Learn about the WAX Tokenomic Model
By William E. Quigley, WAX Co-Founder
***Update 06/11/2021: Updates to the WAX Tokenomics model to improve its value to the WAX Community have been made:***
With the advent of the bi-directional bridge, there will be some changes to the tokenomics on the DeFi. WAXP will no longer be burned when converting 1000 WAXP into 1 WAXE. Instead, when someone trades 1000 WAXP for WAXE, the WAXP will instead be held in an escrow account. This means that the deflationary tokenomic mechanic of burning WAXP into WAXE is ending.
The main deflationary tokenomic mechanic for WAXP will now be the 20% burn of accrued economic activity fees that occur on the WAX blockchain. This burn occurs at the end of each epoch (now every 4 weeks).
When using the bridge to convert 1 WAXE into 1000 WAXP, the system will check the escrow account for the WAXP. If there is enough WAXP in there to cover the WAXE conversion, then the conversion will proceed. If there is not enough WAXP in the escrow account to cover this conversion, only then will the system borrow from eosio.savings inflation to cover the conversion.
In addition to these changes, the epoch has also been lengthened. Instead of the previous 2 week epochs, an epoch will now be 4 weeks (28 days). Because WAXG emissions are based upon a 4 year timeline (208 weeks), this means that when an epoch meets the requirements of a WAXG emission, that emission would be double the normal amount awarded (4 weeks worth instead of 2 weeks worth). Additionally, a missed WAXG emission will now add 4 weeks, instead of 2 weeks, to the WAXG emission timeline. The epoch was lengthened in order to help with the volatility of network fee accumulation.
***Update 11/5/2020: Updates to the WAX Tokenomics model to improves its value to the WAX Community have been made:***
- The main change is that we added a Liquidity Pool. Those who deposit a combination of WAXE and ETH into the Liquidity Pool will earn Liquidity Pool Rewards (WAXE-ETH).
- WAXG will be given to those who stake their WAXE-ETH Tokens in the WAX Economic Activity Pool.
- The Distribution Pool and the PiggyBank Pool in the WAX Economic Activity Pool smart contract are now each 50%
- An updated WAX Tokenomic Process Flow diagram that shows the Liquidity Pool, and explanation of each step
- An additional graphic showing how to participate in WAX Tokenomics
- The WAXP-ETH Bridge and WAXE Token will be released before the end of the year
- Development progress: The development team has completed the WAXP-WAXE back-end bridge and we are now working on adding a user-friendly UI into the new WCW. They are currently working on the Liquidity Pools for WAXE-ETH.
Today there is some exciting news regarding WAX. WAX has created a new tokenomic model that combines the rapid growth of NFTs with the superior monetization capabilities of DeFi.
The core element of the new WAX tokenomics system is its inter-blockchain design.
Simply put, we are injecting the economic value created on WAX into the Ethereum DeFi ecosystem. More precisely, we are taking what WAX does best — creating, selling and trading NFTs — and linking the value generated from that activity to Ethereum, the blockchain world’s monetary system. This approach combines two blockchains — each the best at what it does — to create the foremost NFT collectible market experience.
Unlike the majority of current DeFi platforms, WAX provides a sustainable source of value to stakers. This is because WAX DeFi is fueled by NFT transactions — a market with attractive long term prospects and where WAX is strongly positioned.
NFTs — A $100 Billion New Entertainment Medium:
Whenever a new technology emerges, it is generally first applied to an existing market. Paving over the cow paths left by the prior technology, so to speak. New technology, same use case. A better, faster, cheaper experience. Perhaps. But not a novel one. Real excitement happens only when the new technology is applied in a novel way that allows people to do something desirable and unexpected that they could not do before. That is the aperture moment. The moment of enormous value creation.
The NFT market is at that threshold today.
NFTs emerged as consumer items less than three years ago. Yet based on rising consumer demand for new NFT content and strong interest from forward-thinking brands across a diverse set of industries, I believe NFTs will soon emerge as a stand-alone entertainment medium with global mass market appeal. By way of comparison, the global video game industry generates more than $100 billion in virtual item sales annually. I believe NFTs will ultimately surpass this level.
NFTs will stand side by side with movies, music, and video games as a distinct entertainment format. Every consumer product that can not be eaten will become an NFT.
This clearly bodes well for WAX, as we’ve been dubbed ‘The King of NFTs.’ WAX has not only surpassed Ethereum in terms of NFT trading activity — it is becoming the NFT platform of choice among many top global consumer brands. This is not an accident. WAX’s rising stature in the NFT world is a result of our well-informed design decisions and our careful attention to the needs of virtual item traders.
