Host Sylvia: Welcome villagers of Houpuxincun and representatives from various projects to participate in this HOPE Talk Chinese community AMA event. I am the host, Sylvia. It is an honor to invite the OGs in the DeFi and GameFi fields for this AMA, including Flex, the founder of HOPE, Yuanjie, co-founder of Conflux Network, Boyang, founder of P12, Fiona, Growth Manager at AltLayer, and Wu Shuo, advisor. In this HOPE Talk, we will discuss how to design an economic model that acts as the growth engine of a project. Before formally starting the discussion on this topic, let's have the speaker, Flex, and the guests introduce themselves.
Flex: Thank you all for coming to today's HOPE Talk. Today's topic involves a lot of professional terminology, so guests can use simpler terms to describe their ideas. I would like to welcome Boyang, Fiona, and Yuanjie.
Boyang: I am Boyang, the founder of P12. I am very honored to be invited by Flex to participate in this HOPE Talk. The topic we are discussing today is something we are very interested in, which is how to design a healthier and more sustainable economic model. I am looking forward to exchanging ideas with everyone.
Duo Jie: Hello everyone, I'm Duo Jie, and I'm in charge of growth at AltLayer. AltLayer is a platform that provides one-click link deployment, high-performance, decentralized infrastructure for projects to scale up. Thank you everyone, looking forward to today's discussion.
Host Sylvia: Our first question today is mainly about the economic model. In the Web 3 world, continuous innovation in economic models has been an important sign of industry transformation. From DeFi to GameFi, we have witnessed various evolutions in tokenomics, which can either propel projects to success or lead to their downfall if the economic model lacks momentum. A typical example is the rise and fall of LUNA overnight. So, regarding LUNA, what aspects of its economic model do you think are worth continuing and innovating, and what aspects need careful consideration?
Fiona: Hello, everyone, I'm Fiona. Wu Shuo's Chain is a media outlet that is influential and experienced in the cryptocurrency field. If any project wants to collaborate in terms of media exposure, feel free to DM me or Wu Shuo's Chain. Thank you.
Boyang: Around July-August 2021, we saw the project LUNA and Terra attracting more attention in the industry. We read its whitepaper, understood its ecosystem and supporters, as well as its future development direction. LUNA serves as a model for e-commerce, with a focus on offline activities like deploying POI in coffee shops in South Korea. At that time, its DeFi ecosystem drew attention and is now referred to as RWA. In this context, stability appears as a constant presence, continually questioning and proving the business/model.
LUNA also speaks stably, but he is still quite serious and systematically presents his ideas in the whitepaper. Although the final results also came out, it made him conduct retrospection and reflection. This kind of reflection is not common in the industry. HOPE raises this question, which I think is valuable. In LUNA's whitepaper, they have done a lot of simulation calculations and analysis, obviously doing it seriously. They have some qualified researchers considering this issue, if the price of the currency drops by 50%, what will happen to our ecosystem, and what will happen to the price of LUNA. They have proved that they can stabilize, even in the case of an 80% drop in the land price, they have made a series of simulations.
In these simulations, according to its conclusion, the whole ecosystem will not be affected and can return to this steady state on its own. As for the actual results, we all know that the actual death spiral and run are very fast. In the current blockchain environment, it does not need to happen in days, but in hours. This death spiral and zeroing are very terrifying. So I think what we can learn from LUNA, including his existing practical business and his serious attitude towards the whitepaper and in-depth research, are all important reasons that attracted many people at that time. However, the lesson to be learned is that this kind of mathematical calculation on paper, especially with many assumptions, thinking that the price of his own currency can only fall by 80%, or thinking that everyone will return to a steady state after a certain degree of drop, these types of simulations are actually unreliable.
When evaluating the economic model afterwards, we indeed cannot judge whether it is reliable or not by whether he found a professor or whether the whitepaper he wrote is formal. I think this is a big wake-up call. At least for us at that time, we also felt that his whitepaper was very credible, but in reality, this judgment was too superficial.
Fiona: Well, I have a vivid memory of the whole collapse of Luna. It was actually on Mother's Day last year when my mom and I were having dinner outside. That's when I noticed that there was a decoupling between UST and USDT. Let me briefly explain. I think most people know about Terra, which has a tokenomics system with three parts: Luna as its governance token, UST as its stablecoin, and what I believe is its financial product, the 20%. These three components create a continuous incentive for people to invest, expand the pool, raise the price of Luna, and ultimately form a positive feedback loop, like a flywheel effect. So, in an ideal or upward environment, the price of UST must be firmly anchored to the US dollar stablecoin. But one night, it suddenly decoupled. That was the second time I witnessed such a sign, but usually, the decoupling would immediately re-anchor. However, that night, there was no sign of re-anchoring. So, it was a bit like the panic first theory. We started withdrawing money from Luna because many of my friends were involved in Luna, whether in storage or ecological development. So, at that time, Luna was an ecosystem that I had researched and delved into quite deeply. Not long after the decoupling of UST, the price of Luna started to collapse. So, we can see that it's both the success and failure of tokenomics.
From its flywheel effect, when it is stable in an upward trend, it can immediately push the entire ecosystem to a high point. But when it collapses, it goes from the collapse of UST to the sharp drop in Luna price, continuously breaking through the liquidation point at that time. I remember it started around $55, and then it kept falling and breaking through, and UST completely decoupled. The whole ecosystem collapsed instantly. So I think its token model design is very clever, which is why it was able to attract so many people to join in the early stages. But at the same time, it is a very delicate and fragile token model. So when there is a problem in one aspect, if not controlled well, the crack becomes bigger and bigger, and the seemingly stable billion-dollar empire collapses in an instant. Therefore, I think in the token model, in addition to designing for an upward trend, we should also consider, as Boyang just mentioned, how to set up a protection mechanism when the token price falls, so as to prevent an immediate collapse and provide some buffer time. From numerous collapses last year, from FTX to Luna, we can see similar failed crisis handling. So, I think this is a pity, and I hope future token models will have more designs like this.
