Perspective | Pledged Profit Model for Productive Asset Tokens


This article will explore the reasons for the productive asset token model. The so-called productive asset token model is that users pledge capital in the system in the form of protocol native tokens, and then rely on their contribution to the system to earn income in the form of exogenous assets (such as ETH, BTC or DAI).

In short, we found:

The inflation of native tokens is good for starting the network and motivating everyone to participate in the network;

The reward of exogenous tokens is conducive to establishing a clear value accumulation mechanism, limiting the selling pressure of native tokens, and thus facilitating the end users to grasp the demand for native tokens.

The combination of these two mechanisms provides a powerful engine for token economic design.

The most fascinating aspect of those projects that have issued their own native tokens is that the project can use rewards to attract key contributors and to perform tasks that will add value to the system.

In a recent article, we predicted that the new year will be the year of Staking. The projects known to many passers-by in this industry will be transformed (or upgraded) into the Staking mode by granting users of pledged capital to The right of the corresponding ecosystem to provide certain services to earn revenue.

In abstract terms, this "pledge-work-profit" model can be thought of as a simplified version of "skin in the game (also known as" stakes in interest "). Bring them together to improve the security of the economic system, increase pledge rates and dispersion.

Because smart contracts do not have access checks, anyone can participate in these tasks that will add value; it is conceivable that with the expansion of products and services, this architecture will allow users to obtain considerable benefits from them.

In this article, we want to point out a trend in a pledge-based ecosystem; it is even more pronounced in systems that issue "productive assets" (assets that give users exogenous asset rewards).

Productive pledge model

Although pledge models can be found everywhere in cryptographic economic systems, most protocols use the protocol's native assets to issue pledgers with rewards.

This model is fundamentally not conducive to the accumulation of value of assets, because validators always have to exchange rewards for cash at some time to cope with various expenses; this creates a huge amount of assets in a liquid and immature ecosystem Selling pressure.

So, let's consider such a scheme:

  • Provide rewards in the form of exogenous assets (such as ETH, BTC, DAI, etc.)
  • Does not rely on native assets to reward work
  • Establish a clear way to accumulate value to ease selling pressure

Exogenous asset reward

"Exogenous assets" are those assets that are not directly related to native tokens and the system.

Below we will refer to some who use exogenous assets (such as ETH, BTC, DAI, etc.) to issue rewards, but use native tokens such as ZRX (0x project tokens) or LPT (Livepeer project tokens) to participate in the pledge. model.

By doing so, participants in the ecosystem will have confidence that the rewards they receive will have long-term value, because exogenous assets have liquidity, useful fields, and more influence.


Decoupling dependence on endogenous assets

In the productive asset pledge model, participants' returns are no longer based on the long-term success of the projects they participate in.

Although it still depends on the exogenous assets obtained to some extent, there is reason to believe that the stored value basis of these exogenous assets is stronger than the pledged project itself.

After decoupling the dependence on the growth of the value of native assets, participants should be more motivated to participate in the system, because they no longer need to worry about whether they want to all-in (“dedicate themselves”) to a small project.


Value accumulation

In the new pledge model, the project can adopt a clear framework so that participants in the system can share a certain benefit in proportion (usually based on the proportion of capital provided).

Theoretically, the more the project gets, the more value the token holders who pledged the native assets will get.

What's special is that because the rewards are issued in the form of exogenous assets, the need to sell native assets has been greatly reduced. After reducing the volatility of the token price, it can be reasonably assumed that the increase in demand for native assets will coincide with the decrease in circulating supply (new token holders will participate in the pledge), and then drive the price up.

With these theoretical ideas, let's take a look at some projects that use this model.

Token projects that issue productive assets

0x protocol

With the launch of the third version of the 0x protocol on the Ethereum mainnet in early January 2020, this decentralized liquidity protocol began to charge a small fee for every order-taker. Market makers can get ETH rewards in proportion to the amount of ZRK tokens they pledged and the agreement handling fees charged from their orders.

Similar to Dai sponsored by PoolTogether, the 0x team also subsidized the liquidity reward pool with USD 5,000 worth of ETH to test the reliability of the new economic model in a short enough time. The 0x team will continue to inject value into the liquidity reward pool at a pace of $ 5,000 per period (epoch) to motivate early testers; the last subsidy will end at Epoch 9 and a total of $ 25,000 will be issued.

The current eppch ended on February 7, and 10.67 million ZRX have been pledged to compete for 31.06 eth (worth about $ 5200) in the liquidity reward pool. In other words, each ZRX token pledged can get 0.0000029 eth; or, the epoch return of the liquidity provider is 0.20%.

Although this change has created a reliable model for the value accumulation of ZRX, 0x still has to shift its focus to create a larger transaction volume. The good news is that 0x just released a liquidity aggregator for the protocol, and people now only need one API to buy any token on all major decentralized exchanges.

Looking into the future, it is interesting to see how much acceptance the decentralized exchange aggregators can achieve, and how they will affect the protocol fees created by ZRX liquidity providers.


