[Economic Model Suggestion] Fiat engine and XRD gas


#1

Suggestion:

  • Ditch Phases 1,2,3
  • Ditch XRI basket
  • No pMin, no pMax
  • Make fiat tokens the primary payment units on the network
  • Decouple circulation of business payments (“fiat”) from circulation of XRD (“gas”) and tie them together by usage such that fiat circulation is the engine for gas circulation

Requirements:

  • DEX at golive
  • Approved Minters
  • Backed fiat tokens

Benefits:

  • Businesses can do their accounting in their familiar stable fiat unit
  • Fee prices can remain stable
  • XRD price can appreciate increasing network adoption as well as give incentive to speculators
  • The Radix Economic Model becomes intuitive and simple enough for an elevator speech
    How to:
  1. At golive: Genesis wallet holds XRD, no fiat tokens minted yet
  2. Users ramp up: inflowing fiat tokens backed by Approved Minter reserves
  3. Fiat tokens start to fluctuate. On creation of a fiat transaction a fraction of the fiat token goes to the DEX and creates a buy order for an amount of XRD “gas” that equals 0.01 USD No pMin. No pMax.

Thereby the business payment layer becomes the engine for the network payment layer and the price of XRD gets tied to the adoption of the network.

More adoption = more fees = more buy pressure on XRD = XRD price uptrend

  1. The gas goes directly to the nodes. In case of low network activity the system will airdrop a minimum incentivation of XRD to nodes.

Worked examples:

Network activity --> daily buying pressure on XRD
4 tps --> 3.456 USDT
10 tps --> 8.640 USDT
100 tps --> 86.400 USDT
500 tps --> 432.000 USDT


Concluding notes:

This proposal suggests both: pegged fiat layer for business payments (for accounting and such) and a volatile XRD coin for network payments with a built-in uptrend (for speculation). The author strongly believes that Radix cannot have one without the other and still get wide adoption. There are already too many half baked solutions out there. “One hand don’t clap”. You need both, seperated from each other so every user can understand which one his best choice for him: safe haven oder bull ride.

  • This proposal of the Economic Model only creates XRD inflation in case of low network activity (airdrop to nodes).

Edits:

2019-02-10
As suggested by @tesslerc: This Economic Model allows to set different fee prices for different fiat tokens to reflect that 0.01 USDT can be considered a “high” fee in developing countries. With having different fees for different economic areas you can make fees “relatively low” which further fuels world wide adoption. 0.01 USDT, 0.01 EURT, 0.05 RUBT, 0.10 CHFT, 100 JPYT, …

2019-02-11
In reply to @mario: The buying algo acts no longer as a “buyer of last resort” who puts a buying wall into the order book that sucks up every drop of XRD in the market. I envision that the buying algo acts more like a pacemaker instead. The algo price sets a mental anchor in the market as it will become public knowledge that there is buying pressure for a predictable amount of XRD. For potential sellers this gives a lot of comfort. And for potential buyers this creates a little FOMO. It is a little nudge for the users, which can be very effective. Ever wondered about the fly in the urinal? :wink: Nudge theory - Wikipedia

2019-02-12
In reply to @tadkis
Demand can be figured as a linear curve function based on the number of tps. To calculate the demand for 1000tps just double the demand for 500tps (1000tps --> 864.000 USDT) and so on and so forth.
Beauty of this suggestion:
If the resulting buying power in USD still seems too low, you can increase the transaction fee to create more buying pressure. If transaction fee was 0.10 USD instead of 0.01 USD the resulting buying pressure with 1000tps would be 8.640.000 USDT.

2019-02-13
Removed pMin as it skews the model. The algo buys at fair market price instead.


Credits:

This Economic Model suggestion was inspired by Melonports Tokenomics


[Economic Model Suggestion] Hodler's Harvest - Introducing a Fair Price Model for Radix
#2

I think this idea is great and can solve many of our current problems.
I’ll add some background and motivation as I see it.

One of the major questions that rises from the current model, is what role does XRD play?
If a business needs a stable currency, aren’t they are better off using one of the FIAT tokens which compose the XRI basket? These FIAT tokens are backed 1:1 and are thus pegged like Tether.
In addition, if the goal is to have businesses accept XRD as a means of payment, that also adds many layers of complexity. However, if we were to ask them to accept these FIAT tokens but just change their payment protocol the acceptance rate would be high - see https://www.colu.com.

The economic model does add many complexities. Even if it does work as intended in theory, one of the hardest issues, as we can see as of late in the Telegram channel, is for people to understand how and why this system should work - this is a major obstacle in terms of adoption.

