Discussion: Creditcoin's Token Model - Transforming Weaknesses into Strengths.
All things involve trade-offs. But can Creditcoin's potential issues be turned into strengths?
In the previous article, Creditcoin’s unique utility token structure was explained. If you haven’t already, go read that here, otherwise I fear the burger references might not make much sense. In this article we’re going to discuss some of the model’s potential drawbacks, and then, how we might transform those weaknesses into strengths.
Note that this article is meant to represent the starting point of a discussion, rather than any concrete plans for the future of Creditcoin.
Just as a quick recap, Creditcoins (CTC) give token holders a permanent right to use the CTC network as, once used, tokens are returned to the user after a year. This means firms can make long-term CTC purchasing decisions based on current prices and their desired transaction capacity. They are not dependent on future CTC market conditions.
Yet such a new system might come with its own caveats we should consider. Whilst these are all just theoretical challenges, especially as we lack the usage data required to draw proper conclusions, it is still valuable to think about what complications there could be…
If CTC grants unlimited access to the network, then we would expect this reality to be reflected in the price. After all, you’re not just paying for one burger, in theory you’re paying for infinite burgers. This means the initial cost, and barriers to entry, might be higher for CTC than other utility tokens, even if the long-term returns are worth it.
Nor is the long-term price/usage stability provided by CTC entirely independent from future market conditions. While firms are guaranteed network capacity from their tokens, if their own trading patterns change and their transaction volume reduces, they may want to liquidate some CTC. Of course, firms cannot be certain of the resale value of their initial investment, creating uncertainty.
This may be especially problematic for short-term users, who might seek to resell their tokens after only one year.
To use an example, imagine a firm is experiencing a sudden surge in demand which is exceeding its CTC transaction capacity. However, the firm has limited liquidity to spend on more CTC. The firm are unsure of whether this spike in demand is part of a long-term trend or just a short-term bounce. The firm may be reluctant to spend its limited liquidity on a token whose price factors in several years of usage, and whose value could drop in the year before they can re-sell it.
This case illustrates how, in its current implementation, whilst CTC provides long-term stability, it potentially does so at a cost of short-term flexibility.
There appears to be a trade-off.
So, the problem we want to solve is flexibility.
Interestingly, we need not go far from the source for inspiration. CTC is a network designed to facilitate a borderless credit market for borrowers and lenders. It also seeks to enhance the power of idle capital in the developed world. In other words, generate interest for lenders, and enable efficient financial decisions for borrowers.
So why not create a rental/staking market for CTC itself? With such a system, owners of CTC could lend their CTC transaction capacity to other users for a fee. This solves the above problems, but also crucially, it allows CTC holders to earn interest on their fixed capital.
In terms of flexibility, now users can more effectively respond to fluctuations in their transaction capacity requirements. If a company has spare capacity, instead of selling their tokens and having to risk buying them back later at a higher price, the firm could simply ‘rent’ out its capacity to other users, thus ensuring that their capital is no longer idle. Equally, a company which is responding to a surge in demand can look at this new rental market to find a competitive rate at which to cover its short-term transaction demands, without having to commit liquidity in a long-term token.
Note that this seemingly gives CTC the best of both worlds. When users rent CTC, they essentially use it as a normal utility token in which price is determined by short-term supply and demand. Equally, users who wish to make guaranteed long-term transaction capacity decisions based purely on current market prices, well they can do so too.
Not only that, but the possibility of renting out spare capacity ensures that CTC will never become an idle asset. Access to both advantages is only made possible due to Creditcoin’s unique token model.
I’m sure there might be faults in this model, however, at least theoretically, it appears to solve the flexibility issues of CTC’s current model, whilst providing the added and very significant benefit of potentially turning CTC into an interest earning asset within its own ecosystem.
Any feedback, thoughts and comments on the topic are much appreciated as always.
Once again, let me reiterate that this is purely speculation on how CTC could develop in future. It is intended as a discussion, not a plan.