On the afternoon of April 15th, Dr. Xiao Feng, chairman of Wanxiang Blockchain and chairman of HashKey Group, delivered a closing speech on "Three Token Models for Web3 Applications" at the "Tokenized Future" theme forum at the main venue of the 2023 Hong Kong Web3 Carnival.
The following is the full text of the speech, organized according to the on-site shorthand, with some deletions that do not affect the original intention. (A link to the white paper "Web3 New Economy and Tokenization" compiled by HashKey Group is attached at the end of the article)
Xiao Feng: Good afternoon, everyone! Today is the fourth day and the last day of the summit.
Token economics (Token economics) is the core topic of Web3, and it is intentionally placed on the afternoon of the last day as the finale topic of the four-day summit.
The topic of my speech today is "Three Token Models for Web3 Applications". Dr. Zou's explanation of the Web3 New Economy and Token Economics White Paper just now is actually an explanation of the "three-token model".
First, Web3 applications must be tokenized.
First of all, my point of view is that the application of Web3 must be Tokenization, and any business that does not use Tokenization to build Web3 cannot be called Web3; Web3 must be based on the Internet of Value, and it is also based on blockchain, digital wallets and smart contracts network of.
Second, basic protocol and application protocol.
However, there is a big difference between the token model of Web3 at the application level and the token model of the basic blockchain protocol. What we are familiar with now is the token model of the basic protocol, whether it is Bitcoin or Ethereum is a single Token.
One of the most important reasons why the basic protocol is designed as a single token is that the basic protocol should be globally unified. Only one basic protocol of the Internet can exist. If there are more than one, the contribution of the Internet to human society will be weakened. The same is true for blockchain.
Just like the Internet, when the blockchain is applied, the single Token model is no longer applicable. When the Internet moves towards the application layer, various protocols and applications will be born; the Internet has hundreds of protocols at the application layer, but at the most basic level, each layer has only one protocol - IP, TCP, UDP, HTTP, because the world needs to use a unified basic protocol to build a global Internet application.
Therefore, when we discuss blockchain applications and Web3 business applications, don't be confused by the single model of blockchain infrastructure. This kind of confusion is what I felt when I communicated with many Web3 entrepreneurs in the past year. issues and compliance issues.
Third, the three-token model for Web3 applications.
What are the three types of tokens in the three-token model of Web3 applications?
（1 ）NFT。
(2) Functional Token, Utility Token.
(3) Security Token, Security Token.
The three types of tokens together constitute the economic model of Web3, each of which has its own place and incentives, and is also incentivized compatible.
Fourth, Web3 applies the value of the three-token model.
The value represented by NFT is the value of commodities, which include products, services, and various data. Functional Token (Utility Token) represents the use right value/network value, and obtains the value of network benefits.
We have talked about the "fax machine effect" a few days ago, that is, everyone buys a fax machine and joins a fax machine network, uses this network, and increases the value of this network at the same time, but the fax machine network does not belong to The value of a fax machine joining the network cannot be extracted and sold by anyone, so network value is separate from shareholder value and companies cannot profit from it. The Internet has great network effects, but the network value does not belong to the participants. The Utility Token pioneered to extract the value of the network through the network effect, and make it standardized, shared, and financialized.
Security Token reflects the equity and ownership value of Web3 participants. In the future, assuming that a Web3 application adopts both functional tokens and security tokens, the value of functional tokens will generally be greater than the value of company project security tokens, because network effects are more important than individual participants. The effect is much larger.
Fifth, NFT.
When most Web3 entrepreneurs design the Web3 business model, they do not have a clear enough understanding of the functions of NFT, the role of Web3, etc., nor do they pay enough attention.
NFT is a digital proof, not only representing the ownership of artworks, "digital collections", and not just avatars. As a digital proof, the most fundamental difference between NFT and various current proofs is that NFT is self-creating, self-managing, and self-certifying. Because NFT is placed in a digital wallet, and the digital wallet is created by yourself, whether it is a wallet of Bitcoin, Ethereum network or other networks, as long as it is built on the blockchain, it is actually self-registering, Self-management and self-certification own identity, behavior, process, result, workload, contribution, and some products or services with intellectual property rights created by you, which are provided by NFT as digital tokens and other centralized institutions The various proofs are fundamentally different.
For example, now ChatGPT can help everyone create a lot of products and services, but should the property rights of this product or service be registered with the Copyright Office, or use NFT to self-manage and self-certify? So far, at least the U.S. Copyright Office believes that creations based on ChatGPT are not subject to copyright protection.
Indeed, when 1 billion people apply to the copyright office every day for the products, services, and certain knowledge they have created through ChatGPT, I believe that the copyright management department of any country will collapse. Therefore, in the AGI era, the best management model is self-registration, self-management, and self-certification through NFT. When you work and live on the global network, NFT is the best tool to help prove your experience, qualifications, behavior, and identity. At the same time, if you can prove that I am indeed the earliest producer of a certain NFT, even if it is only one minute earlier than others, then its invention right should belong to you, not others.
Sixth, the source of value of NFT.
