He3Labs Visualizer for Radix DLT's Stable Value Token Economics
Over the last year, He3Labs has been fortunate to work closely with the amazing team behind Radix – an entirely new type of DLT that will launch later this year. As blockchain/DLT developers, we’re excited to take advantage of Radix' extremely high transaction speed and powerful developer interface. But another notable Radix feature is its unique token economics. We believe it addresses many of the shortcomings that we have seen up close – as developers and cryptocurrency enthusiasts – with typical cryptocurrencies and blockchain platform tokens.
Radix’ Unique Token Economics
Radix’ creators have designed the native platform token of Radix, the Rad (symbol: XRD), to provide relative price stability through an elegant economic system design that combines the best features of fiat-backed tokens, algorithmic stablecoins, and controlled-inflation platform tokens – without the typical flaws. We think the economics of the Rad will be attractive both for investors and for businesses and application developers who will want to hold and use the token. Radix has just released their economics whitepaper and the details are well-worth reading and digesting.
In summary, the system automatically (and in a decentralized algorithmic manner) builds up fiat reserves over time, allowing the Rad to eventually become a nearly fully-backed stable coin. At the same time, the system incentivizes engagement and adoption of the platform by allowing token holders to participate in highly controlled inflationary distribution that is integral to the stable value mechanism; the experience should be like receiving interest on your bank account (at least if banks still did that!). The system was designed and vetted by professionals in finance and economics, and it and has gone through numerous stages of testing. It’s quite elegant.
He3Labs’ Visualizer for Radix Economics
He3Labs assisted with some final tuning of the Radix economics design, and so we built a GUI visualizer tool to make it easy to play with the parameters of the system and explore outcomes. We typically build these visualizer tools (using R and the Shiny visualizer package) for our tokenomics design customers to help them build understanding and confidence around token designs we create, whether for ICO, STO, or platform tokens. The Radix team has been using it to test and fine-tune the parameters of economic policy.
This kind of simulation model is also a great way to explore “what if?” scenarios, such as sudden growth, a crash, or black swan events.
With the release of the Radix Economics whitepaper, Radix has given us permission to release our visualizer tool. We've also added some extra bells and whistles so that you can simulate things like return on investment at different stages of the economics. Here it is (click to open the tool in your browser – “getting started” instructions are below):
This tool was built by Brian Tinsman, He3Labs’ Director of Analytics and chief tokenomist.
Getting Started with the Visualizer
Before digging into the visualizer tool, it is strongly recommended to read at least the summary of the Radix’ economics whitepaper to understand the moving pieces of this entirely unique system.
That done, open the visualizer tool and hit the big green button called “Run Simulation.” Every time you change inputs (in the control panel on the left) you’ll have to hit that button again to see results (in the tables and charts on the right).
You may be primarily interested in modeling your hypothetical returns as an investor who buys Rads (XRD tokens). Once you’ve clicked “Run Simulation” the first time with the default settings, you can look at some results in the first two tabs on the right side:
Investor Table - Shows raw data for a hypothetical investor. By default, you’ll see the data for an investor who bought $1,000 USD worth of tokens in the first week of Radix’s launch and held them, with some very simple assumptions about market demand (see the “Important Note” below). Of course there’s no way to predict how strong actual market demand will be, but you can adjust those controls to see different outcomes (more on this below). For each week, the table shows:
XRD.Balance - The investor’s account balance that week.
New.XRD.Received - The amount of XRD added to the investor’s balance that week due to increase in the money supply.
Pmin - The minimum price of XRD, backed by fiat.
Min.XRI.Value - The fiat value that would be realized if the investor sold all their tokens at the minimum possible price that week. (Fiat value of the tokens can’t be less than this.)
Minimum.Cumulative.ROI - The fiat return on investment that would be realized if the investor sold all their tokens at the minimum possible price that week. (ROI in fiat can’t be less than this.)
Projected.Cumulative.ROI - The fiat return on investment that would be realized if the investor sold all their tokens at the projected target XRD price that week.
Investment Chart - Presents the value of the investor’s holdings – with two lines showing the value assuming the market price of each token is at Pmin (the minimum price supported by the reserve), and at $1 (the target value for the Radix decentral bank algorithm).