At the same time, I would like to briefly add on to another tokenomics collapse. Because I worked at Stepn last year, which is a "move to earth" project that has similarities to Luna. It had a positive flywheel effect during upward trends, and it also smoothly collapsed when it went downhill because there was no new money or liquidity coming in. It just crumbled, and it was only a matter of time. So I think such examples are not only found in Luna; it's just that Luna's collapse was particularly severe and fast, so the painful memory it caused is still fresh. But there are many other projects that collapse slowly, and I think their token models also have significant issues. Therefore, I would like to hear if other panelists have any other opinions on this point. Thank you.
Boyang: I have a small question to interject. Do you remember the 20% investment product of Luna? Did it have a redemption period or could it be immediately redeemed?
Fiona: I remember there was a redemption period for that Luna investment product. You could withdraw your investment, but you couldn't sell the Luna immediately. I think you had to lock it for a period of time. So at that time, many of us told our friends about it. They couldn't immediately retrieve their staked Luna, so some people shorted it, while others had to watch their investments go to zero. That's roughly how it was.
Boyang: When the situation happened, Luna wanted to lock for seven days, or maybe 14 days. At that time, it was quite awkward. It might be possible to use the empty position, but sometimes the liquidity of the empty position is not enough. And UST seemed to be redeemable instantly, which partially contributed to the collapse. So, this topic is quite interesting, how to have some protection when the price is falling, or how can these protections have a positive effect?
Fiona: Yes, I would like to add a little bit at the end. When UST collapsed, I actually saw it on Binance. I think Luna's official team probably put up a wall with over 100 million US dollars at around 0.9798, trying to support the exchange rate of UST. But it may have only lasted for one night, and the exchange rate was pushed down. I think this kind of forcibly supporting approach is not very advisable because when panic selling occurs, even the Silicon Valley Bank collapsed, let alone a project in the crypto industry. So, I think there should be some other mechanisms to stop it, and maybe even suspend withdrawals. You need to eliminate this panic first, otherwise, it is generally difficult to hold on by force.
Duo Jie: There are actually quite a few points I want to discuss on this topic. First of all, let's talk about DeFi. Fiona just mentioned the price issue with ust. Ust has actually decoupled before. I can't recall the exact details right now, but it happened not long before the market crash. Jump helped to stabilize it at that time, so it's not uncommon for market makers to protect important price levels. Their willingness to intervene at that point demonstrates the responsibility of the market makers towards the project and the market itself, and it's not a strange move. But why couldn't they save it this time? I think it's helpful to compare it with Synthetix. I've worked with Synthetix before, and just this morning, I saw a tweet from a well-known figure asking why Synthetix didn't have the same issue with Terra. I think this comparison helps to understand the problem with Terra in today's context. First of all, you should know that UST is relatively stable. Being relatively stable means that you can burn a Luna token, for example, if one Luna is worth $50, you can mint $50 worth of UST, and if it drops to $1 the next second, you can burn one Luna token worth $1 and still mint $1 worth of UST. So this mechanism is essentially infinite issuance, especially when a token like Luna crashes, you can infinitely mint UST. Any currency that can be infinitely minted has issues. So the design of this whole mechanism is flawed, it's not just about positive or negative incentives, it's about the design itself. That's why we used to enjoy playing with relatively stable tokens before. I'm sure many of you have played with first-generation, second-generation, and third-generation relatively stable tokens, including Maji who has promoted many of them. The outcome of relatively stable tokens? Except for Ampleforth (AMPL), which is still alive, most of them end up going to zero. And Luna's crash is not like the gradual decline of Stepn. It drops to the point where it seems like a 90% decrease, and you think it's zero. Luna's crash is a complete zero, just like those scammy stablecoins we have all played with before. Its crash and zeroing out is truly a zeroing out, because its design is fundamentally flawed. Its downward spiral canLet this thing die directly, then another very deadly problem with it is its design of the Anchor. Let's talk about it first, when it just started doing DeFi, it was actually called "Mirror", which most people thought was similar to Synthetix, and they thought its design was good. At that time, I criticized it, Mirror is a Frankenstein, it can't be compared to Synthetix, but they were popular at the time, and everyone thought Luna was thriving while Synthetix was not doing well. But later on, they went crazy and created Anchor. Why can Anchor survive? It's because the market started entering a downturn cycle, and the glory of the bull market ended. The innovation of DeFi at that time came to a halt, and all the methods that could be played had already been played. At this time, everyone was at a loss, and Luna jumped out and said, "I have a stablecoin that can give you a stable 20% return." This kind of product, in fact, is also done by friends who work in traditional investment banks or traditional finance. They also take out their own bank deposits and put them in FTX to earn interest in FTX's interest-earning account, because FTX can provide stablecoins with a yield of over 10% during a bull market. This is unimaginable in traditional finance or if you put it in a bank. At that time, most DeFi protocols no longer had returns to offer, but Luna came up with a fixed 20% return. It's like a risk-free return for everyone, so everyone was enthralled. The highest amount they achieved was a scale of 20 billion. Think about it, who in the world can provide a 20% interest on a scale of 20 billion? Where does this return come from? This is also the reason why Celsius collapsed. Back then, they also took a lot of money as a Cefi, but in the end, they found that they couldn't invest this money, or they had a problem with the mismatch of long and short terms. They used it for long-term financial investments or to invest in ST, Lido, and other investments with a mismatch of long and short terms. When they had a liquidity crisis, they couldn't get their money back, and they couldn't really provide such a high interest rate. So they all collapsed in the end. So I think this is not a problem with the token model itself, but fundamentally, its design is a scam. It may not be