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Glossary

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

November 21, 2023 - Around 3 mins mins to read

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

The concept of a dual-token economy, also referred to as the dual-token model or system, pertains to cryptocurrency projects that utilize two distinct types of tokens. The main purpose behind the creation of these tokens is to ensure compliance with regulatory requirements and enhance the usability of the project’s ecosystem.

Typically, one of the tokens functions as a security token, enabling 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 differ from one project to another.

The adoption of a dual-token economy model is largely 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.

To be considered a security, a project must ensure that its tokens 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.

Another advantage of implementing a dual-token economy model is the ability to provide 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 that 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, including VeChainThor, MakerDAO, Anchor, and Filmio.

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Coincu

Glossary

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

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

The concept of a dual-token economy, also referred to as the dual-token model or system, pertains to cryptocurrency projects that utilize two distinct types of tokens. The main purpose behind the creation of these tokens is to ensure compliance with regulatory requirements and enhance the usability of the project’s ecosystem.

Typically, one of the tokens functions as a security token, enabling 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 differ from one project to another.

The adoption of a dual-token economy model is largely 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.

To be considered a security, a project must ensure that its tokens 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.

Another advantage of implementing a dual-token economy model is the ability to provide 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 that 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, including VeChainThor, MakerDAO, Anchor, and Filmio.

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