The benefits of this proposal is that it decouples the requirements of the various communities which will be using the platform - it is intuitive and it is simple to understand.

  1. Businesses will store their value in FIAT tokens which are stable. They will pay fees for using the network using FIAT tokens. Behind the scenes the DEX will convert these tokens to XRD to pay the network “gas”.
  2. When considering investors, XRD will now be more like a stock. The more people use the system, the more fees are paid and thus the price of XRD will rise. It becomes a speculative asset which is linked to the success of the various moving parts which compose Radix as a whole.

The only obstacle as I see it, is that we want the businesses to pay a fixed fee e.g., 1 cent per operation on the network, and we don’t want this value to fluctuate. This can be worked around by setting a different fee for each FIAT token, this is common in the commodities market in which an iPhone may go one sale in Europe and in the US for 800 EUR and 800 USD respectively.

A small note, as I understand it, with this model Stage 1 becomes the standard ICO model in which we create XRD in return for FIAT in order to provide an initial reserve for the FIAT tokens. E.g., the initial usability layer.


#3

Isn’t this just a typical (fixed) coin with a working dex (there are a lot of them already out there) where some fancy tokens can be traded?


#4

Thanks for adding flesh to the bone. Good team work! You nail it.

Plus: BRILLIANT idea of having different fees for different FIAT!! Thereby fees can become “relatively low” as compared to the average income in the area. Higher fees for Swiss Franc, Euro, USD and GBP. Lower fees for Rubel, Yuan, Rupies etc. - that is a great way to lower the barrier for entrance and create adoption in countries where 0.01 USD would be considered a high fee. Absolutely genious!


#5

No. Look at it this way. It is a network with both: volatile XRD coin and pegged fiat tokens right from the start. The fiat tokens are backed and thus fixed (safe haven for businesses) while the XRD is free floating upwards with an algo that buys at minimum pMin (speculators delight). Let everybody get happy as they like it :slight_smile:


#6

I still see no noticable difference between hundred of solutions out there already. Fiat-Tokens on a DLT already exist. The only huge difference is, that we have a real scalable DLT, but thats not the point of the dicsussion here.

The buying pressure of 3M/week on Rads when reaching 500tps means nothing imho. When Radix reaches 500tps, no matter which model you use, this sum is just hideous small and other circumstances play a much bigger role. So I rephrase you proposal to a simple one, which in my eyes is the core idea of it:

Let‘s do a fixed coin model (or slightly inflated) and some AMs will put some fiat-tokens on the network.

Did I misinterpret your idea?


#7

In the simplest sense, yes. It’s a fixed (or sightly inflated) coin which is the base of the Radix platform. On this platform we natively support fiat coins (fees are fixed for each currency) which are backed by regulated entities which we trust and know and are regularly audited, unlike Tether for which there are rumors it isn’t really backed 1:1.

I agree that the model the team proposed is more “novel”. I can even suggest a more complex which will be even more “novel” than theirs. But that isn’t the goal. The goal is the simplest model which lets Radix as a platform achieve all the goals defined for it.


#8

1.If we reach Bitcoin levels (4 tps) 3656 usd will be needed. Lets assume that only 10% will be circulating that means 36560 is needed in existence. that is very small number. Lets say that turnover happens every 10 days, so aprox. 73k will be needed to facilitate such level.
2. What will be send over Radix network? Fiat tokens? If so this business model will be no different than Revolut, Monese and etc. we will not create currency , we simply going to offer money transfer platform

This proposition is little bit similar to Holochain model. But they use fuel for hosting services and that creates more buying preasure because of the amounts needed. And they have calculated that global hosting market is 200bil and thus they have issued 133bil of holofuel. That holofuel is very very cheep now while there is no demand
In our case demand will also be very low in the beginning and it will take years till we will reach 4000 tps

Problem with such model is that either you have to have big net of AMs or you have to work with banks. If you will send only fiat tokens you will have serious problem with settlements. you can read about them more Settlement Bank.


#9

Hi @tadkis! Thanks for your feedback. Nothing stops Radix from charging fees for hosting services and such like Holo does. That was just not in scope of my proposal.
Can you expand a little on what you mean by “Lets assume that only 10% will be circulating that means 36560 is needed in existence”? Needed in existence for what?


#10

Hi @mario. Thanks for responding. I understand that you find the amount of buying pressure too low to push the XRD price upwards, is that correct? You are right that the idea of this algo is no longer the “buyer of last ressort” who puts a buying wall into the order book that sucks up every drop of XRD in the market. I envision that the buying algo acts more like a pacemaker instead. The algo price sets a mental anchor in the market as everyone knows that there definitely is a buying algo that puts a buy order into the order book for a predictable amount of XRD at a known price pMin (increasing)". For potential sellers this gives a lot of comfort. And for potential buyers this creates a little FOMO. It is a little nudge for the users. Nudge theory - Wikipedia
I will add that explanation to the proposal. Thanks, very valuable.