its purpose to be a scam, but all its designs, including the 20% interest on Anchor, destined it to have problems and collapse. And at that time, there wereMany people question where he gets this 20% interest from. He says he can subsidize it himself. I've borrowed a lot of money, and I can afford to subsidize it. But in fact, if you have economic common sense, you know that no one can afford to subsidize it in the long term. He should have admitted defeat early and said that I cannot afford to subsidize it, so I will lower this interest rate. Because in an economic downturn, when the entire market bubble bursts, it doesn't make sense to hold on to that 20%. If he doesn't hold on to that 20%, I think there is a possibility for this project to continue, because there will always be a bubble in stability. As long as your bubble doesn't burst, you can hold on for a day, but it's not something that can be seen as promising in the long term, but it has its own value. Now let's talk about Synthetix. Synthetix is completely different. It is a CDP. Initially, it imitated MakerDAO. It has collateral, collateralizes SNX tokens, and mints a stablecoin. Initially, it was 8:1, meaning that eight units of SNX were needed to mint one unit of SUSD. Later, it may have been lowered to 4:1. But the most important thing is that when the price of SNX drops by 80%, you can liquidate it. When your entire mechanism can be liquidated, you can protect the rights of all collateral holders to a great extent, rather than an unlimited death loop. Of course, SNX also has many other advantages, which I won't go into detail about. The key is to differentiate whether a coin is stable or a collateralized CDP. Now, let me mention two other points. I am very familiar with some investment institutions. In 2018, they invested in Terra. At that time, their main selling point was that they were part of the Cosmos ecosystem, and they had many retail resources and some store resources in Korea. They could create a stablecoin that corresponds to the offline Korean won. Their idea was not to do these DeFi things. Many people invested, but when Terra transformed and the whole human character became very unpredictable, the investment institutions I was familiar with sold off. Some of them missed the subsequent big surge, but an individual's attitude can reflect some issues with the project. Also, another friend of mine was an early business manager at Terra. Many years ago, he reported Terra to the SEC and some US institutions, saying they had serious fraud problems. So, this project has serious problems, not just what everyone sees. I hope everyone doesn't treat this fundamentally flawed thing as a misfortune or a question of how he can do better. That's all I have to say.
Flex: Actually, the analysis just now was quite comprehensive. Regarding Terra and Luna, because of the industry, after I retired in 2021, I didn't pay much attention to these things. But in my spare time, I had contact with many relevant people at that time, including people from PayPal Finance. After I retired, the first half of 2022 was an extremely anxious situation, as mentioned earlier by Miss Duo, money couldn't be lent out. For example, in March and April, I knew that PayPal had around 400-500 million US dollars in the account, earning 6% interest, but there was no way to export it. Celsius had even more, probably between 1 to 2 billion US dollars. So, Celsius couldn't find a way out, and everyone couldn't obtain any assets. The core reason, as mentioned earlier by Miss Duo, is why everyone chose to ignore such a big problem and instead kept choosing to invest in Terra and Anchor. I think there are two main reasons. The first reason is in 2021, during the bullish market, there were three stages: early, middle, and late stages. During the early stage, for example, the funding rate of perpetual agreements and the futures rate were around 20%. But in January 2021, this rate suddenly increased to 50-60%, reaching up to 70-80% at its peak. This high rate lasted for a period of time. So, how did the rate decrease? Actually, it came from two reasons. Firstly, there were constantly funds coming in from traditional sources, chasing after the 50-60% risk-free rate. On the other hand, when the market leverage gradually intensified, there was a crash on May 19th. After the crash, the interest rate returned to normal for a while. But as the risk-free rate decreased from 60-70% to 20-30%, the money that had already entered mainly consisted of two groups. One group is the funds that came in and didn't want to leave. They thought they had gone through great efforts to bring the money into the cryptocurrency market. The other group is the fund managers. They had made higher interest commitments to many LPs or borrowers at that time and had to find corresponding alternatives. That's why the TVL of Anchor increased from several million dollars to 18 billion dollars, almost reaching 20 billion. This process actually happened starting in May and June 2021 and continued until 2022.The collapse of Luna happened in the year^nbsp;under extreme anxiety. Whether it was the anxiety of not making money or the anxiety of wanting to make more money, it was a very serious situation during that time. Not everyone was able to stay calm and exit the market, but that's also the allure of the market. I believe that even if we review and reflect on all these things today, when the next market crash happens in 2025 and interest rates are still high, greed will continue to exist. It will never change. This brings us to the story of Luna Terra. When they realized the problem and wanted to hoard, it was already too late. The entire market had entered a downturn cycle. The macro environment didn't support monetary policies, fiscal policies were contracting, and CPI was rising. They had no way to hoard VC effectively anymore. Instead, they were just inflating the market. During the small bull run in March and April of 2022, it was mainly driven by the Luna team continuously buying BTC and telling a compelling story of wanting to hoard 1 million bitcoins. In that process, most people believed the story. And the most important thing, in my opinion, is what prevented everyone from making the right choices. I think the main reason is that the process of exiting is very bothersome. Whether it was the exit of cryptocurrencies in China in 2022 or redeeming stablecoins for USD in the US or other regions, it was a difficult choice. In the case of China, for example, converting USDT to RMB was a very challenging business. And overseas, people hoped that due to the bustling sentiment in the market, there would always be a 20% return, which was better than government bonds. That's why everyone was conflicted during the exit. So, in that situation, a 20% interest rate was probably not the benchmark everyone had in mind. They forgot to consider the issue of the historical expenditure of over $4 billion from a scale of $18 billion at a 20% annualized return rate. Therefore, stablecoin has always been considered a new form of