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GlossaryDual-Token Economy/Model (Two-Token Economy)
Dual-Token Economy/Model (Two-Token Economy)
In the world of blockchain, a dual-token economy or model means a project with two tokens, one of which is used for utility inside the network and the other one as security to raise funds for
What Is a Dual-Token Economy/Model (Two-Token Economy)?
The
dual-token economy, also referred to as the
dual-token model or system, is a term used for crypto projects that offer
two different types of tokens. The main idea behind creating tokens is to
avoid compliance issues with regulators and divide the project's ecosystem into two tokens for better usability.
Typically, one of the two tokens is used as
security to
raise investment for the crypto project. The token does this by strictly following the regulations outlined for conventional securities, like bonds or stocks. The other token is
used on the network to fulfill certain roles or activities. These roles usually differ from one project to another.
The U.S. Securities and Exchange Commission aspect is the main reason why crypto projects prefer to adopt a dual-token economy model. So far, the SEC has not clearly classified crypto assets, unlike securities, stocks, or bonds which have a clear standing in the SEC framework.
However, the
‘’
Framework for “Investment Contract” Analysis of Digital Assets’
’, has provided a way for blockchain projects to
register their tokens as a security and set certain conditions for them to work in compliance with the regulations.
To be considered a security, the project has to make sure that
its tokens offer real-world utility and profit to its holders and the project is completely decentralized. If all of these conditions are met, then the token is considered a security token by the SEC.
Another benefit of adopting the dual-token economy model is that it offers more incentives to token holders and potential investors than other projects in the industry. With two tokens, a crypto project can offer a better incentive structure, features, upgrades, and functionalities to the end-users.
A great example is
Axie Infinity, an
NFT gaming project that offers two tokens, SLP and AXS, both of which are offered as incentives to users for playing the game. In this case, the
‘’Small Love Potion’’ or SLP is a
utility token with an
unlimited supply that can be used by Axie Infinity players to perform in-game tasks like
paying a breeding fee for their Axies (game characters) and purchasing Axies from the built-in marketplace. Meanwhile, AXS is an
ERC-20 governance token for the Axie universe with a maximum supply of
27 million. AXS provides value to the Axie Infinity ecosystem where players can
buy the token directly from crypto exchanges and the holders of AXS tokens can take part in in-game governance activities and
stake their tokens on the platform to gain passive rewards.
Apart from Axie Infinity, there are many other projects that function on the dual-economy mechanism like VeChainThor, MakerDAO, Anchor, and Filmio.