Babbitt column | Analysis of the difference between the total amount of certificates and the distribution methods of different projects

I. Introduction

The blockchain industry is popular in saying that if the traditional assets are solid and liquid, then the certificate should be gaseous. On the one hand, the transaction and circulation efficiency of the certificate is very high. On the other hand, the issuance method of the certificate is also very flexible.

At present, there are many innovations in the total amount and distribution methods of the general certificate. This paper is a simple combing of different types of the certificate model. According to whether the total amount of the pass is fixed and the way the pass is issued, it can be divided into the following categories:

Second, the fixed amount, halved

The total amount of certificates is fixed, and there are not many projects issued on a regular basis. Bitcoin is the most typical one.

Bitcoin is of course a genius idea. In addition to its very ambitious architecture, there are a lot of small details. These details are worthy of careful study. For example, it is very interesting to halve this small setting every four years. .

What does it mean to halve every four years? That is, every four years, the bitcoin reward generated after a single block is mined is reduced by half. From a technical point of view, the halving time is not strictly four years, and refers to the specific block height.

This small setting has become the most imaginative key point in the digital currency industry. To this day, the biggest expectation of Bitcoin in the entire digital currency industry is to look forward to the arrival of this day, because the arrival of this day will largely mean that the price of Bitcoin will soar, and even bring digital currency. Bull market in the industry. Bitcoin mining is the price to determine the cost, the cost is counterproductive to the price, if the number of bitcoin rewards is halved, then the income obtained by the miner paying the same amount of power is halved, which requires the price of bitcoin to react. In order to hedge the impact of the reduction in the amount of coins.

There are many people who say that Bitcoin brings a deflationary economy and is related to this setting. On the one hand, deflation refers to a limited amount, and on the other hand, because it is more and more digging, which is in stark contrast to the increasing number of currency overshoots in our real life.

This issue, Satoshi Nakamoto had specifically talked about during the forum activities. According to him, halving every four years is actually a simple algorithm . In his mind, bitcoin is like gold in real life. It should be a thing with a limited amount and less mining, but there is no very good algorithm to express the state of mining. The algorithm that halved every four years is simply adopted.

The seemingly simple setting of halving in four years has become the source of vitality for Bitcoin and the entire digital currency industry, and has become a carnival every four years. Then let's go back and think about it. If there is no such setting, what will happen to the development of Bitcoin today? For example, Bitcoin is still a fixed total of 21 million, but it is not halved, but what happens when the average is mined throughout the life cycle?

Let's not answer this question directly. Let's take a look at some important moments in the history of bitcoin development that I personally think:

The first moment was when a foreign programmer bought a pizza with tens of thousands of bitcoins. Later, people also set up a pizza festival for it. Why is this day meaningful? Because this is the first time the bitcoin has a price.

The second moment was when Bitcoin broke through the price of $1. Before that, Bitcoin was only popular in the geek circle, and it did not enter the public eye. But after the bitcoin price broke through $1, people suddenly found that this thing is like the dollar. It is a real value. A bitcoin can be converted into one dollar. This is the first time that Bitcoin has been in the minds of the US dollar. The same price is anchored (for example, Li Xiaolai was in contact with Bitcoin at that time).

The third moment is the bull market for each round, especially the bull market at the end of 2017. In every round of bull market, bitcoin prices will soar. These soaring prices have stimulated the adrenal glands to stimulate the attention of the whole society and bring a steady stream of attention to Bitcoin.

If you look carefully, all these important moments in the history of Bitcoin development are related to price. This is normal, because Bitcoin has both currency and investment attributes. In order to attract people’s attention, except for uses. In addition to the richer ecology, there are more price fluctuations, and the halving is a very good element that induces price fluctuations .

The advantage of a fixed amount and a half-distribution model like Bitcoin is obvious. It is equivalent to exerting an external force on the whole system, using rules to disrupt the balance between supply and demand, and promoting changes in the underlying economic model, making the entire system more Vitality , and Bitcoin does benefit from this system.

But the downside is that if this model is to be established, one important point is that its price must maintain its growth trend for a long time . Once the price is not increased, the entire economic model may be affected. By destruction, the entire ecosystem can be destroyed.

But in real life, few projects can maintain the long-term price rise like Bitcoin. It is precisely because of this risk that only Bitcoin dares to use this model, and other projects are difficult to imitate.

Of course, there are some variants of this model, such as those that do not use proof of workload, they can also use a fixed total, half-distributed model. At this time, the change in the price of the pass is not related to the analysis of the cost of the bottom mining. It is similar to the quantity control of the luxury goods such as LV and Chanel in the real business. It is similar to the meaning of the limited edition of Porsche and Ferrari. It is a scarce role.

Third, a fixed amount, once issued

At present, most of the projects are issued with a fixed total amount and a model issued once.

The fixed-quantity, one-off distribution model is the most traditional form of finance. For example, in traditional stocks, if there are no special circumstances such as additional issuance, destruction, repurchase, etc., the total amount is generally fixed.