digital asset or new gold. However, if the fundamental attributes of the currency are not achieved, it will be difficult to accomplish this task. The process of consensus building takes a long time.In ancient times, it may have taken several hundred years to establish a consensus on gold, and several hundred more years for silver, before transitioning to so-called fiat currencies of different countries, each lasting several hundred more years, right? Now let's look at the US dollar, its growth process is actually a very interesting and relevant example to Luna. In the cryptocurrency world, we may not have found a good example yet to illustrate the alternative path Luna could take. Of course, as Duo mentioned earlier, there are not only issues limited to this, but also many fundamental problems. So let's set those aside for now and focus on how Terra could be redesigned if we were to make changes. In my opinion, the best reference would be the US dollar. After World War I and World War II, the position of the British pound became unstable because Europe was immersed in a total war, and most European families continuously sent their gold from Europe to the United States, specifically to New York and the Federal Reserve. This process led to two events that allowed the US dollar to truly become the currency that replaced the pound, even though the US probably surpassed the UK to become the world's largest GDP country in the 1880s. However, during this process, it actually took about forty to fifty years to truly establish the US dollar as a replacement for the pound. I think many factors were coincidental, but overall, the US dollar chose the right path. What did it choose? It called itself the "greenback," using gold reserves to back the currency. So, why was gold so important at that time? In Europe, during the numerous wars, the German mark lost credibility. It used to be backed by gold but later turned into a fiat currency. Similarly, the British pound was not able to maintain its reserve stability and also became a fiat currency. After continuously sending gold to the United States, a very unique and strange thing happened in 1933 when President Roosevelt ordered the collection of all private gold. They didn't call it confiscation, but it had to be handed over to the Federal Reserve in exchange for US dollars. This was the first step for the US dollar to transition from being a regional currency to a reserve currency. Then, in 1944, at the end of World War II and during the process of global rearrangement, the US dollar still did not use debt as its reserve to issue the currency. It chose to use gold as the reserve to issue the US dollar, and other countries' currencies were pegged to the US dollar at a fixed exchange rate. At that time, this was known as the Bretton Woods system, which lasted for nearly 37-38 years. So, it took a sovereign country like the US nearly 37-38 years to truly establish its credibility. Then, in 1972, the US dollar was decoupled from gold. Of course, one reason was the rapid development of the global economy, which made the gold reserves inadequate to support the US dollar's market or other things. In my opinion, that is misleading because the issued US dollar is not equal to the circulating US dollar. As we know, there is a money multiplier for a currency, and banks can create money. During the process from M0 to M2, banks receive deposits and lend them out, effectively doubling the money supply. So, at that time, the currency multiplier for the US dollar was over 20 times, which could support the economic development of the entire world. However, there were a few circumstances at that time that allowed the US dollar to completely decouple from gold.To rely on the so-called left foot stepping on the right foot, it is to use the US government bonds issued by the Federal Reserve as the basis for issuance. In that process, it actually went through more than 30 years. Although the cryptocurrency circle is fast, traditional economic finance has cycles of 20, 40, or 50 years, while the cryptocurrency circle has a four-year cycle. However, no matter how fast it is, it is impossible to gain the trust of the world and create new momentum in just two years, especially when there is still some room for optimization in the algorithms of the new environment. So at that time, I didn't pay much attention to Terra. It was in 2020 and 2021 because I was somewhat familiar with it. I didn't think they were doing anything exceptional. Many people have their own opinions and views when looking back. But I think the core issue is that they chose the wrong sequence or inverted the cause and effect relationship. Credit should come first before stability, rather than stability first before credit. That's the fundamental problem I think. And how can a cryptocurrency project have credit, right? Especially in the current environment. So it is necessary to rely on assets with only credit as reserves, whether it is a lending mechanism or other mechanisms, just like the US dollar, which initially used gold as reserves. So, I think fundamentally, the cryptocurrency circle is too fast, and in this fast process, it has caused ordinary people or ordinary experiences to choose to participate due to some forced or pressurized situations. Because you said that DeFi is safer than Cefi, it seems to be engraved in the minds of many people. If this kind of thinking misunderstanding or cognitive bias cannot be avoided, then the resulting losses are actually deserved. However, for those LPs who are managing funds, I think these losses are too innocent, there is really no way. Host: Everyone says that the bear market is the golden growth period for BUIDLERs, and HOPE is a project born in the bear market. Many multipliers are polished well in the bear market and only qualify to soar in the bull market. Of course, a good project must have a good economic model. When understanding the economic model of a project, do you have your own evaluation criteria or considerations to share briefly?
Boyang: This question is actually quite complex. Maybe I can provide you with our perspective. When we look at an economic model, we often consider its value input. At the same time, there are certain points that we tend to avoid, such as any claims of perpetual motion machines that guarantee steady profits. If we approach it rationally, we would typically avoid or frown upon such claims and adopt a more critical perspective. Let's discuss these two points separately. The first one is that often, for promotional purposes or to make it more attractive, many economic models tend to emphasize that they guarantee steady profits. They might suggest that as long as you enter early or follow specific operations, such as unlocking your collateral when the market falls or moving your funds to another platform when the market declines, you can achieve steady returns without any losses. Generally, when we come across such claims, we are quite skeptical and look for the loopholes in their arguments, which can be considered as negative points.
