Universa Mythbusting. Part 3 – token demand

Speaking with Universa community, we see the same misunderstandings (and sometimes even myths) very often. Let’s cover them in more details, and also understand Universa a little bit better.

Myth 3. Both Mainnetwork and private networks do not create the demand in UTN tokens

… and people who think so (and trying to apply the Bitcoin/Ethereum reality to Universa’s world), actually assume it happens for two different reasons (which are clearly correct in Bitcoin/Ethereum reality, but not quite applicable to Universa):

  • private networks are typically disconnected from the main network of the related blockchain; so “anything that happens in private network, stays in private network”. There is no physical connection between a private network and the main network of the blockchain (where some underlying currency/token of this blockchain typically lives), therefore no way to make the private network utilize the “main currency” of the network. When this way of thinking is applied to Universa, people ask the question: “… but in such case, the private network just cannot use the UTN token, which lives in the Universa Mainnetwork?.. therefore the private network doesn’t utilize the UTN token at all, does it?..”
  • In the case of blockchain mainnets, it usually happens that the people have to buy some usage token (to pay for transactions), increasing the demand; the node owners in the mainnet get their transaction fees; and they can immediately dump it on an exchange, immediately leveling the demand back. The fee token has no demand just because it immediately fully recycles.

Let’s discuss these questions: how does this problem occur in other blockchains; and what is specific to Universa that decreases (or nullifies) the importance of these factors for Universa.

Part 1: private networks

That’s a question that often arises in Universa’s Telegram chats: how the private networks based on Universa Blockchain technology are related to the UTN? Namely, how exactly the whitepaper requirement, “the fees for any transactions are paid in UTN”, is enforced in case of private networks.

Do the private networks create any demand in UTN at all? (Because they usually don’t do it in case of various alternative blockchains, like Ethereum).

A person who knows some of the inner functioning of Universa Blockchain can obviously have such doubts. In case of the public Mainnetwork, the system works in a rather straightforward way: using UTNs, you reserve the “U” contracts (which, as explained before, are not some kind of a token – they are merely a measuring unit of energy needed for some Universa transaction to be handled; and of course, as most things in Universa, they are a smart contract too). And when using the network, you are basically consuming these U units.

Easy-peasy, just like “satoshi per byte” in Bitcoin or “gas” in Ethereum. Except (of course), the Ethereum’s “gas” is not a programmed smart contract like U is, but a builtin metrics.

So the person knowledgeable in both Ethereum and Universa, just projects the Ethereum’s “gas” ideas to Universa’s “U”, and obviously gets worried – “but when running a private network, the network owners may don’t have the same UTNs in it, how does the gas gets paid?” At some point before, Universa has officially assured that “yes, the private networks do create the UTN demand” (see the appropriate article – actually, a quote from Telegram chats – on Universa.today); but how exactly does it happen?

… another item that makes Universa different from Ethereum

Seemingly Ethereum didn’t have an item in their whitepaper like “ETH is used to pay for any transaction in Ethereum”. While we have a requirement like that for UTN.

So in Ethereum, you can freely boot up a private network, and don’t need any “official ETH currency” for that. That’s how most of the Ethereum-based pilot projects are likely executed – launching a private network between a dozen of companies or banks; of course they won’t even need a single real ETH from the free market to pay for transactions. Well, with Ethereum-like architecture, you can even make a fork of their  mainnet (not just the fork of the codebase, but even the blockchain data!), call it something like… “Ethereum Classic”?… and since then, you don’t need any “original ETHs” to run, all your freshly mined “ETC”s will work as a gas fee payment.

But that is not how Universa works, in case of official partnerships and private networks. Because on the whitepaper phase, we wrote the “UTN is used to pay for transactions” and stick to it.

Actually, there may be multiple ways to enforce the “UTNs are used to pay for transactions” requirement. And not each of them even needs the “U” smart contracts – Us provide one way to enforce it, but not the only one. They are not even as necessary to exist as UTNs are: the UTN requirement is defined in the whitepaper, while Us appeared just to solve this requirement in the Mainnetwork.

So let’s speak about the Tunisian national blockchain, run by ATI, and maintained by Universa Hub Africa (and of course, using the technologies of Universa Blockchain). They actually use a different scenario – not involving Us, but involving UTNs; and such a scenario is typically used in any new partnerships, which may involve the private Universa-based network. Licenses.

How are businesses used to pay for services?

