Design Innovations With Double Coin Systems
by Brian Tinsman
This is the second of a two-part series on blockchain economic systems. Read about the foundations of single-coin systems first.
Double-Coin Blockchain Systems
A double-coin system splits the investing function and utility function into different coins. In many examples one coin is for investors and miners and the other is for utility and commerce.
This lets the network use the best features of both a fixed-supply coin (price to the moon!) and an uncapped coin (make new coins whenever you want.)
It can also nicely separate security-like coins from utility coins so the issuer can breathe easy.
Examples of Double-Coin Systems
All double-coin systems tie their two coins together in one interdependent economy, but many do it in different ways. These are some current models of double-coin systems:
This network splits its coins into a governance/investing coin (NEO) and a utility coin (GAS.) So far it has only released NEO, but they have announced that at some point they will start issuing GAS coins. They will slowly issue GAS to NEO holders in proportion to the amount of NEO held. (Until then GAS is vaporware.)
This Ethereum competitor with the super-weird sci-fi website splits its coins into VTHO, a utility coin that can pay for network services, and VET, an investor coin that can generate new VTHO if left untouched over time.
Another approach is to use a new coin in conjunction with an existing cryptocurrency. Augur uses ETH as a store of value to keep users honest, and REP as a way to reward those who provide good data to the network. The system is designed so that it’s not critical for ETH to hold its value, but it would probably be improved with a stable-price coin that let users plan ahead.
This uses a remarkable two-token economic model that I expect to see a lot more in the near future. They have an investor coin called Luna, and a price-stable coin called Terra. Luna has a fixed supply cap, but Terra is uncapped. The system can create any amount of new Terra at will. To keep the price of Terra constant they create and destroy it in response to price movements.
When the price of Terra gets too low, they sell Luna in exchange for Terra coins, removing the Terra coins from the market and raising the price. When the price of Terra gets too high, they create more and give it to Luna holders, who sell it into the market and drop the price. It probably won’t be as stable as Tether, but it’s an elegant method to keep a utility coin’s price stable without backing.
Creating price-stable coins has been a big challenge in the cryptocurrency industry. The most successful attempts have been currency-backed coins like Tether. But backed coins require an enormous bank account full of fiat currency that must remain untouched.
These new double-coin price stability designs seem to overcome several problems that other stablecoin platforms struggle with.
A volatile coin price for investors and a stable coin price for commerce, but both coins part of the same economy.
Double-coin systems are a promising area for new tokenomic ecosystem design. Look for even more variants of these systems to emerge in the coming year, including potential new developments from He3Labs.