1. Output is a deflationary model
Bitcoin's output is a classic of the deflationary token model. In this economic model, the maximum supply that a token can be issued is set, and it is agreed that the periodic output of tokens is gradually reduced, even if As demand continues to increase, the number of tokens produced will not increase, or even decrease.
Common means of achieving token compression:
Buy-Back-Destroy: The platform or token creator purchases tokens from the market and purposefully sends them to a black hole address.
Destroyed during transaction: Every time a transfer is made on the chain, a certain proportion of tokens will be directly sent to the destruction address black hole address.
The essence of destruction is to permanently prevent some tokens from entering the market. This behavior maintains a stable token value to a certain extent and encourages people to hold tokens. It can even be called a magic weapon for market control. There are also some destruction behaviors that are really helpless, such as users losing, transferring errors, or forgetting their wallet private keys, making the tokens unrecoverable. Therefore, almost any limited-supply token model can simply be viewed as a base token model with a deflationary output.
Representatives of the current token production methods on the market that adopt the deflation model include: Bitcoin (BTC), Stepns (GMT), including Ethereum (ETH) after the deployment of the EIP-1559 proposal.
Advantages: It completely eliminates the inflation threat caused by spam issuance of tokens. It is relatively easy to design. However, in the early stage, you need to think clearly about how to further stimulate the rewards of different roles in the ecosystem when all the total amount is released in the future.
Disadvantages: Because the number of tokens generated is limited and gradually decreasing, many people may choose to hoard coins and then wait for the tokens to appreciate in value instead of spending them in the market. If there is not enough liquidity in the market, the value of the token itself will also decrease, eventually leading to the collapse of the entire ecosystem.
2. Output is an inflation model
In an economic model where token output is inflation, as time goes by, the issued tokens will be controlled at an annual inflation rate within a preset reasonable range and be continuously minted. The total number of tokens will depend on the stage. There is no upper limit to the amount; the driving force behind this economic model comes from the demand for staking and mining of tokens.
Common methods to achieve token inflation:
Written in the contract, a certain amount of tokens are issued periodically (block/year/month/day) or dynamically based on specific network conditions.
Based on the judgment of market conditions, the team or DAO members initiate proposals, and the community consensus will be followed by artificial issuance.
Representatives of the current token production methods on the market that adopt the inflation economic model include: Polkadot (DOT), Ethereum (ETH) in the POW stage, Dogecoin (DOGE), Flow (Flow), etc.
Advantages: As long as a stable and reasonable inflation rate is maintained, this economic model is closer to the issuance method of traditional financial currency. Over the years, social practices based on "legal currency" have been proven to be sufficient to maintain the operation of a complex ecology.
Disadvantages: The advantages of the inflation economic model are also its shortcomings. It is precisely because it is close to the real-world economic model that in addition to the opacity of issuance, the current legal currency financial system encounters many other problems that it will most likely encounter.
3. Dual-token model
As the name suggests, the dual-token model designs two tokens in an ecosystem. They are: value tokens used to settle, capture, and store protocol value, and equity tokens used for governance or representing rights and interests. The two tokens can be designed to mesh with each other; in most cases, holders are allowed to exchange a certain number of value tokens into equity tokens through contracts, and how equity tokens reversely affect value tokens is different. The protocols have different implementation methods; this is also what I personally find interesting in the token economic model. I plan to compile the white papers of the leading projects in future articles and read and compare them one by one.
The well-known projects currently on the market that use dual-token economic model coins include: MakerDAO (MKR+DAI), Cosmos (Atom+Photon), Curve (CRV+veCRV), etc.
Advantages: Since the two tokens are interlocked and entangled with each other, if the value token may collapse in the market, equity tokens can be used to regulate and form a buffer zone. In addition, the dual-token economic model can effectively reduce the psychological barriers for single-token economic model holders to pledge tokens; more TVL means less market circulation, which means increased token value.
Disadvantages: The design is relatively complex, and the cost of understanding and learning is higher for designers, ordinary investors or ecological consumers.
There are representatives of various types of economic models that work well, but the "forward" value remains to be seen. So, as far as the choice of model is concerned, I think there is no strong or weak one. It all depends on the use cases, incentives and other economic factors of the token to find a model that is suitable for your business ecology. The economic model is the key.
4. Mixed token model
In addition to the above-mentioned common economic models, multi-dimensional combination like Lego - forming a "mixed token economic model" is also a trend. It is generally believed that such ecological robustness is better, to a certain extent They inherit and strengthen the advantages of the previous three token economic models and weaken the shortcomings.
For example, Solana (SOL) adopts an inflationary token economic model; its annual inflation rate starts at 8% and gradually decreases to 1.5%. However, a percentage of each transaction fee on Solana will be burned, which can reach 1.5% or higher every year, ultimately causing the token to achieve deflation again.
Another example is Curve (CRV). The initial total supply (Total Supply) was 1 billion, and was gradually increased to the maximum supply (Max Supply) of 3.03 billion. In order to avoid excessive inflation, the DAO behind Curve will return it by executing CRV. Buy and burn actions to help token deflation. In addition, Curve adopts a dual-token economic model and introduces the governance token veCRV on the basis of the value token CRV; in terms of design ideas, they deeply bundle the allocation of all scarce resources on the platform with governance rights. , and to obtain the governance token veCRV, CRV must be locked. A large number of long-term CRV locks have increased the token price soaring in the market.