This is why we built WAX, the #1 NFT platform — to allow brands and consumers to participate in this potential $100 billion market.
Separating Consumer Activity from the DeFi Functions — The Benefits of an Inter-Blockchain Solution:
In thinking about the proper role WAX should play in the future of NFTs, it became evident to us that while WAX is a superior platform for making and trading NFTs (i.e. consumer activity), it is not the best place to custody and maximize the transaction value generated from that activity (i.e. DeFi functions).
WAX economic value (i.e. author commissions, other network fees) is isolated today in the relatively small EOSIO ecosystem. A better solution would be to separate the NFT consumer activity from the financial rewards generated from that activity — using the blockchain that’s optimal for that purpose.
This realization is what drove us towards the new WAX tokenomic model we are announcing today. The WAX Blockchain will continue to perform the core NFT operational functions (i.e. item creating and trading), since it was designed specifically for that purpose and outshines every other blockchain in this area. While the capital generated from WAX NFT commercial activities will be transferred into the vast and growing network of financial services available on Ethereum.
Ethereum — The Monetary Hub for the WAX NFT Trading Empire:
Regarding our selection of Ethereum, that decision was simple.
Ethereum is best positioned to become the monetary system for all blockchains.
As far as alternatives go today, Ethereum has no equal or even a close second. Every other chain today is largely irrelevant in this regard. Of course, nothing is static in the blockchain world. Another blockchain, including WAX, could serve the same functions in the future. But for now, Ethereum it is.
I would liken Ethereum’s DeFi position to the way London emerged at the dawn of the industrial revolution to become the global center of credit and banking. As London built upon its position as the trusted custodian of trade capital and foreign exchange, other territories were able to sharpen their focus on the things they could do best — leading to a rapid rise in world trade. I believe Ethereum and other blockchains will evolve in a similar fashion because we continually see the move towards specialization as complex markets expand. As markets grow, specialists proliferate. And with specialization comes its twin, comparative advantage.
David Ricardo’s subtle but brilliant insight is that we are all better off focusing on the things that generate us the highest returns, even if we possess an absolute performance advantage in other commercial areas. As long as your efforts are more richly rewarded focusing on one thing, you shouldn’t allocate any effort to doing different lower-returning activities. In other words, every participant in a complex market should direct its most coveted resources towards their best and highest use. Whether those resources be a scarce pool of talented developers, the mindshare of the most insightful entrepreneurs, or the attention of surplus capital holders. Comparative advantage is a pillar of free market capitalism. And I believe it will become a pillar of the global blockchain industry as well.
Comparative Advantage — Why Blockchain Maximalism is Dead:
Blockchain maximalists of course will tend to disagree with this prediction. They see a future where one blockchain rules them all. But the historical record in matters of world trade and technology innovation — where comparative advantage reigns as a dominant force — makes it evident to me that blockchain maximalists have it wrong. There will not be one chain to rule them all. The world is too complicated and the demand for tailored and optimized products and services is growing too fast for that to happen.
Ethereum does some things very well, but not everything, as the tweet below illustrates:
WAX also does one thing really well (i.e. serving consumers and brands interested in NFT collecting and trading) and that is where it should focus.
Under the new WAX inter-blockchain tokenomic model, the operational functions of NFTs will be conducted on the WAX Blockchain, a chain optimized for that activity, while Ethereum will become the capital vault of the WAX NFT empire.
In highlighting Ethereum’s strength in DeFi I want to emphasize that I am not declaring Ethereum is somehow technically limited to that activity or otherwise unsuited for other commercial purposes. My point is that in a free market, your community ultimately dictates where you go. And right now, the Ethereum community is marching to the drumbeat of DeFi, not NFTs. So if you believe we are in the early days of the blockchain industry, and that this industry will continue to grow from here, then you should assume the powerful principle of comparative advantage will take hold and strongly influence future blockchain development. WAX is taking the first step in that direction.
What Specifically is the New WAX Tokenomics? A Short Explanation:
Let’s start with the basic building blocks. There are six Ethereum-based components to the new WAX Tokenomic model. These include:
- WAXP to Ethereum bridge — a new bridge that will enable WAXP token holders to convert their tokens into WAXE.
- WAXE — a new Ethereum ERC20 utility token. A WAX Token holder wanting to participate in the WAX tokenomics will burn his/her WAXP tokens to receive WAXE (using the Ethereum bridge) and then deposit WAXE and ETH into WAXE-ETH Liquidity Pool.
3. WAXE-ETH Liquidity Pool — A liquidity pool for the WAXE-ETH trading pair. Those who deposit a combination of WAXE and ETH into the liquidity pool will earn the WAXE-ETH Liquidity Pool token.