Ren Protocol

The Ren protocol is a cross-chain decentralized exchange that provides DeFi with a private and interoperable liquidity layer. The protocol implements dynamic handling fees. Users must pay at least 0.1% of the handling fee when transferring tokens across chains. At the same time, they can choose to increase the handling fee by 0.01% to encourage Darknode to prioritize their transactions.

In Ren's dynamic fee mechanism, all fees are paid in the form of tokens (BTC, ZEC, BCH, or DAI) transferred by the user; this makes the protocol's native tokens a pooled liquidity Productive assets. Ren token holders can pledge REN and obtain benefits in the form of exogenous assets, because the proceeds are not issued in native tokens, so there is naturally no selling pressure from rewards.

REN is still in the early stages of development, and they launched ChaosNet in late 2019, an unaudited, pre-production environment version of RenVM for stress testing of new virtual machines. In addition, this agreement already has 60 registered darknodes (at least 10,000 RENs need to be pledged to become Darknodes, and the return on exogenous assets is only a few dollars).

-REN Return on Exogenous Assets in the Near Future-
REN will release the RenVM mainnet versions SubZero and Zero later this year, so the next year is very exciting. This kind of privacy-based virtual machine executes a new type of more secure DEX, and also changes the incentive model. How much acceptance can be achieved is quite interesting.

The Graph

The Graph has established a mechanism for querying blockchain data on a decentralized network, starting with Ethereum. With Graph, the dApp team no longer needs to run a centralized server for querying data. They can use trustless and open infrastructure to easily obtain data on specific blockchains.

The GRT, the native token of this agreement, has not yet received much attention; however, the GRT provides a reliable economic model for value accumulation, and also abstracts the need for end users to hold native tokens: users can use ETH or DAI pays for the cost of querying data, and validators earn money by pledged GRT and run infrastructure. In addition, Graph indexer can also get GRT inflation rewards.



Livepeer is a decentralized video transcoding platform built on Ethereum. Anyone can become an Orchestrator on the platform and complete video broadcast work on the network. You can also entrust your own LPT token to an Orchestrator. The TA performs the transcoding work.

Orchestrator and its commissioners can earn the inflationary income of the protocol's native tokens, as well as the broadcasting fees in the form of ETH and DAI. When people pay fees to the network, both Orchestrator and its commissioners can get a proportion of the fees.

Livepeer's pledge reward is almost the highest, with an adjusted return of 18.60%. And this protocol also recently realized Streamflow upgrade and launched the token holder main site.

However, we have not been able to find data on the amount of exogenous fees that this platform has created so far. If you have a data source, please contact us and we will be happy to update this article!


Augur is a license-free, decentralized prediction market platform built on Ethereum. On this platform, the outcome of the prediction market that people participate in is determined by Augur's REP token holders, who will bet on the results they observe and earn commission fees accordingly.

Augur was one of the first token economies to offer exogenous asset rewards to their token holders. In the age of Augur v1, REP can act as an arbiter for the prediction market and earn ETH fees for honestly reporting results. However, in subsequent v2 releases, their team plans to integrate DAI as a basic asset for predicting market bets.

Therefore, the earnings of REP token holders will be converted into DAI payments. Although Augur's prediction market has so far struggled to acquire users (largely because of their oracle machine problems), upgrading to Augur v2 should simplify their token economy with a reliable value accumulation mechanism, At the same time, the oracle of the protocol is decentralized (creating a more secure data supply mechanism for the prediction market).

Kyber Network

Kyber Network (a leader in the decentralized exchange industry) has also recently introduced a new set of application scenarios for their native token KNC.

"Kyber will introduce a new pledge mechanism for the token model. From now on, KNC holders will be able to obtain a portion of transaction fees by pledged KNC and participates in KyberDAO."

Although they did not explicitly point out that the fees will be collected using exogenous assets such as ETH, we are very much looking forward to this model coming true with the release of KyberDAO.

Looking to the future

We realize that these patterns have some good features that deserve thought. The most important thing is that by decoupling the original assets from the pledge rewards, the project will be fully motivated to create a good model to capture the fees in the form of exogenous assets.

In the pledge model of non-productive assets, the most striking point is that these projects do not need to collect exogenous assets and distribute them as rewards. In the eyes of many founders, it is much simpler to distribute tokens minted by their own projects than to introduce mechanisms to capture the value retained by more mature tokens.

Secondly, we believe that inflation of native tokens is a good way to maintain the balance of native token prices. Although we would like to see a return of 1,000 times, slow and reliable growth in the long run is more feasible. With this in mind, developing an issuance schedule is a good way to avoid low liquidity caused by strong pledge incentives (as is the case with Synthetix).

If anything is certain, it is that the examples described above have proven that the token economy is still developing. Although many of the added value-added operations can only be participated by those who know the technology, we have no doubt that in the future, these roles can be abstracted to ordinary users and can also get a share.

Going further, we want to emphasize the importance of the value accumulation plan. Although many projects tend to consider native tokens to be the core fuel of their ecosystem, we would like to point out that native tokens do not need to be unique and not regarded as the ultimate value in all scenarios.

In an ecosystem like Ethereum, many projects are doing very special things, and using the success of existing projects has all the advantages and disadvantages.

Original link:

Author: Fitzner Blockchain

Translation: A Jian