The control panel to the left contains controls spread across several panels that you can select from in the pulldown menu to change the scenario:
Always visible at the top are some buttons and a slider. Each time you change a setting in the control panel, push the “Run Simulation” button again to see the results. If you want to save your results, you can export your settings and data results with the “Save to csv” button. The slider lets you change the number of weeks to simulate (maybe you only want to look at the first year – maybe you want to look 10 years into the future).
Investment Modeling - Gives you the options that you would have as an investor – things like when you invest and how much.
XRD Market Demand Modeling” - Gives you the tools to simulate what you believe the real demand for XRD tokens will be over time. The options are extremely important to all of the results – but the default settings are all pure guesses! You should explore the results when trying different options and determine for yourself what you think is realistic (see important note below).
Simulate Market Crash - Gives you the ability, if you choose, to overlay the market demand with a single crash event where money is rushing out of the reserves.
An Important Note ON MODELING INVESTOR RETURNS
When you first load the visualizer, or click the “reset controls” button, the model uses settings very close to those in Radix’ own economics spreadsheet. These settings show how the economics work, but isn’t intended to simulate real-world market demand! Specifically, it assumes only slow and steady demand for XRD which is both unrealistic and very conservative compared to real-world demand that should be strong at launch, and with peaks and volatility in the future.
Here are some tips and important things to try to explore more realistic returns:
Strong/Weak Growth, Week of Max Growth and Gradual/Sudden Growth are related controls that let you dial in a “pulse” of demand. You can use this to simulate an ICO-like rush to buy – or a years-long natural growth S-curve. It is strongly suggested that you set “Strong/Weak Growth” above zero, play with the other settings, and watch what happens. The Market Cap chart tab is useful for seeing the impact of the demand assumptions you have created.
New Reserves Volatility lets you dial in randomized rises and falls in demand that are more like a real market. You may notice that investor returns actually improve if the investor holds while there is demand volatility. This is correct behavior!
Simulate Market Crash, like volatility, also surprisingly improves investor returns. Watch what happens if there is a crash that dramatically reduces the reserves: the value of investment continues to be supported by Pmin – and returns actually accelerate after the crash is over!
Try using the controls above to simulate the demand, volatility, and historical crashes of other cryptocurrencies to see how XRD behaves. The combination of investor returns and stable price floor provided by XRD are quite different than typical cryptocurrencies.
These are the primary tools you’ll need to explore investor scenarios. However, we have provided a range of other charts, tables, and controls to dig even deeper into how the overall Radix token economy might work, as follows.
Across the top right you can see several other tabs. The first two tabs, as mentioned, are focused on investor returns. The rest show charts and more detailed economic data for the entire Radix system:
Economy Table - The raw data for the simulation of the Radix reserves and token supply
Pmin Chart - Shows Pmin, the minimum XRD price supported by the reserves, over time
New Reserves Chart - Shows how much money is flowing in (or out) of the reserves each week
Total Reserves Chart - Shows the summed balance of the reserves over time
XRD Supply Chart - Shows the total supply of XRD tokens in the universe over time.
Market Cap - Of course exact market cap depends on market price – but this chart shows the market cap at both a nominal $1 market price (what we would roughly expect with normal demand) and at Pmin (the minimum market cap based on the reserve-backed price floor).
On the left, there are two other panels following the investor and market simulation panels in the pull-down menu. These panels let you dig into the economic parameters of the Radix network itself. The default values should match the fixed parameters put forth in the Radix economics whitepaper; reading that whitepaper is a prerequisite for understanding what these controls mean. You can feel free to leave them be, but it can be interesting to play with these values as if you were in charge of Radix’s economics (and maybe even provide some feedback to the Radix team):
Radix Economic Policy - These are the core economic parameters of the Radix economics, at genesis and beyond.
Bootstrapping Phase - These are settings related purely to the limited “Phase 1” period of the economics.
An Important Caveat or Two
Please think of this model as a “What If?” tool. It’s not designed to predict what will happen; it’s designed to predict what would happen under the specified circumstances that you choose.
This tool has been tested and we believe it will provide accurate results, but please be aware that the model represented is by no means final or official, and we make no guarantees of accuracy. Hopefully it will help you understand what Radix is doing and see what it could mean in real-world practice.
Radix is a remarkable new platform and we hope you have fun exploring its economics.