On the positive side, we would consider the value input of any economic model, regardless of how well it is designed. If something generates strong value and has significant external input, such as people being willing to pay for its services or various types of value it offers, like its NFT or entertainment content, then we would believe that this economic model has a higher probability of success, even if it has some minor issues. In such cases, there is room for adjustment.
On the contrary, if an economic model lacks any value input, it becomes highly risky as it can only rely on internal circulation and implosion. Following this perspective, Fiona mentioned the Stepn project earlier. Yes, retrospective analysis like this is particularly valuable. We can perceive that Stepn in many ways has indeed created value. Hence, when their economic model encounters issues, it sometimes shows stronger resilience because some people still like the product. For example, they appreciate its well-designed product and its functionality that allows them to run or walk, which has certain value. Moreover, if its shoes are aesthetically pleasing, people would buy them and not be eager to sell them immediately. All these factors can be regarded as value, and we attach great importance to them.
Fiona: First of all, I strongly agree with Boyang's point of view. Then, the characteristic you just mentioned - value input, we actually had a term called external positivity which had the same meaning. We did some research and found that the users in the crypto world are the most difficult to please. When they buy shoes from you, their intention is very clear. It's not about their health or anything like that. Their primary goal is to make money and calculate the payback period. For example, if I buy a pair of shoes, how long will it take for me to break even, and so on. Thinking about it, it seems quite unreasonable. If you look at it from a traditional financial perspective, it's like getting your return so early, it must be a scam. At that time, our team also hoped to attract Web2.0 people because they are not your typical traditional users. They don't care much about gains and losses or payback periods. They are more interested in the potential of the project. It's a vague concept. They think, "It seems I can make money just by walking. It's like buying a fitness card." So, Stephan, basically he wanted his users, and ultimately most of his users were not native to the crypto world but outsiders. That's why when I attended some offline events in Taipei, I found that many people who had no idea about wallets were participating. I was quite shocked. It was the first time I realized that if a crypto project could bridge the gap between Web2.0 and Web3.0, it would have tremendous potential. Coming back to the question itself, I don't really have a definitive answer. I mainly wanted to hear everyone's excellent opinions. However, I can share a few dimensions I consider when evaluating projects, and it's not just Tokenomics because I'm not particularly good at that. For consumer-oriented projects, I focus on metrics like daily active users (DAU) and monthly active users (MAU). It's about how active they are in a month, how many people are actually using the product. This may directly apply to GameFi and SocialFi. This year, I have seen quite a few gaming projects, but so far, projects with DAU exceeding 1000 are very rare, but there are a few. And if it's a decentralized finance project, I may pay more attention to factors like funds utilization efficiency and collateralization ratio. Finally, it may be more related to marketing because I think the current market is a bit different from before. It used to be like I create a project, secure funding from VCs or do a public fundraising, and then launch the token to pump the price, but now it's more about building a community, attracting users, and providing value.The story seems to be complete, but now, because there are often more projects than users, Marketing I think it has become an increasingly important part, such as how to make users aware of your existence, and then how to impress users to participate in you. This is what I think has become increasingly difficult, so it includes dimensions like Twitter keyword statistics, community data, coin address analysis, and smart money tracking. Although smart money may not be very smart, but approximately, it is smart money tracking. With these dimensions, I also feel that it is more and more necessary to consider some data dimensions when doing a project or discovering a project. Yes, it may have deviated a bit because it is not directly related to Tokenomics. I hope to hear other people's opinions on this. Thank you.
Yuanjie: I personally have participated in many projects and have seen many economic models. Generally speaking, the design of an economic model determines whether the team wants to do the project well or not. Many economic models have very high inflation at the beginning, utilizing low circulation and high STV to increase APR for everyone. These projects often don't have a good plan. On the other hand, some projects have a very slow release with a long-term plan, at least three or four years. These projects are more likely to focus on doing the project well, rather than using high inflation as a means to drive the project. In this case, you can have a good idea of the investment cycle and mindset of the project. On the contrary, many projects don't need token incentives at all. For example, Uni's token economics is poorly planned. It relies solely on innovation to support its market value. However, projects like Curve combine token economics with functionality, but they also have a longer timeline. So basically, I would look at the project's economic model to judge whether they have a long-term vision or short-term goals. Then I would decide how to participate in the project because, in the end, it's not just the project team and users who are playing the game. There are also big investors, market makers, and many scientists involved. But you can generally get an idea of the project's ambition through the economic model. Another important factor is the desire for development. For example, taking HOPE as an example, we can see that its token release is very gradual and the planning is long-term. This shows HOPE's determination to make it a long-term project rather than a short-term profit. So, I think this is very important. The second point is the design of the token economy. Does it have the right incentives for the right behaviors? This is something we need to deeply study because sometimes the economic model of a project is established from the beginning, but I don't necessarily agree with it because we don't know if the go-to-market strategy is right. If you incentivize from the start, you don't know if it encourages the right behavior because you don't know yet. It actually requires a trial and error process. In the crypto industry, we are gradually exploring a good logic for this. It's about using non-transferable points first, like Blur. They have done several different incentives before token distribution, about three waves of incentives, and each incentive has a different logic until the third wave, so it's a process of experimentation.Three times their core motivation was to incentivize hanging orders. Especially hanging this