4. WAXE-ETH Liquidity Pool token — The ERC20 token that’s received when depositing WAXE and ETH into the Liquidity Pool. The Liquidity Pool token can be staked in the WAX Economic Activity Pool to earn two types of rewards: WAXG and ETH.
5. WAXG — a new Ethereum ERC20 Governance Token. WAXG will be given to those who stake their WAXE-ETH in the WAX Economic Activity Pool. You can then do one of two things with your WAXG: burn WAXG and receive ETH from the PiggyBank pool in exchange, or vote with them to adjust Governance parameters.
6. The WAX Economic Activity Pool smart contract on Ethereum — this smart contract will govern two different economic activity pools:
a. Distribution Pool — designed to accumulate a percentage of WAX Blockchain-derived value. WAX fees generated on the WAX Blockchain will be converted to ETH for distribution to WAXE-ETH token holders who stake their tokens in the WAX Economic Activity Pool.
b. PiggyBank Pool — designed to perpetually accumulate a percentage of WAX Blockchain-derived value. WAXG token holders who decide to burn their WAXG tokens in the WAX Economic Activity Pool will receive their allotted percentage of the ETH-denominated value stored in the PiggyBank Pool.
So how will it work? The eight steps illustrated in the diagram below provide a basic overview of the WAX tokenomic process flow:
Schematically the process will work like this:
- ON WAX: Economic activity on the WAX Blockchain produces WAXP denominated Network Fees (i.e. commissions).
- ON WAX: Network Fees from all economic activities on the WAX Blockchain are collected. Currently the Network Fee is 8% on all NFT secondary market transactions. The 8% Network Fee is allocated between the IP owner and WAX Tokenomics. The WAX Tokenomic portion of the Network Fee will generally be between 25% and 50% of total Network Fees collected.
- ON WAX & ETHEREUM: Collected Network Fees are burned (20% to begin with) and the remaining 80% are converted to ERC20 WAXE Tokens and moved to the Ethereum-based WAX Economic Activity Pool.
- ON ETHEREUM: WAXE Tokens are allocated to two different pools in the WAX Economic Activity Pool: 50% of the incoming WAXE Tokens are allocated to the Distribution Pool and the remaining 50% are allocated to the PiggyBank Pool.
- ON ETHEREUM: WAXP token holders can obtain WAXE Tokens by using the WAX to Ethereum Bridge and burning their WAXP Tokens at a ratio of 1000 WAXP to 1 WAXE.
- ON ETHEREUM: Holders of WAXE Tokens can deposit WAXE Tokens AND ETH in the WAXE-ETH Liquidity Pool becoming Liquidity Providers. In exchange they will receive Liquidity Pool ERC20 WAXE-ETH Tokens.
- ON ETHEREUM: Liquidity Providers to WAX-ETH Liquidity Pool will be receiving additional Mining Rewards in a form of WAXG tokens. Additionally, holders of WAXE-ETH Tokens can stake these tokens in the WAX Economic Activity Pool making them eligible for Distribution Pool rewards. Finally, Liquidity Providers will be receiving Liquidity Pool Exchange Fees.
- ON ETHEREUM: WAXG Token holders are able to vote on the WAX Economic Activity Pool Governance which determines the allocation percentage to each pool as well as the amount of WAXP being burned in step #3. Alternatively, WAXG Token holders can burn their tokens to obtain a distribution of ETH from the PiggyBank Pool. Finally, WAXE Tokens from the Distribution Pool are converted into ETH for the purpose of the distribution to WAXE-ETH Token stakers.
We will publish a more detailed schematic of the WAX tokenomic system soon. This overview is meant to give our community a solid understanding of the overall concept before diving into the details.
Summary of actions that WAX Token holders will take in order to benefit from the WAX Tokenomics model:
WAX — The Dawn of a Fourth Generation Utility Token:
One final point about where WAX has been and where it is headed…
With the launch of the new WAX inter-blockchain tokenomic model, WAX will leap from a first to a fourth generation utility token. The chart below highlights the main features of each utility token generation.
The principal evolutionary change between third and fourth generation utility tokens is the inter-blockchain component.
Third generation utility tokens conduct all economic activity on-chain, but on a single chain.
WAX, a fourth generation utility token, performs all economic activity on-chain as well, but as a fourth generation utility token, its activities are matched to the blockchain optimized for that particular purpose.
I think this is a major improvement in current utility token design. Fourth generation tokens targeting fast growing global markets is where you want to be. And that’s where WAX is going.