Special Announcement goes here!
Author: John Shutkind, PsiFi Research
At PsiFi, we understand that robust tokenomics is the cornerstone of a successful and sustainable crypto project. Our journey toward building a token model that maximizes impact and value for our community begins with a thorough literature review. This phase is crucial as it allows us to gather insights from existing research and models, ensuring that our approach is grounded in proven methodologies.
One of the foundational studies we at PsiFi Research have reviewed is “Tokenomics: Optimal Monetary and Fee Policies” by Jermann and Xiang. This comprehensive analysis provides valuable insights into the dynamics of token growth rates, convergence speeds, and the impacts of fee policies on token velocity.
Decline and Stabilization of Money Growth Rates:
Over time, the money growth rates of cryptocurrencies tend to decline and stabilize around 0.2% per month. Notably, younger tokens converge to these long-term growth rates more rapidly.
Correlation Between Growth Rates and Convergence Speeds:
There is a positive correlation between long-term money growth rates and convergence speeds. This indicates that tokens with higher growth rates tend to stabilize faster.
Retail Investor Holdings:
Tokens predominantly held by retail investors exhibit relatively lower long-term growth rates and convergence speeds, suggesting that institutional holdings might contribute to greater stability and growth.
The study also introduces a dynamic model to determine optimal token issuance and fee policies. The model’s optimization framework considers various factors, including token consumption, price, velocity, and fee rates.
This problem boils down to finding the maximum expected value at time t of the future consumption plus a utility function with a quadratic loss term with respect to current velocity. Please read the article for the definition of the terms in the equation.
In this article we will take a higher level view and share what we learned and how it affects our thinking towards a sustainable tokenomics model for PsiFi:
Key takeaways include:
Higher fee rates are found to reduce token velocity, which can stabilize the token’s value. Conversely, higher real balances (token holdings) imply increased velocity, indicating active usage and liquidity within the ecosystem.
The paper discusses two primary commitment strategies for issuers. Commits to a state-contingent monetary and fee policy at the outset and does not adjust the policy even if it becomes suboptimal. And optimize the policy in every period, adjusting based on the current state and expected future conditions.
To bridge the gap between the rigid Ramsey and flexible Markov-Perfect strategies, a probabilistic commitment model is proposed. This model allows for partial commitment to token issuance, balancing stability and flexibility.
The insights from this literature review are instrumental in shaping PsiFi’s token model. By understanding the dynamics of token growth rates and fee policies, we can design a tokenomics framework that implements a growth rate that stabilizes over time, ensuring sustainable value appreciation for our token holders. Our fee policy will be designed to optimize token velocity, encouraging active use while maintaining price stability. Also, by partially committing to token issuance policies, we can adapt to changing market conditions while providing a stable and predictable token environment.
The next phase for PsiFi involves simulating and fine-tuning the parameters and commitment structures outlined in the literature. This will include running simulations based on different commitment probabilities to find the optimal balance for our token model, analyzing the tokenomics of successful projects like Bitcoin and Ethereum to draw practical lessons and benchmarks.
We will engage with our community to gather feedback and insights, ensuring our tokenomics model aligns with the needs and expectations of our users.
By taking these steps, PsiFi reaffirms its commitment to building a robust and impactful token model. Our meticulous approach to literature review and model development underscores our dedication to creating value and confidence within our community.
“At PsiFi, our Research team has done an exceptional job in laying the groundwork for a sustainable token model. Their dedication and rigorous analysis ensure that we are building a framework that maximizes impact and value for our community. This work is pivotal in guiding us towards a robust and long-term vision for PsiFi.”
Jesper, CEO of PsiFi
PsiFi is committed to ensuring that our token model not only meets but exceeds the expectations of our community. By leveraging insights from comprehensive studies and adopting a balanced approach to token issuance and fee policies, we are poised to create a tokenomics framework that stands the test of time. Stay tuned as we continue to refine and perfect our model, always with the goal of delivering maximum impact and value to our community.