“Will they really go and purchase the UTNs on crypto exchanges?” “Are they going to buy Ether, then to buy UTNPs, then swap them, then reserve Us, isn’t that too complex?” “Do their laws permit using cryptocurrencies and other tokens for payments?”

Lots of reasonable doubts and questions arise when thinking about the private networks, because neither the governments nor the large-scale enterprises are usually flexible or non-conservative enough to use the technologies which are pretty regular for a modern-day avid blockchain user. Even if they find a legal loophole to avoid “dealing with cryptocurrencies” in general (even this may be problematic in some jurisdictions), they definitely won’t be able to explain these weird “cryptocurrency operations” in their legal accounting.

Just sign a license agreement

But none of these problems actually happen when they just purchase and license various IT services from other companies. Get the hosting services from Amazon AWS; purchase G Suite from Google; order Adobe Creative Cloud for your graphics design studio, AutoCAD for your engineering team or Avid Pro Tools for your music studio.

That can be easily reflected in accounting: you pay for the service in regular “fiat” money, receive the proper invoices from the service provider, everything is clear for the taxation offices. No need to explain “cryptocurrencies” or “smart contracts” to them.

What if getting access to a blockchain network – or launching a private Universa network – would be as easy for an enterprise or a government as ordering a server for hosting, or a subscription to cloud-based service?…

… and this is exactly how Universa – or some local national Universa representative, like Universa Hub Africa in case of Tunisia – is ready to help the enterprises and governments. Making a fully legal “black box” for them, which provides a service of either accessing the decentralized network or even deploying a new (“private”) decentralized network on Universa technologies. This is exactly how any local Universa representatives work.

From the government/enterprise side, it is paid in a manner resembling the cloud services, too: choose how many nodes to deploy, for how long (like, monthly-based or yearly-based), and how many transactions to handle; estimate the cost, get the license. When some part of this subscription is depleted (for example, if the amount of transactions was underestimated) – that can be easily topped-up, and the service is available again. And for the enterprise – or a government – it doesn’t really matter if the actual network is our Universa’s Mainnetwork, or a private network made on Universa technologies. The payment structure could be the same, and similarly convenient and usual, like a cloud service.

What’s inside the black box

Well, for an enterprise partner of Universa it will be rather easy to “order a blockchain service” like they order any cloud service. (In some future, if enough demand from public users exists, this may become as easy as visiting some Universa’s site “for enterprise clients” and purchasing such a subscription online, rather than to work with us directly for that). But this still doesn’t answer the question asked by many – how does such a “blockchain subscription” create the demand of UTN tokens. The private network could be completely disconnected from Universa Mainnetwork, so the U reservation could be either non-functioning or not use the Mainnetwork’s UTNs, right?..

In fact, the private networks may don’t use the Us at all – as mentioned already, Us are the Mainnetwork’s approach to enforce the “UTN demand” requirement; but if some other approach is used, the usage of Us can be just disabled for a private network, if it serves no purpose and just wastes the computational resources. If the private network’s processing resources are paid through the subscription, you don’t need to estimate them through the Us just to know how much to pay back for the nodes – the whole network usage is prepaid already, you just count the number of transactions coming through the network, or something.

But on the other hand, Universa is obliged to satisfy the “UTNs are used to pay for transactions” requirement, one way or another.

Taking out of circulation

… and the tokens do end up getting purchased on the exchange, though indirectly

And inside “this black subscription box”, the Universa’s representative – in case of Tunisia, it is Universa Hub Africa – having received the subscription “fiat” payment, actually indeed purchases the appropriate amount of UTNs on the exchanges and takes them out of circulation.

For the “node lockout tokens” (1M UTN for every node), they are just taken out of circulation for as long as the node is running. It doesn’t really matter if it is the Mainnetwork node and it is the node control smart contract locking out the 1M UTNs per node; or it is the private network, and the national Universa representative physically takes this 1M UTNs per node and keeps them, as long as the private network nodes are running. The tokens are bought on the exchange, and taken out of circulation for the whole period of node running – but they are bought not by “crypto-inexperienced” governments, but the “crypto-savvy” Universa representatives.

Sometimes private networks even create more demand

And there are some aspects when a private network actually creates (and sustains) the UTN demand in even a better way than the Mainnetwork. It involves the regular fees for the number of transactions. 

