Dual-Token Economy/Model
Two-Token Economy
In the world of blockchain, a dual-token economy or model means a project with two tokens, one of which is used for utility inside the network and the other one as security to raise funds for
The dual-token economy, also referred to as the dual-token model or system, is a term used for crypto projects that offer two different types of tokens. The main idea behind creating tokens is to avoid compliance issues with regulators and divide the project's ecosystem into two tokens for better usability.
Typically, one of the two tokens is used as security to raise investment for the crypto project. The token does this by strictly following the regulations outlined for conventional securities, like bonds or stocks. The other token is used on the network to fulfill certain roles or activities. These roles usually differ from one project to another.
The U.S. Securities and Exchange Commission aspect is the main reason why crypto projects prefer to adopt a dual-token economy model. So far, the SEC has not clearly classified crypto assets, unlike securities, stocks, or bonds which have a clear standing in the SEC framework.
However, the Framework for "Investment Contract" Analysis of Digital Assets, has provided a way for blockchain projects to register their tokens as a security and set certain conditions for them to work in compliance with the regulations.
To be considered a security, the project has to make sure that its tokens offer real-world utility and profit to its holders and the project is completely decentralized. If all of these conditions are met, then the token is considered a security token by the SEC.
Another benefit of adopting the dual-token economy model is that it offers more incentives to token holders and potential investors than other projects in the industry. With two tokens, a crypto project can offer a better incentive structure, features, upgrades, and functionalities to the end-users.
A great example is Axie Infinity, an NFT gaming project that offers two tokens, SLP and AXS, both of which are offered as incentives to users for playing the game. In this case, the ‘’Small Love Potion’’ or SLP is a utility token with an unlimited supply that can be used by Axie Infinity players to perform in-game tasks like paying a breeding fee for their Axies (game characters) and purchasing Axies from the built-in marketplace. Meanwhile, AXS is an ERC-20 governance token for the Axie universe with a maximum supply of 27 million. AXS provides value to the Axie Infinity ecosystem where players can buy the token directly from crypto exchanges and the holders of AXS tokens can take part in in-game governance activities and stake their tokens on the platform to gain passive rewards.
Apart from Axie Infinity, there are many other projects that function on the dual-economy mechanism like VeChainThor, MakerDAO, Anchor, and Filmio.
Dual-Token Economy/Model (Two-Token Economy) | CoinMarketCap
Algorithmic Stablecoins
Algorithmic Stablecoin Explained - What they are, what potential they have - YouTube
The algorithmic stablecoins do not have any underlying assets backing it. It is essentially a smart contract deployed on a blockchain to increase or decrease the supply of tokens based on a written algorithm
The smart contract then self-executes the terms of agreement between the market participants like buyers, sellers, lenders and borrowers.
Rebase algorithm / Rebase stable coin
Rebase stable coin is a supply elastic token that works in a way the circulating supply expands or contracts due to changes in token price.
- Periodic rebasing
Seigniorage algorithm / Seigniorage stable coin
Seigniorage stable coin has mostly a multi-token design i.e. one token acts as a stablecoin and other token act as shares or ownership of seigniorage.
In traditional finance seigniorage is the profit made by a government by issuing currency, especially the difference between the face value of coins and their production costs.
In case of seigniorage stable coins the profit is made for the people the holds the shares, i.e. the token that acts as ownership of seigniorage.
In principle shares are used to increase the supply of coins when the price of coin is above its target price. And when price goes below the target price, then a redemable bond is issued as an incentive for buyers to buy coins.
- Expansion
- Contraction