#11

Good work @rotane
Wanted to see who had liked your post - that added me to “liked” as well and apparently can’t remove that now, so my like does not mean that I understand the technicalities - just that I appreciate your effort :smiley:


#12

@rotane i will simplify : what is projected demand for xrd in your model when Radix will reach 1000 tps.
BTW Radix is not suitable to be hosting platform, but that is another topic.
Problem is that i do not see how economics will work under your proposal. Say Radix platform will be integrated into some mmorpg game so gamers could use real currency inside the game, how it will be possible under your proposal?
And you have not commented anything about payment settlements.


#13

They will use FIAT tokens for in-game payments. This is much simpler than converting FIAT to FIAT tokens which in turn are converted to XRI which is converted to XRD.


#14

Thanks for the input, very good question. Demand can be figured as a linear curve function based on the number of tps. To calculate the demand for 1000tps just double the demand for 500tps (1000tps --> 864.000 USDT). If the resulting buying power in USD still seems too low, you can increase the transaction fee. If transaction fee was 0.10 USD instead of 0.01 USD the resulting buying pressure with 1000tps would be 8.640.000 USDT instead and so on and so forth. You have parameters at hand which you can adjust very easily to react on market behaviour, if needed. I will add that to the suggestion.


#15

Then the system will not work. Simply because Radix native currency will do settlements automatically, but i do not think it is possible with fiat tokens.


#16

You think such volatility of fees is normal? Radix goal was to have low volatile currency. even with your example with 0.10 in fees and 1000 tps buying pressure is ONLY 8640000 , which is like 10% of genesis.

But the main problem i see (and i repeated myself 5 times) are payment settlements. I am afraid that only native currency can have automated settlements.
Please read this forum
https://www.quora.com/How-does-the-settlement-of-payments-work-in-banks-Specifically-how-do-payment-systems-that-are-connected-to-multiple-banks-actually-settle-the-amount-between-two-banks


#17

Thank you very much @rotane; really appreciate you putting this together.

First comment - the DEX cannot be live at go-live; this is simply a question of technology delivery timelines, and either we would substantially push out network delivery full stop, or we deliver Radix as a network without the DEX first and then release the DEX later.

There are a number of good reasons to do this, not least verification of the underlying ledger technology before adding extra complexity to the system in its first live environment.

Whatever happens, we would definitely want to launch the ledger before the DEX was live. Same with a number of the other functions that we know people will really want, but are not essential for people to start using the network for building applications with.

Can you unpack this a bit more:

I want to send $5 to bob. I have $5 that are made by Mint Corp (an AM?). I create a TX to Bob for $5. $0.01 of that TX makes a market order for $0.01 worth of XRD on the DEX. Bob receives $4.99.

The DEX sends back $0.01 worth of XRD to the Node Runner who processed the TX.

The market decides how many XRD $0.01 is worth.

Is this correct?
I don’t understand where Pmin comes in here?
I don’t understand where new supply is created if there is no Pmax?
I don’t understand how Pmin is created if there is no Pmax?

If you could give me a fully worked through example of a transaction, including Node Runners, it would be much appreciated.


#18

Thanks @tadkis, good article on settlement. Did not know that before. How do we need to apply the settlement of banks to Radix? Sorry, if I am missing something…


#19

Hi @Piers. Thanks for giving me feedback. I will go more into the details, need a little more time.


#20

I’ll chip in since this model is very simple to understand, @rotane can correct me where I’m wrong.

  1. You send Bob $5. In addition you pay $0.01 in fees (total of $5.01). Those $0.01, in a liquid market, buy you Y XRD, similar to placing an instant buy on the exchange without caring about the price.
    These Y XRD go to the network. Node runner who processed the transaction or more likely a 50/50 split between the node runner and the bag holders (just to prevent people from processing their own transactions and being “fee free”).

Pmin doesn’t exist. There is simply a fixed price for fees based on the currency you are using. No new currency, it’s a fixed token idea (up to a certain yearly inflation), you can disperse tokens to bag holders and node runners at a certain decaying rate.

The idea is simple - a business wants a stable currency with respect to Fiat. So why not let them just work with Fiat tokens?
Anarchists, speculators and crypto fanatics don’t want Fiat involved, so why correlate the value of XRD to a bag of Fiat?
This way you have native Fiat tokens in the network which don’t directly affect XRD.