In Mainnetwork, these fees are actually split between the node owners, proportionally to their computational contribution to the network functioning. At some point, the UTNs are taken from circulation (increasing the demand) by the network users, who reserve the Us; after the Us a consumed, the according UTNs are assigned to the node owners; but the node owners have a right to use the received UTNs as they wish, including selling them back on some exchange (and thus, in fact, decreasing the demand).

At the same time, with the private networks (and the Tunisia network as an example), the licensing payments cover some amount of transactions; the local representative buys the proportional amount of tokens on the exchange;… but is not eligible to sell them back immediately. Instead, the license provider keeps them (and thus holds them out of circulation) – the exact “hold duration” is not clear for publishing yet, but you may assume something like a year (rather than, say, “a day” or “a week”).

So while in the regular Mainnetwork the UTNs used for the fees may get back into circulation almost as soon as the transaction fees are collected by the node owner – for the private networks, the UTNs stay out of circulation for longer. Creating more demand.

But now we come to the second topic of discussion. How is demand enforced, if the utility tokens get back into the circulation after they are utilized?

Part 2: Mainnetwork

When the people need the utility token (UTN), they buy it on the exchange, creating the demand. But then they use it, pass it to the network in the form of fees; the fees are taken by the node owners; who can immediately dump it on the exchange, decreasing the demand and leveling it back. There is no demand for the token!”

Whenever something like that is said again in the chats, the only question is: have the person asking that ever seen any other blockchains (having the utility tokens/currencies), besides Universa? Because that’s how most of the utility tokens work. This is by-the-textbook definition of the utility token – and the “fee cycle” never stopped any utility tokens from being needed, being used, and being in demand. 

So Universa hasn’t actually invented anything specific here, with the utility token and its lifecycle. On the other hand, it has improved the token lifecycle specifically in this area. Even though the “token lifecycle” exists – there is a lot of things done specifically to counteract it.

No mining

Remember the Ethereum-like networks. In Ethereum, the income of the node owner actually consists of two parts, both of which are important for the node owner:

  • transaction fees,
  • mining rewards.

The transaction fees are paid directly by the transaction initiators; and eventually, they get to the node owners.

The mining rewards, though, is generated “from the thin air”.  We’ve discussed in the money-related article already, how important it is for the money (and anything money-like) to be scarce. That’s not the case for ETH though: the mining rewards are high, the total supply is unlimited, and the number of ETHs in the circulation will grow forever. Meaning that every new block mined, every transaction registered in a new block, leads to slowly decreasing the demand. The tokens (or ETH currency in these case) are needed to register the transaction – but with every new block appearing, there are more and more etheres in the wild, and the demand in each of the ethers is lower and lower. And all of that happens just due to the mining rewards existing.

But that’s not the case for Universa and UTN. As everyone knows already, the total number of UTNs is strictly fixed. There will be no any new UTN appearing in the wild, and the transaction fees are the only way for the node owners to earn something – assuming they provide their network maintenance service, for which they are paid their earnings.

In Universa, “having no mining” means that the new transactions/blocks do not dilute the value of the existing tokens. Increasing the demand for the existing tokens comparing to the case if they are mineable on the fly.

Right to burn

Burning is concentrating the supply, mining is diluting

Read our whitepaper again, and see the line in it: “Universa will hold the right to “burn” each day up to 1% of the fees retained by the platform”. 

Well, as per our whitepaper, it’s a right rather than the obligation. And whenever Universa starts actually burning it, the burn details will be clearly provided publicly and verifiably – with the actual burn transactions in case of UTNP, and the burned (revoked) smart contracts in case of UTN, to be able to prove the tokens are verifiably and irrevocably burned.

But still, that’s a major difference with the other utility tokens/currencies. If the systems like Ethereum dilute the value of the underlying currency by mining – we concentrate the value of the UTN token, by burning.

20% comes to Universa

You probably remember another item from the whitepaper: the overall network usage fees are split “20% / 80%” between the Universa Corporation and the node owners. On one hand, this looks like too much corporation-centric (even though these extra 20% go specifically for the Universa developments – so the Universa developers have their salaries, the new features appear, some probable bugs are hunted, spotted and promptly fixed), wouldn’t it be better if all the 100% of the fees went to the node owners?

