UTILITY TOKENS CAN BE USED TO DEFINE THE NEW RULES OF THE MARKET, AND WITH MECHANISM DESIGN – A FIELD IN ECONOMICS AND GAME THEORY THAT TAKES AN ENGINEERING APPROACH TO DESIGNING ECONOMIC MECHANISMS OR INCENTIVES – WE CAN DESIGN CERTAIN RULES TO CREATE THE DESIRED BEHAVIOR OF DIFFERENT STAKEHOLDERS TOWARD DESIRED OBJECTIVES.
POWERING THE ECOSYSTEM
The Velocity Network comes embedded with an elaborated incentives system and an economic model that fuel the ecosystem and drive global adoption.
Velocity Network Foundation will introduce a utility token that will act as a proprietary payment currency within the Velocity ecosystem. The key objectives we want to achieve with the Velocity token mechanics are:
- Reward “Human Capital” data processors, for the computational power they contribute and for validating transactions while maintaining complete integrity.
- Incentivize Credential Issuers to provide assertions
- Incentivize Users to utilize and allow controlled access to their personal data in various use cases
- Reward early adopters for their contribution to building the value of the network
TOKEN MECHANICS
Let us review some of the Velocity token characteristics that will impact its use and value to the ecosystem growth:
- Designated: the sole use is for obtaining the rights to participate in the ecosystem;
- Scarce: limited in number; 100B tokens will be minted at network genesis, capping the number of tokens in circulation;
- Fungible: all tokens carry the same value and are identical;
- Transferable: can be transferred between parties;
- Not Circular: will not be traded outside the network, hence not exchangeable back and forth as with currencies.
The next paragraphs will demonstrate how these mechanics contribute to a sustainable, thriving network.
SPENDERS AND EARNERS
The Velocity token is the essential element that powers the Velocity Network ecosystem. As the network grows, we expect to see many additional use cases with new players, conducting token-based transactions. For the basic use case of processing, validating and accessing records, the primary entities involved are as follows:
Credential Issuers: entities that contribute verified career records, such as employers, educational institutions, certification bodies and employee assessment vendors. These authorities earn tokens for each verified record they contribute. In many cases, these entities are also interested in accessing career data and will use these earned tokens as currency when they are requested to pay access fees.
Consensus Network Members: the connected labor market data processors, these entities run a validation node and participate in the consensus protocol that verifies records, earning tokens in exchange for their involvement in verifying.
Inspectors: employers, businesses, educational institutions that were granted permission by the individual to review their data, pay the network access fee. Most of the Inspectors serve also as Credential Issuers and earn tokens for verifying records. Up to 50% of the access fee can be paid in earned tokens. The rest must be completed by purchasing new tokens on the internal exchange.
Network Operator: the entity that defines, develops, manages and monitors the network. In our case, this is Velocity Career Labs, Inc., a for-profit entity that receives tokens for services performed on the network.
Network Regulator: the overall authority that audits and governs the use of the network and manages the different certifications required for users to access the Blockchain. Within the Velocity Network, this Network Regulator will serve as a proxy for the Foundation, operating on behalf of the Foundation, receiving access fees paid for network transactions. Of these accumulated tokens, it is the Network Regulator that is responsible for rewarding Consensus Network Members and Credential Issuers for their contribution.
TOKEN PRICE
The Velocity token supply is limited to 100 Billion coins. This means that the more Velocity Network is utilized, the more Velocity tokens are sourced from the supply. The limited supply of tokens will result in the token price materially appreciating, creating a wave effect of demand that will slow but steadily increase the fiat money value of the digital currency.
An important factor is that there are no players external to the ecosystem that can speculate and affect the token price. You can buy tokens only if you are spending them immediately to access verified career records. Token price is therefore set only by balancing demand and supply and in accordance with the value of the transaction to the interested parties.
MONETARY AND FISCAL POLICY HIGHLIGHTS
Monetary policy establishes the supply and availability of tokens. At network genesis 40B tokens will be transferred to the Foundation to start rewarding the players, while the remaining 60B will be kept by the Network Operator, acting as a Market Maker.
We expect the Velocity token to be an inflationary token. Transaction fees are a fixed number of tokens. As increased employers and education institutions join the ecosystem, the value of each transaction increases as there are more entries to the ledger. In parallel, the limited supply of tokens will result in the token price in fiat money materially appreciating.
A limited-supply token becomes a de-facto store of value, but it also leads to speculation and volatility. To maintain ecosystem efficiencies, we need token price to reflect transaction value to the market and avoid speculations.
Two mechanisms are put in place to prevent speculation:
First, an important factor is that there are no players external to the ecosystem that can speculate and affect the token price. Token price is therefore set only by balancing demand and supply and in accordance with the value of data to the spenders.
Second, tokens can either be earned through participating in the ecosystem or be purchased with fiat money for immediate use as an access fee. You can store earned tokens and maybe enjoy appreciation in value but not buy tokens as an investment and speculation instrument.
LIQUIDITY
Since the Velocity token is first and foremost a utility token, instant liquidity is mandatory to sustain network efficiencies. In any given time, if an Inspector is asking to buy tokens in order to complete an access fee transaction, there must be a corresponding supply on these tokens in the market. To serve this purpose the Network Operator must serve also as a market maker and take the bid or the ask on exchanges. This improves liquidity. The market maker will also sell tokens into a spiking market to avoid counterproductive drastic changes in token price. We can also expect most of this will be done algorithmically, through smart contracts on the Blockchain.
REWARDING EARLY ADOPTERS
Velocity shows clear Network Effects that need to kick in for the network to provide value to its constituents. When the network is in its infancy stage, there is limited value-add to the participants. As more Credential Issuers participate, each user’s Velocity account becomes completer and more valuable to any Inspector. On the other side, as more employers, organizations and service providers participate and process validated career records, individuals will see more value in maintaining Velocity accounts so they could turn their skills, training, and experience into a better and more accurate career, learning and development opportunities.
The following mechanisms will be put in place to reward participants who join the network at early stages:
First, participation tokens per transaction will decrease 10% for each of the first 6 years. This means that Consensus Network Members and Credential Issuers will earn 5 times the number of tokens per transaction in the first year compared to the 9th year.
Second, in steady-state, a maximum of 50% of the access fee is payable in earned tokens; the remainder requires purchasing new tokens on the internal exchange. To engage early adopter Inspectors when users’ profiles will still be incomplete and less valuable, during the first year the access fee can be paid 100% in earned tokens, dropping to 75% during the second year and reaching the 50% level on the third year and thereafter.