The OTOCO Token: Capped or Uncapped Issuance?
Our proposed token inflation model is based on continuous minting to meet user demand rather than artificially creating scarcity.
We’re a few weeks into our OTOCO token pre-order window, with over three quarters of a million dollars worth of tokens pre-ordered at today’s price of US$ 0.56 per token.
This amount has thus far been ordered by over 100 stakers, a stat we’re particularly happy about as it shows an average size of pre-orders of around US$ 6,800 per staker, indicating that OtoCo is genuinely raising from its community.
We now want to take soundings from the same community about how we should mint new tokens for the OtoCo project.
Genesis token creation
As a recap, an initial 8 million OTOCO ERC-20 tokens have been created by OtoCo Labs, the special purpose vehicle that acts as the legal skin for the OtoCo token issuance smart contract.
As of today, Thursday 28 October, our launch pool smart contract took pre-orders for 1,357,275 tokens. When the pre-order window closes, a maximum of 4,588,062 tokens will be issued to meet pre-orders, together with a token reward to early users who purchased an onchain LLC on otoco.io before 31 August 2021.
The balance of the genesis token mint will then be pledged to the OtoCo Foundation, together with the pre-order proceeds.
From that point on, new tokens will be automatically minted by the Foundation’s token treasury smart contract.
In this post, we detail how we propose to mint new tokens and why we chose a continuous uncapped token issuance mechanism vs. a capped release with artificial scarcity.
Keeping Things Simple
We learned a lot about Otonomos clients’ token inflation models and from the various projects we follow.
There is no right or wrong however, for our purposes we wanted to simplify how rewards work by using the airmiles proxy: the more you spend, the more miles you get. Miles then become spendable with the airline or its partners, with certain restrictions.
The more you spend the more you (+ dApp devs + the community) earn…
A user who makes a purchase in the OtoCo platform will get a token reward calculated on the basis of the ratio of how much user spends represents as a percentage of overall sales in the platform at the moment of user’s purchase, multiplied by a loyalty bonus ratio that reflects how many reward tokens get issued for every USD of spend.
The formula is simple and elegant:
(User spend/Total Spend at time of purchase) * Loyalty bonusE.g. Alice spends US$ 1,000 in the OtoCo platform purchasing a vesting smart contract bolt-on for her LLC. At the moment of Alice’s purchase, a total of US$ 1MM worth of services has been sold via OtoCo. Alice’s purchase hence represents 0.1% of the total sales volume at that time.
Multiplied with the loyalty bonus, initially set at 10%, this means the smart contract will now add 0.01% to the previous outstanding token balance.
3 is the perfect number
How are those newly minted tokens to be shared?
We propose Alice receives a third, the developers whose dApp Alice purchased also receive a third, and the community receives the balance in the OtoCo Foundation treasury wallet.
Developers are the suppliers of product in the OtoCo platform: they stock the shelves and need incentives to build add-ons that cater to user demand.
On this basis, in addition to their share of revenue from the add-ons they sell in OtoCo’s dAppstore, developers are initially set to receive the same amount of token reward as the user who buys their product.
The idea is to help kick-start an entire ecosystem of third-party dApp developers similar to Apple’s Appstore, but with developer receiving a fairer share of their sales revenue + additional OTOCO tokens.
The last third of the newly minted tokens would go to the community by way of crediting the OtoCo Foundation’s treasury wallet, from where grants and token allocations can be made to anybody who contributes to the growth of the OtoCo project, subject to an onchain vote.
Spend, swap or hold
Any recipient of OTOCO tokens can then either spend OTOCO in the platform, create or participate in a liquidity pool on a decentralized exchange to swap it for any other digital asset, or just hold it.
Spending OTOCO will be according to a ratio of tokens towards paid-for services, similar to a loyalty scheme.
As with the loyalty bonus above and the initial 33% sharing itself, this ratio will be subject to an onchain vote.
What about the token price?
We believe little meaningful can be said at this stage about the evolution of the OTOCO token price: It is impossible to predict how the price will behave under the proposed token issuance model.
This is by design: we purposefully did not optimize the issuance model for the token price.
That said, with issuance a direct function of demand for OtoCo’s services, a fair token price should reflect the value users, developers and the community in general perceive from the utility and governance rights attached to the OTOCO token.
There are no artificial constraints that seek to put a floor on the price, which may affect the price negatively.
In addition, the Foundation will not hold sufficient tokens to act as a central bank and influence the token price either way.
As a result, the token will lead its own life once the initial distribution takes place and the token is swappable on DEXs, with little the OtoCo community can do short-term except for stewarding the project responsibly in the long-term to make sure that the vision for OtoCo gets built in a fully decentralized way.
Part of this collective responsibility is to parameter the project right. With this in mind, all significant levers that can decrease or increase the velocity of token issuance have been left in the hands of the token holders: the size of the loyalty reward, the sharing key between users, developers and the Foundation, and how the ratio will be set at which OTOCO tokens can convert into USD-priced services on the OtoCo platform. It is over to us to use them wisely!
Win-win-win
In summary, users, developers and the community all get rewarded equally when the volume of transactions in the OtoCo platform increases.
The number of newly minted tokens is a direct function of how much users spend.
In addition, developers will be able to build and sell their solutions in the OtoCo dAppstore and receive token rewards linked to their sales volume.
Finally, all token holders have voting rights over how the project’s parameters are set and how community tokens are allocated out of the OtoCo Foundation.
As a result, everybody should benefit as OtoCo grows.
Play with the token reward simulator to see how many OTOCO tokens you’d receive for a given USD purchase in the OtoCo platform.