Where does the value of NFT come from? I think its value comes from two points, one is Play to earn and the other is Play to owner. Whether it is Play to earn, or Play to owner, you are actually playing those NFTs. When we design our own entrepreneurial projects in the Web3 field, NFT will be a very important tool, a self-managing and self-certifying digital certificate.
Seventh, NFT connects everything.
How can NFT help us build Web3 business? NFT is a "connector", connecting Web2 to Web3, connecting the real world to the virtual world, and of course connecting your fans and products, consumers and communities, consumer behavior and emotional experience.
Let go of your brain and think about it, NFT is all-encompassing, it can prove everything, and it can also represent everything, and this kind of proof and representation is self-managed and self-registered, exists in your digital wallet, and goes with you.
Eighth, functional token.
The biggest challenge facing functional tokens is that if the legal design boundary is not clear enough, it may be involved in securities issuance. Therefore, the functional Token must design a very clear boundary to keep it away from various securities laws.
If functional tokens are positioned as ecological credits, then naturally, any company or project has the right to issue their own ecological credits without violating any laws, especially securities issuance. Since it is an ecological credit, it means it is given away for free and cannot be used as a financing tool. No matter how many transactions of ecological points will occur between customers/investors in the secondary market in the future, even if it reaches 1,000 US dollars or 10,000 US dollars, it will always be a free gift for Web3 project parties/companies to the user. Motivate users and launch the market, but there should be no financing activities such as issuance, sales, subscription, etc., and it should not enter the company's balance sheet, because it does not belong to the company's assets, but just a set of points system you set up. There is no price for the issuer. But users and investors will generate prices through transactions in the secondary market. This price has nothing to do with the issuer, and you cannot manipulate it. This is a basic principle of functional token design.
Ninth, the source of value of functional Token.
Where does the value of functional Token come from? Where does the investment value of functional Token come from? As mentioned in "The Fax Machine Effect", you have to join a very large fax machine network, and this fax machine network may be worth tens of billions of dollars. You have to buy a fax machine first. If you don't buy a fax machine, you obviously can't get the license or the right to use the fax machine network.
Just like Bitcoin and ETH, you have to hold Bitcoin to use the Bitcoin network, and you have to hold ETH to use a blockchain network like Ethereum.
The same is true for Web3 entrepreneurial projects, you must have a Utility Token (functional token) to use the corresponding network. So, first of all, its value comes from the license to use the network, and secondly, if you obtain such a functional Token, then you can pay the gas fee. Exchanges can pay transaction commissions, and start-up companies will also promise to use part of the cash and a certain percentage of profits to repurchase and destroy functional tokens. The legal boundary to be designed for repurchase behavior is very clear. If you repurchase something that becomes on the company’s balance sheet and destroy it after you repurchase, it is two different things. Try not to reflect such an asset on your company’s balance sheet. You use the method of repurchase to destroy it. Obviously, the legal boundary will become a little clearer, and it will be farther away from the judgment of securities attributes.
Of course, Utility Token also has the right to community governance. The data of NFT, Utility Token, etc. held in the wallet is public on the entire network. Therefore, when other entrepreneurial projects need to use their own Tokens to develop users, they may airdrop Tokens into your wallet, which is also a benefit for you. When popular NFTs are issued, you are more likely to be included in the whitelist, which is also a source of value.
Of course, the main and core value of Utility Token lies in the value unit that embodies the network effect. The network effect in Web2 has always existed, but the network effect has no value measurement unit of its own, no distributed ledger, no blockchain, and there is no way to standardize, share, and financialize the value of the network effect separately.
Tenth, Security Token.
In fact, the security token is easier to understand. It is the Tokenization of the company’s equity. It is the same as the stock in nature. When the main network of a Web3 entrepreneurial project is launched or the main network is launched, the Utility Token will be issued. Through Utility Token can start the market, reward users, and achieve growth, which can be done from the very beginning. However, the company must prove its commercial maturity after a period of time and prove that its balance sheet is stable before it is possible to go to an IPO.
When the Web3 entrepreneurial project proves that the business model is mature, the balance sheet is healthy, and the business is sustainable, at least two options can be obtained. One is that you can use the IPO to trade on the stock exchange; the other is to choose STO and trade on the virtual asset exchange.
Eleventh, why STO?
Why should you choose STO?
First, because issuing Security Token (Security Token) on a global network, such as Ethereum, can obtain investment from global investors, and a stock exchange is usually a regional market under the jurisdiction of a certain jurisdiction.
Second, STO allows your Security Token and Utility Token to be traded on the same trading platform, which facilitates the integration of consumers, users and investors. If your fans and users really like your product, they will give your stock or your security Token a better valuation, and maybe get a better liquidity.
Today I will briefly introduce the three token models for Web3 applications.
Finally, a heartfelt thank you to everyone who participated in our four-day Web3 Carnival. To be honest, when we were preparing for this meeting, we really did not expect so many friends to come to the scene and actively and enthusiastically participate in various activities of the carnival for four consecutive days. Here, on behalf of our organizers, organizers, and all sponsors, I would like to express my gratitude to everyone for their enthusiasm and encouragement! thank you all!
Click the link below to view the original text of the white paper: https://www.hashkey.com/en/insights/web3-new-economy-and-tokenization-whitepaper
