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Glossary

Dual-Token Economy/Model (Two-Token Economy)

November 21, 2023 - Around 3 mins mins to read

The concept of a dual-token economy, also known as the dual-token model or system, refers to cryptocurrency projects that utilize two distinct types of tokens. This model aims to ensure compliance with regulatory requirements and enhance the usability of the project’s ecosystem.

In a dual-token economy, one of the tokens usually functions as a security token. This token enables the project to raise funds in a manner that aligns with regulations governing traditional securities like stocks and bonds. The other token is utilized within the network to fulfill specific roles or activities, which may vary between different projects.

The adoption of a dual-token economy model is primarily driven by the need to address the regulatory aspect, particularly in relation to the U.S. Securities and Exchange Commission (SEC). Unlike conventional securities such as stocks and bonds, crypto assets have not been clearly classified by the SEC. However, the SEC’s “Framework for ‘Investment Contract’ Analysis of Digital Assets” provides a means for blockchain projects to register their tokens as securities and establish conditions for compliance.

For a project to be considered a security, its tokens must offer real-world utility and profit to holders, while also maintaining a decentralized nature. Meeting these conditions allows the token to be classified as a security token by the SEC.

Implementing a dual-token economy model provides several advantages, including the ability to offer greater incentives to token holders and potential investors compared to other projects in the industry. By utilizing two tokens, a crypto project can offer enhanced incentive structures, features, upgrades, and functionalities to end-users.

A notable example of a project employing the dual-token economy model is Axie Infinity, an NFT gaming platform. Axie Infinity offers two tokens: SLP and AXS. Both tokens serve as incentives for users to engage with the game. SLP, also known as “Small Love Potion,” is a utility token with an unlimited supply. It is used by Axie Infinity players to perform in-game tasks such as paying breeding fees for their Axies (game characters) and purchasing Axies from the built-in marketplace.

On the other hand, AXS is an ERC-20 governance token for the Axie universe, with a maximum supply of 27 million. AXS adds value to the Axie Infinity ecosystem, allowing players to directly purchase the token from crypto exchanges and participate in in-game governance activities. Token holders can also stake their AXS tokens on the platform to earn passive rewards.

In addition to Axie Infinity, several other projects operate on the dual-token economy mechanism. VeChainThor, for example, utilizes the VET token as a utility token for conducting transactions and the VTHO token, which acts as a fuel for running smart contracts on the network. MakerDAO, an Ethereum-based lending platform, has the DAI stablecoin as a collateral-backed stable token and the Maker (MKR) token as a governance token. Anchor, a savings protocol on the Terra blockchain, offers the ANC token for governance and the UST stablecoin for stability. Filmio, a decentralized film production and distribution platform, operates on the FILM token for crowdfunding and the STARS token for staking and earning rewards.

In conclusion, the dual-token economy or model refers to cryptocurrency projects that utilize two distinct tokens, often a security token and a utility token. This model helps projects comply with regulatory requirements, while also offering enhanced incentives and functionalities to token holders. Several projects across different blockchain ecosystems have implemented the dual-token economy, each with their own unique use cases and benefits.

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Coincu

Glossary

Dual-Token Economy/Model (Two-Token Economy)

The concept of a dual-token economy, also known as the dual-token model or system, refers to cryptocurrency projects that utilize two distinct types of tokens. This model aims to ensure compliance with regulatory requirements and enhance the usability of the project’s ecosystem.

In a dual-token economy, one of the tokens usually functions as a security token. This token enables the project to raise funds in a manner that aligns with regulations governing traditional securities like stocks and bonds. The other token is utilized within the network to fulfill specific roles or activities, which may vary between different projects.

The adoption of a dual-token economy model is primarily driven by the need to address the regulatory aspect, particularly in relation to the U.S. Securities and Exchange Commission (SEC). Unlike conventional securities such as stocks and bonds, crypto assets have not been clearly classified by the SEC. However, the SEC’s “Framework for ‘Investment Contract’ Analysis of Digital Assets” provides a means for blockchain projects to register their tokens as securities and establish conditions for compliance.

For a project to be considered a security, its tokens must offer real-world utility and profit to holders, while also maintaining a decentralized nature. Meeting these conditions allows the token to be classified as a security token by the SEC.

Implementing a dual-token economy model provides several advantages, including the ability to offer greater incentives to token holders and potential investors compared to other projects in the industry. By utilizing two tokens, a crypto project can offer enhanced incentive structures, features, upgrades, and functionalities to end-users.

A notable example of a project employing the dual-token economy model is Axie Infinity, an NFT gaming platform. Axie Infinity offers two tokens: SLP and AXS. Both tokens serve as incentives for users to engage with the game. SLP, also known as “Small Love Potion,” is a utility token with an unlimited supply. It is used by Axie Infinity players to perform in-game tasks such as paying breeding fees for their Axies (game characters) and purchasing Axies from the built-in marketplace.

On the other hand, AXS is an ERC-20 governance token for the Axie universe, with a maximum supply of 27 million. AXS adds value to the Axie Infinity ecosystem, allowing players to directly purchase the token from crypto exchanges and participate in in-game governance activities. Token holders can also stake their AXS tokens on the platform to earn passive rewards.

In addition to Axie Infinity, several other projects operate on the dual-token economy mechanism. VeChainThor, for example, utilizes the VET token as a utility token for conducting transactions and the VTHO token, which acts as a fuel for running smart contracts on the network. MakerDAO, an Ethereum-based lending platform, has the DAI stablecoin as a collateral-backed stable token and the Maker (MKR) token as a governance token. Anchor, a savings protocol on the Terra blockchain, offers the ANC token for governance and the UST stablecoin for stability. Filmio, a decentralized film production and distribution platform, operates on the FILM token for crowdfunding and the STARS token for staking and earning rewards.

In conclusion, the dual-token economy or model refers to cryptocurrency projects that utilize two distinct tokens, often a security token and a utility token. This model helps projects comply with regulatory requirements, while also offering enhanced incentives and functionalities to token holders. Several projects across different blockchain ecosystems have implemented the dual-token economy, each with their own unique use cases and benefits.

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