buy order, which is to provide liquidity. The last time can be considered as finding a very core innovation point. Based on this point, they pushed forward, issued coins, and at least at that time achieved good results. However, after they found that this effect was not sustainable, they were no longer in a hurry to issue coins and started to continuously try new products. Then they tried new products and found out what behavior should be incentivized by this token in order to let the project develop in the long term. As for what was mentioned earlier, they don't care about making you PUA in order to issue coins. Instead, what they care about is whether this product has really found product market fit. After finding it, they would then incentivize the core users and their needs. I think this team and product are worth believing in and doing in the long term. So I think, with more and more people using non-transferable points, and waiting for the tokens to circulate or be issued for a period of time before there are enough users to truly allow for transfer or trading, this effect will become more and more common. I also think this is becoming more and more reasonable because sometimes, especially when you are designing innovations, you don't know what the correct behavior is. When you want to incentivize, sometimes you incentivize to the point where you attract "wool party" or "mining party," right? These are not the users you want. They might bring you a large number of users or a large Total Value Locked (TVL) in the short term, but they are not your target users. So in this respect, I think everyone needs to consider it very carefully. How can we make this process more gradual? In fact, you can complete this process through a transitional stage, as Blur mentioned. And regarding the third point, of course, it is the innovation of the economic model itself. Actually, in the cryptocurrency community, it goes without saying that people who make products innovate because many of them keep innovating in these aspects. Some do ThreeThree, some do Curve, some do rebase. Personally, I don't think those are the people who truly want to make products. Instead, they can learn from and borrow from others. They can see how others do it and then use it themselves. Because financial engineering itself is very specialized, and it can be separated from the design of your specialized product, and you can learn from it. So those are my views, thank you.
Flex: Actually, I think what you just mentioned is non-transferable points, and I believe that more and more projects will apply this mechanism in the future. For example, HOPE, our upcoming product, will encourage people to use it. It combines a card with an NFT and integrates with offline coffee shops. We won't be introducing a new coin, it will still be LT. However, we realized a significant problem with the original LT mechanism, which is focused on incentivizing liquidity providers. We have two goals: the scale of HOPE and the number of users and user scenarios. Initially, we didn't consider user scenarios very clearly, and we faced a challenge regarding how to incentivize certain behaviors using LT. Therefore, we are implementing a new points system that allows for NFT upgrades. Similar to the BBS system, the higher the level, the more rewards users will receive, including LT and NFTs with land and real estate permissions. Each project with a long lifecycle requires different and continuous incentive methods. In the Web 2 era, companies like Uber and Didi fought and competed by burning money and providing subsidies. In the cryptocurrency or Web 3 world, the approach might involve continuous issuance of coins to stimulate activity. However, these methods are not always healthy. So, what Yuanye just mentioned is a great way to patch these issues. Instead of having each protocol issue its own coin and constantly come up with new incentives, it might be better to create a points system and use levels, privileges, and other methods to incentivize users, rather than relying solely on coins. I believe this approach can better engage the right users, but it's still an ongoing experiment. Furthermore, there are many useful tools available or yet to be developed, and we should consider them. I recently came across the term "Tokenomics" being upgraded to "technology," which I believe is crucial. I agree with the point made in the article that token utility includes not only monetary value but also ownership, various economic structures, and improved connectivity between creators and users. It also encompasses ways to access goods and services, making it more than just an economic model., it is often a social model, or called a community model. I can't really be considered a social model, but I think there are many things worth thinking about, not just revolving around the simple term of economics.
Host: Taking HOPE as an example, based on the elements mentioned above, what kind of considerations and plans did HOPE make when implementing the dual-currency economic model? What roles do HOPE and LT play in the overall HOPE ecosystem and what functions do they serve?
Flex: A project that has different stages in its lifecycle, with different target audiences in each stage. The Tokenomics is hardcoded into the code. Once the code is written, it is a commitment not to change it. At the same time, it provides a clear standard for future inflation expectations. However, the disadvantage is that when different stages require different incentives, such as encouraging scale at the beginning and encouraging behavior or activities later on, it becomes difficult to change the approach. This is why we need to consider a multi-token model or a dual-token model with points and NFT. The result of this complexity is to improve the user experience, which aligns with our initial vision. We want to provide products with a better user experience for everyone, rather than just self-satisfaction. So we are now thinking about how to move forward. Returning to the Tokenomics of the HOPE project's two-token system, fundamentally, what we are doing is using options to combine the volatility of the two most representative and liquid coins in the cryptocurrency market into this token. This allows the volatility of BTC and Ethereum to be monetized as external kinetic energy for everyone's benefit. In other words, when you buy HOPE, it's like buying BTC and Ethereum while simultaneously selling a call option equal to twice the amount of BTC and Ethereum, and receiving LT as your premium. This premium is also the reserve for the call option. After this long explanation, it might still be a bit unclear, but to put it simply, when you hold HOPE for a certain period of time, you have something that generates native earnings in addition to BTC and Ethereum. And at the same time, LT is a long-term perpetual lottery ticket, an endless call option for those who are bullish on BTC and Ethereum.
Why is LT called a perpetual call option? It's because when you buy HOPE, it's equivalent to buying BTC and Ethereum while simultaneously selling a call option equal to twice the amount of BTC and Ethereum, and receiving LT as your premium.
So, LT is actually a call option on the entire HOPE reserve. Because HOPE is anchored to 1 US dollar in the long run, but the value of the reserve will continue to grow, and this potential is reflected in LT.