But from the token owner interested in higher demand for the token – no it wouldn’t be better. Even if all the node owners immediately dump their tokens on the exchange – it is still just the 80% rather than 100%. And, from the past history of the Universa, you already know that the Universa team is not so much inclined to insta-dump their tokens on the exchange – keeping them and still even having not distributed the team tokens. Of course it’s not a promise that “we never sell them” (finally, these 20% come to the Universa Corporation not to “be kept forever” but to finance the future developments!), but… we are not in a hurry.

So even if all the node owners, theoretically, dump their tokens – the 20% of the tokens would likely stay intact, keeping the demand.

And remember that a major share of the node owners – actual majority by the time of this article, but maybe just “a significant number” in the future – are… yes, again, the Universa project ourselves. So the (purely theoretical) number of the “token instadumpers” won’t reach 100% – it won’t be able to reach even 80%.

Lag

In a purely academic mind exercise of a “token lifecycle” – token is bought (increasing the demand), used for the fees, reaches the node owner, and being sold on the exchange (leveling the demand) – everything is assumed to happen instantly. In a pure imagination, this whole cycle is executed in, like, minutes, and the demand levels out instantly.

The lag helps the demand

In real life, there may be a lag on every part of this process.

Buying the tokens on the exchange, you could probably prefer to buy some more tokens in advance, just not to bother with buying them again for every transaction. What means that an unused part of the bought tokens won’t get back into the circulation immediately.

Even withdrawing the tokens from the exchange could take time. Some exchanges withdraw the tokens only on “the next working day”, manually confirming the withdrawals. Some exchanges have some withdrawal fees, which are too much for small withdrawal, so you could prefer to buy more tokens (to lose less on withdrawal fees),… see previous paragraph.

If UTNP/UTN swap is involved (e.g. you buy the UTNP tokens and swap them to UTN), due to the need of taking the Ethereum fees into account, the swap is typically 1:1 but may have minimum or maximum limits. With the minimum limits, you’ll have to buy more token,… and here comes the same paragraph about “buying more and keeping out of circulation longer”.

Then you reserve the Us for your future transactions. And now, depending on your transaction usage plan, you can balance between how many of your UTN tokens you keep in UTN, and how many you use to reserve the Us. You may prefer to reserve more Us than you need right now,… yes, taking the UTNs out of circulation for longer, again.

Then you use the Us for the fee, and the part of the fees gets assigned to the node (participating in the network).

Money in the morning, chairs in the evening
“Money in the morning – chairs in the evening”. The Twelve Chairs (1970)

The important difference of Universa’s network usage accounting is that the earned fees are not delivered to the node instantly. That happens on a regular basis, of course; but it is far from being “passed to the node right after the transaction is registered”. Adding some more, and very explicit, lag.

This ends in a very specific situation:

Whenever you buy the tokens on the market, you create the demand now. But, due to all the lags above (some of them are specific to Universa), the tokens will return to the exchange much later. But the demand has increased already by that time, and, returning the tokens, it is already the newer demand being slightly decreased, not the demand at the time of your usage.

Roughly speaking: “buying in the morning – selling in the evening”. Or even at the end of the month.

Summarizing

So that is it. Even the private networks, like the Tunisian national blockchain, or the network in Dubai for DMCC, need the UTN/UTNPs, eventually. In this case, it is enforced directly by the licensing requirements – and such requirements are convenient both for the network users and for those interested in UTN demand. ATI just pays the licensing fees to Universa Hub Africa and receives the desired “blockchain services”. Universa Hub Africa, in their turn, uses these licensing fees to buy the UTN/UTNPs on the free market (to compensate for the amount of running nodes, as well as to cover the prepaid network fees), and holds them; doing that, they can “provide the blockchain services” under the name of Universa. This creates the very obvious demand in tokens, even if that’s just the private network.

And in the Mainnetwork, the existing limited number of tokens is always in demand. Very similar to any other utility tokens, but having no dilution of the existing token supply (thanks to having no mining). And having some explicit temporal lags between the original need in token and when the appropriate number of tokens can return to the exchange. Keeping in mind that even all the node owners, theoretically, if all of them together decide to sell their incoming tokens immediately, can return not 100%, but less than 80% of the fee tokens (still increasing the demand).

Lots of factors, each of them trivial and rather basic, but all of them together supplement the general strategy – Universa team is actually doing a lot to make sure the demand in the tokens is sustained. Even if they don’t speak up much about it.

Help translating this post to Inglese Tedesco Francese Olandese Spagnolo Croato Russo. Contact @starnold to participate!

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