Dual Token Model: A New Approach to Solve the Dilemma of Using and Holding Crypto Assets

Dual-token model to solve the dilemma of using and holding Crypto Assets

Is the dual-token model superior to the single-token model? Although mainstream blockchain networks are unlikely to change their token model in the short term, this issue is increasingly becoming a research focus for blockchain developers.

The traditional single-token model undoubtedly has advantages such as high liquidity and simplicity, which is why cryptocurrencies like Bitcoin and Ethereum have adopted this model. However, only the dual-token model can solve the long-standing economic contradictions of blockchain – that is, the actual use of the network can hinder the growth of the network.

A Thought-Provoking Paradox

Fundamentally, all blockchains share a common goal: to reliably record transactions, store economic value, and promote network development. Although the methods of achieving this vary, with some excelling in privacy protection, they are essentially all working towards the same direction.

Currently, the vast majority of blockchain ecosystems rely on a single token, which reflects the value of the project and serves as a store of value ( similar to stocks ), a medium of exchange ( currency ), mining rewards, and payment of transaction fees. This is the problem.

Token holders wish for the project's success; they purchase tokens because they recognize the technology, trust the development team, and believe that project ( and its native assets ) will succeed.

However, if they use the token to pay for fuel fees, it will reduce their share in the entire project ecology. On the contrary, if they refuse to use the token, it will overlook the practical application of the network.

This paradox is easy to understand but difficult to reconcile. Unlike fiat currency, crypto assets have the potential to appreciate significantly over time, attracting long-term holders. From a blockchain perspective, this is conducive to forming a united community that developers strive to build, which is a positive signal.

There is an economic and emotional conflict in choosing between actively using the protocol ( and reducing the share ) by paying the fuel fee, or holding the token for expected profits.

Another important issue is that, in certain ecosystems, users using tokens may lead to a reduction in their authority and influence within the governance model. This makes users less willing to "spend" their hard-earned tokens on on-chain protocols.

But there is an alternative.

Application of Economics

Tokens should not be used solely for trading value. It's like using Starbucks stock to buy coffee, or using Apple stock to purchase the latest iPhone. This practice is particularly painful when network congestion causes gas fees to skyrocket.

In February of this year, Ethereum gas fees first broke through $20, setting a new historical high. For loyal supporters of Ethereum, each time they take out $20 worth of ETH for a transaction, it feels like throwing away a lottery ticket before the draw. After all, that $20 could be worth $200 in five years.

The dual-token economic model addresses this issue. In this model, one token fulfills governance functions, while the other is solely used for paying gas fees. Holders of the former can be seen as "owners" of the network, as they have the right to influence the project's direction through voting. At the same time, the token used for paying gas fees is completely separate from the main asset, thus solving the problem of "using the protocol will reduce equity."

The dual-token system is still rare, possibly because pioneers in blockchain are unwilling to fundamentally change their token models. In the past, we have seen several blockchain forks, and the consequences have always been unpleasant. Modifying the basic rules of the protocol by introducing a separate fuel token is a decision that should not be underestimated.

However, the second and third generation blockchains realized the benefits of issuing separate tokens for governance/payment and incentive/fuel fees. Not only public chains, but many GameFi projects, stablecoin protocols, and lending/financing platforms have also adopted a dual-token system, which means that their users no longer need to sacrifice liquidity or compete for scarce on-chain resources.

Some projects are attempting different dual-token models, which I believe are forward-looking.

However, like any experimental technology, the design of the protocol itself may have flaws. The catastrophic collapse of a well-known blockchain proves this point, as that blockchain used native assets to help secure dollar-pegged stablecoins.

Researchers pointed out that the design of the network created an incentive to short stablecoins before its collapse, a problem that would not and does not need to be repeated in other dual-token systems.

Dual Token Support Ecosystem

As demonstrated by some projects, the economics of a dual-token system is sound. The dual-token model has the following common characteristics:

First of all, the total supply of the main token is usually limited, used for governance, SOV(share-of-voice) or dividends. It is typically distributed through public sales or giveaways.

In contrast, auxiliary tokens ( or utility tokens ) have unlimited or elastic supply. They are used for on-chain payments and gas fees, and are rewarded to ecosystem participants or main token holders.

When the growth rate of economic activity exceeds its inflation supply rate, the price of utility tokens will rise. As the yield of utility tokens increases, the demand and price of the main token will also rise until the yield reaches a new equilibrium level.

Finally, the utility tokens create positive feedback for the main tokens through economic activities.

Following this model, the economic/emotional conflict that forces users to choose between actively using the protocol and long-term investment is resolved. When utility tokens are used for ongoing incentives and system growth, primary token holders are also incentivized to participate in on-chain activities and protect the network.

In the face of cutting-edge technologies such as blockchain, we need to embrace innovative ideas. The dual token model is no longer a fanciful concept, but a viable solution to the perplexing paradoxes mentioned above. In terms of the blockchain economy, the dual token model is indeed superior to the single token model.

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StableNomadvip
· 13h ago
Dual-token pending test effects
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BrokenDAOvip
· 13h ago
There are risks with double ropes.
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TokenEconomistvip
· 13h ago
Let's analyze trade-offs
Reply0
GateUser-26d7f434vip
· 13h ago
Dual tokens carry risks; caution is required.
View OriginalReply0
PoetryOnChainvip
· 13h ago
There must be sacrifices and differences.
View OriginalReply0
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