So, in this process, actually when it comes to attracting some future customers and users to join this industry, there may be more words that I haven't figured out yet, but what I have been thinking in my mind is, or say an example I've used before is, in the past we said the Communist Manifesto is an extremely complex thing, when we first put forward the Communist Manifesto and communism, actually it was more about reforming the social practice and the relations of production. So in that process, what everyone wants to bring to this community or say community is very complex and hard to describe, involving production relations, involving production, and involving many other economic models of communism. However, in order to ultimately convey to the group of people who need to be mobilized to support this communist revolution, such a large and complex Communist Manifesto will become just a few sentences, such as joining the Red Army, land distribution, or stimulating the peasant masses and the working masses. It's a way for them to vent their long-term oppression by capitalists and so-called landlords. So they were motivated to join the revolution. Actually, I haven't come up with a particularly good term or language for this matter yet, but what needs to be said in the process is very simple, which is that LT actually means being optimistic about this industry and having something that is expected to have long-term value in this industry, there is only that one thing, and at this time a declaration is needed, it's not investment advice. If you regard LT as a lottery ticket, if you think this industry is good, and that Bitcoin and Ethereum will rise in the future, then it means mining and getting LT, which you can actually hold instead of selling it, which is roughly the meaning. But I think there will be many ideas and attempts with these models in the future, including the issuance of our credit card and making it convenient for everyone to deposit and withdraw, improving user experience, there are many other actions and methods to motivate, which may require other things, so it is still quite complicated, and there are still many places to think about how to move forward in the whole process, but I think it's okay to have this kind of struggle, it's just a bear market, I'm relatively lucky, so I don't need to be so anxious.
Host: Governance mechanisms in economic models have always been a hot topic of discussion. Some projects have a community governance that is in name only, while others have become more mature and on track with a strong community consensus. What do you think are the key points that need to be considered or balanced in the process of designing governance models to ensure that they fulfill their intended role? What are the key points that need to be considered or balanced in the process of designing governance models to ensure that they fulfill their intended role?
Fiona: I would like to briefly share my perspective to contribute to the discussion. First of all, I believe that community governance is a significant difference between blockchain projects and traditional companies. Many projects open up voting or proposal mechanisms for token holders to participate in the governance process. I think this is meaningful, but it also carries risks. Some time ago, there was the incident with the Tornado hacker. It happened because someone voted for a Trojan horse bill, and the proposal contained malicious code. As a result, the entire incident was approved, leading to the theft. Therefore, I think it is important to involve everyone in governance but not allow everyone to participate in all aspects of governance. Not all token holders necessarily possess the knowledge reserve required to make beneficial protocol decisions. Therefore, I believe there should be certain restrictions and a dual review mechanism for code changes to enhance the security of the democratic governance process. Another point is, since I am currently based in Taiwan and grew up in mainland China, I can clearly perceive the differences. I want to share a simple observation: I think it is somewhat sad if everyone can participate in governance and is busy doing so. I believe in advocating governance by the wise, where knowledgeable individuals participate in governance. As for the rest of the people, as long as they trust and believe in the project, it will progress smoothly. Therefore, I am not particularly optimistic about the previous fully decentralized organizations because not everyone necessarily has the experiences, professional knowledge, and enthusiasm to invest in the governance of a decentralized organization. Instead, I advocate granting a limited number of people maximum governance authority, allowing them to handle routine work, and letting the rest of the community vote on some bills and proposals. This way, not everyone needs to vote on everything. This is my viewpoint, thank you.
Duojie: I think there are actually two things here. First, how to give tokens the right to govern, or how to use tokens to incentivize desired governance behaviors. In my opinion, the best design in the industry is vtoken, which was probably invented by Curve. It has become a consensus in the industry that new DeFi projects will almost always have a vtoken design. This includes the emergence of V3.3. Essentially, users lock their governance tokens, either through long-term lock-up or different implementations of lock-up, to obtain governance rights. They also receive some benefits, including protocol-generated revenue, additional revenue, and even distribution of new tokens. They have more rights to enjoy these benefits. This is like a way of forcing lock-up to ensure that the interests of governance participants and the project are aligned. Another direction is the question of whether participants in governance actually have governance capabilities, which, I think, is something that is rarely discussed in the cryptocurrency community. People often think that they have above-average intelligence, or if you ask them about their trading abilities, they will often claim to be better than average. Everyone has a misguided belief that they are better than the average person, so everyone wants to have governance rights. However, if you look at most DeFi projects that have been launched, what we get is not the governance rights of the project, but more like a "feature button." As someone once said, what we get is a button where we can choose if we want it to be red or yellow, meaning we have more say in the token distribution percentages of the project, such as whether it should be 10% or 15%. What we have is more of that kind of right, rather than a genuine core design of the project. Even in some projects, the treasury is not in the hands of governance participants, but rather in the hands of the project team. If the project team decides to run away with the private keys tomorrow, it becomes something that the community cannot govern. So, if you think about it carefully, what are we actually governing and do we have the ability to govern? I completely agree with what Fiona just said. I believe that most people do not have the ability to govern a project. This includes Terra. Before it collapsed or went bankrupt, no one dared to say with certainty that it would definitely collapse. Maybe people had doubts or vocalized their skepticism, but no one dared to say with 100% certainty that it would perish, right? So, even at that time, if it were handed over to the community for governance instead of being in the hands of someone with 100% decision-making power, do you think the community could have solved this problem and prevented the collapse? Think about it carefully. Most of us do not have the ability to govern a project. So, what kind of person has the ability to govern a project, for example, likeDeFi projects like Synthetix require participants to have