The advantage of a fixed amount and a maximum is that it is easy to understand because it is very similar to the traditional financial model, and the price change can reflect the change in value.

But the fixed amount is not good: traditional stocks are financial assets, and the price of financial assets will fluctuate up and down. This is understandable. People have accepted this by default. However, many of the certificates in the blockchain industry represent the right to use, which means that these coins are used. For a thing that is often used, if the price fluctuates too much, it is very unfriendly to the user. of.

However, as long as the total amount is fixed, the price of the certificate will fluctuate up and down. This is inevitable, and the volatility will not be low in the long run, which is not conducive to the development of the business.

Moreover, many blockchain projects are open source and require a large number of ecological parties to participate in the construction. For the ecological side, there must be sufficient incentives and sufficient long-term incentives, such as the mining project of ETH, for participating in ETH mining. The node, before the project fee is not done, can only rely on a steady stream of certificates to maintain incentives.

If the total amount of issuance is fixed and one-time issuance is completed, then the source of the follow-up to the eco-side incentive becomes a problem. How to design the economic model and balance the economic interests of all parties has become an urgent problem to be solved.

Fourth, the inflation model of the total amount is not fixed

In addition to the above two fixed totals of the issuance mode, there is also an inflation model that does not fix the total amount. For example, many Staking projects use this model.

The biggest advantage of not fixing the total inflation model is to facilitate the coordination of the interests of the ecological side, to continuously give the ecological side enough incentives, how long the project lasts, and how long the incentives for the ecological side can last. This can form a deep connection with the ecological side. The economic model of this inflation model is more in line with the blockchain business model. This is an advantage.

However, this will also bring some problems. At present, most Staking projects have an additional issuance mechanism. The rate of increase in tokens is generally between 3% and 6%, generally not lower than 3%, and will not exceed 6%. Looking at 3% and 6% alone may not be a lot in a certain year, but if the time scale is lengthened, this issuance is calculated according to compound interest, and the number of additional is actually very scary.

If 100 million Tokens issued by a blockchain project are issued at a rate of 6%, then after 30 years, the total number of passes will be 570 million, which is nearly 6 times that of the initial issue. . This means that the value of the project itself must be increased by six times in 30 years to offset the inflationary impact of this issuance. If this figure is not outperformed, then the currency is depreciating.

In traditional business, most of the projects last for less than three years. A good project may be 3 to 5 years, and few companies that can last more than 10 years can exist for 30 years. The best, I believe that this big data sample is placed in the blockchain, it will not change.

That is to say, in the mode of no additional issuance, many companies have no way to create value for a long time, and after this time scale is extended, especially under the premise of a large number of additional issuances, it is even more difficult to create incremental value. It is a multiple increase. What's more, most of the projects' Staking does not agree on the end time, not to say that the deadline is 30 years later, and most of the blockchain public chain projects exist in the form of the underlying agreement, all have one feature: once started, No downtime.

In other words, there are many public chain projects that may last for more than 100 years. If one project can really last for 100 years, do you know how many 100 million has been converted? It has become 34 billion, and the longer it lasts, the more obvious the effect of compound interest, and the more it will be issued later. Under such a high inflation rate, it is difficult for me to imagine which company, even the best company like Coca-Cola, which can live for 100 years, can hardly create the incremental value of a single currency in the long run. If even the best company like Coca-Cola can't keep increasing the value of a single coin for a long time, then basically it means that no company can do it.

If a model, for a long time, the value of a single currency is always decreasing, and the longer the time is reduced, then we need to doubt whether this model is reasonable in the initial design.

I have been in contact with several project parties. They have set inflation when they initially designed the certificate model, but later they canceled the inflation mechanism during the specific implementation, and they all changed to a fixed total amount, which may also be due to this. Aspect considerations.

All the systems have advantages and disadvantages. This kind of inflation model has certain advantages as long as it controls the inflation rate. This is why many projects are willing to adopt this model.

V. Conclusion

Of course, there are other modes, such as deflation mode, which reduce the total amount by means of destruction, but most of them only stop to a certain fixed amount and stop, no further destruction, not real. The infinite deflation mode of deflation to zero can be understood as a variant of a fixed total mode, which is essentially a fixed total mode.

Can be summarized as follows:

1. Fixed total amount, minus half issuance – Advantages: External forces force the underlying economic model to change, generate price fluctuations, and have vitality; Disadvantages: prices must maintain a long-term upward trend.

2, fixed total, one release – advantages: the same as the traditional financial model, easy to understand; shortcomings: the economic model is difficult to match the open source business model of the blockchain, it is difficult to maintain long-term incentives for the ecological side.

3, inflation mode – advantages: the best elasticity, if the parameters are set well, the economic model and business match the highest. Disadvantages: The inflation model dilutes the value of the holder's pass.

4, deflation mode – there is no deflation mode in the absolute sense, can be understood as the deformation of the fixed total mode.