companies of which 90% will fail.

Before, lawyers Dr. Nina-Luisa Siedler of DWF and Dr. Markus Kaulartz of CMS inspired the audience with their highly informative and at the same time very sympathetic presentation on the legal aspects of ICOs. Both being long-time experts in the field of blockchain, managed to entertain everybody although their messages were far from being easy-going. Especially their slide „Consequences in case of incompliance“ filled the room with enthusiasm. Their complete slidedeck „Legal Aspects of ICOs“ can be downloaded here.

Again, the Ethereum meetup was a great success: everybody learned a lot, and from what we overheard on the floor, some of the individual conversations until late at night resulted in new ideas for …. future ICOs.

The State Of The Initial Coin Offering ICO

In our upcoming Ethereum Meetup we will discuss one of the hottest topics you can read about in the tech space: Initial Coin Offerings ICO, sometimes referred to as Initial Token Offerings ITOs or, more simply, as Token Sales.

In June 2017, blockchain project teams have raised more money through ICOs than through traditional venture capital firms. Has one of the key aspects of applied blockchains – the elimination of the middle-man – unexpectedly come upon the venture capital industry?

It might be too early to confirm this assumption but some VCs have supposedly decided not to wait any longer but to start using ICOs as an instrument to leverage their traditional businesses. Over at CrowdstartCapital, we have compiled a list of the world’s largest ICOs.

Jamie Burke, Dr. Nina Luise Siedler, Dr. Markus Kaulartz

In our meetup, we will approach the ICO from different perspectives, trying to get hold of this phenomenon:

  • Is an ICO the right moneyraising tool for your project?
  • What are the pitfalls of an ICO?

We are very happy to have one of the most prolific experts in the field of blockchain investing to present his perspective on ICOs: Jamie Burke, Founder and CEO of Outlier Ventures and Convergence VC. Jamie and bis team have analysed over 1,000 blockchain-related startups. He is quite critical when it comes to ICOs, That’s the reason we are very much looking forward to meeting Jamie on 25 July.

Right after Jamie introduced us to the actual ICO sphere, we are happy to have Dr. Nina Luise Siedler and Dr. Markus Kaulartz with their interactive take on the legal aspects of ICOs. Everybody has heard of Bitcoin and other crypographic coins or tokens, and most of us know what those are from a technical perspective. Markus and Nina will go beyond that and will explain what tokens are under applicable laws. They will give some practical insights to explain that there are different kinds of tokens which can be used for various business purposes. Depending on the kind of token, different regulatory frameworks apply to ICOs. Markus and Nina will share insights of what companies have to consider when running their own ICO.

We are very much looking forward to having exciting discussions! See you at our partner Deloitte’s  Munich offices on July, 25!