a certain level of financial knowledge, trading ability, and the ability to read code. They also need to be willing to devote a significant amount of time to participate in detailed discussions within the community, including discussions on important features. It's important that participants have the determination to stick with the project for the long term, rather than losing interest after a short period of time. Synthetix has an interesting governance system called delegated proof-of-stake (DPOS). It has a council consisting of nine community-elected members who serve for three-month terms. These council members have the authority to handle various matters and engage in important discussions on a daily basis, usually on Discord. They hold weekly meetings to discuss agenda items and propose changes to the community. These proposals are made public and are only executed if the community agrees. Initially, the founder of Synthetix, Kain, was not eligible for election. All council members were community members. However, highly influential community members, including some powerful whales, emerged and became important contributors to the project. There was a period of relative quiet for Synthetix, partly due to the emergence of projects like Terra and Linear, which imitated the Synthetix model. These projects had the advantage of being newer, which attracted more attention. Additionally, development progress on projects like Opium and Chainlink was slow. Opium's delayed launch hindered the release of Synthetix's new v2 derivative protocol. As a result, Synthetix experienced a period of silence. It was suggested that Kain, as the founder, should participate in the election and become a council member to facilitate communication with the team. However, there was an issue with the execution of decisions made by the council. The order of execution, priority, and understanding of the team's capacity sometimes posed challenges. This led to the decision to allow Kain to participate in the election, and other team members, including Ken, followed suit. The Treasury also transformed into a DAO organization, no longer controlled by the former COO but managed by the community through the DPOS governance system. To my knowledge, there are no other projects that have implemented this approach.Yes, but I think the Synthetix system has its flaws, but it is indeed a well-thought-out design solution and has proven to be very beneficial over the years. Also, there is a topic discussed earlier about the economic model. I want to emphasize that both the economic model and token economics can be modified. When problems arise, the community can propose modifications, or it can be done by the council or the person responsible for the proposal. Token economics can be rectified if issues arise. For instance, Synthetix was the first project to introduce liquidity mining, and it was suggested by the community to move away from a deflationary design over eight years and incorporate inflationary mechanisms. It was a collective decision made through discussions. Therefore, I believe that there are talented elites within the community who can lead us towards a better path. However, not everyone has the ability to judge whether a design or modification is correct. Personally, I am inclined towards designs like Synthetix.
Flex: Actually, what did Fiona and Duo Duo mention just now? It's actually the political system. I believe that humans had already proposed a very good political system over 2,000 years ago, called a republic. In the time of ancient Greece, because the Mediterranean economy was developed, the productive forces, or the market forces, were developed. With a good economic foundation, a very good community emerged, which then gave birth to the mechanism of the first generation of a republic, which is the separation of powers. What does the separation of powers refer to? It means that the executive power, legislative power, and judicial power are independent. Just now, Duo Duo and Fiona mentioned legislative power, and Duo Duo derived legislative power from community governance. Everyone had doubts about governance over the whole community. I think the fundamental reason is that Plato had mentioned in his book "Republic" that human society may have always been in a cycle. I don't know about the future. After AI emerges, will there be better executive power? Of course, in the current situation, there must be a legislative mechanism in human society. This legislative mechanism, or the mechanism of a republic, has always had a so-called legislative mechanism. Whether it is in China or the United States, we have a complete legislative mechanism specified in the constitution. In the United States, there is the House of Representatives and the Senate. Each state has two senators, and the House of Representatives has 500 people. The election methods are different. It is essentially a representative system. As for the Chinese, the National People's Congress has central committee members and standing committee members. Just now, Duo Duo mentioned this Spartan parliament, which is actually the so-called standing committee. The standing committee decides on some important matters. I think that when we are doing tokens or when we are building this Web 3 community, we are actually conducting a social experiment. Originally, in this social experiment, we should stand on the shoulders of giants, and we should start with a republic. Who owns the executive power? Actually, the executive power belongs to the project team. It means that many executive works, such as the government, belong to the project team. Let's take an example. After the National People's Congress proposes a proposal, it should be implemented by the State Council. So, the project team is more like the State Council, and the National People's Congress is more like the mechanism of community governance. There is also the judiciary, which is the public security, procuratorates, and the judiciary system in China, and the judicial system in the United States. We have noticed that these different functions have different time cycles. For example, in the government, it is four years per term in the United States and five years per term here. Then, in the United States, the Congress has a different cycle. Why do we have these mechanisms? These mechanisms have evolved as human beings continuously construct their own social systems, constantly revise and modify them, and ultimately form some mechanisms. So, no matter what direction the project is in, whether it is DeFiGameFi, I think in the future, everyone should have the right to be separated. So, let's say Treasury I actually think that what needs to be considered more is the so-called distribution of benefits. This problem is about the balance between different rights, and only through this process can a better mechanism be formed.+
Yuanjie: I have some experience to share with everyone. Have you ever seen a photo of a person digging a hole in a pit, and then there are seven or eight people on top of that hole? Some say let's go to BSC, some say let's launch NFTs. And then, the person in the hole writes three words - project party, and above them is the community. And they all have a common thing above their heads, which is a round bubble called community governance. This is the current state of many project parties. It means that before you can really find someone to help you govern the project, don't expect community governance. Although the matter of on-chain voting has greatly simplified the matter of shareholder voting, everyone can easily vote. But as some friends mentioned earlier, having a high-quality governance atmosphere or individuals in our environment, or in the Chinese community, is really rare. Because in the United States, they or the Westerners have a strong sense of citizenship, which also comes from their democratic system, the
