Once upon a time, when you purchased stock in a company, you received a piece of paper representing your ownership. Fire, robbery, or any other misfortune could befall you and your proof of ownership over the stock.
In the twentieth century, there has been a worldwide push to dematerialise— that is, digitalise — all aspects of the financial world that still use paper. The benefits of digital stock certificates include greater security and efficiency.
Assets on stock exchanges today have already been dematerialised. They still require, however, various third parties to be involved in their transfer, including brokers and clearing houses.
Alternatively, if you dematerialise these assets with blockchain — by tokenising them into security tokens — you technically don’t need a third party to transfer your shares.
In such a security token model, however, the token issuer has an overview of who owns what shares, since information about the owner, etc. is recorded to the blockchain, and can develop methods to ensure regulatory compliance.
As a security token owner, you are likely a shareholder of the issuing company with the right to an agreed-upon amount of, say, profit or revenue share. The digital shares are transferable around the clock and globally.
While there’s no need for third parties — since the transactions are conducted with blockchain-based smart contracts, and no one can tamper with the record— properly designed tokens incorporate third parties into their models to ensure compliance with regulations.
Security token technology providers often ensure compliance of a particular token, as most security token issuers won’t develop token technology on their own.
A New Tokenonomics
Tokenomics is the art and mathematics of token economic models. A good token model creates value and aligns incentives between all stakeholders on a platform.
The token should have a clear, long-term use case. DXone has designed a dual-token model consisting of the DX1S security token and the DX1U utility token. This model provides an efficient and fair return of value to traders and investors.
DX1S represents a tokenised revenue share. Investors receive parts of our exchange’s revenue in the form of monthly payments. As a security token, DX1S qualifies as a structured bearer bond in the form of transferable and tradeable value rights, which are created by the issuance of the token and registration of the token holder with DXone.
DX1S gives token holders the opportunity to earn from DXone trading fees. DX1S holders receive 25% of all the revenues generated through trading fees. As traders pay commissions to DXone, we share 25% of the revenue generated by traders with DX1S token holders. The higher the exchange’s trading volume, the higher the monthly payout to DX1S holders.
We pay 25% dividends in various cryptocurrencies. This design helps holders cost average their cryptocurrency holdings. The assessment base of the payout will be calculated at the end of the month. Payment will happen up to two weeks later after an audit.
The revenue share consists of a variety of trading fees, including market and limit order fees. In the future, DXone could add leverage trading, lending or other revenue sources to investor shares. As trading activity increases we can offer more products and services and expand the assessment basis— that is, the revenue streams which make up investor payouts — for the revenue share.
We will issue 100 million DX1S tokens. 75% will be sold during our security token offering, which is a new fundraising mechanism similar to an IPO. As of writing, DXone has sold 1,14 million euro worth of tokens. The DXone token sale ends Nov. 30, 2020. 25% of the tokens belong to partners, employees, and people who contribute to the business.
A 16 day vesting period for DX1S purchases rewards loyal token holders. Traders who routinely speculate on the DX1S price, and therefore don’t hold the token for the required vesting period, would not be eligible for dividend payouts. If 10% of DX1S. token holders become disqualified, the revenue is then split amongst the other 90%, increasing the revenue allocated to the qualifying DX1S owners.
Similar to traditional stocks, DX1S investors measure their risk to reward ratio with different indicators and rational analysis. They might consider how much they are willing to pay to receive DXone dividends, how long they intend to hold, how much they believe in the success of the company, what does the historical data suggest in terms of turnover, and how the market has responded.
In order to receive DX1S monthly dividends, DX1S token holders must pass DXone’s Know Your Customer (KYC) and Anti-Money Laundering checks and hold the tokens for 16 straight days during the respective month. If a token holder fails to meet at least one of these requirements, corresponding DX1S tokens will be disqualified from monthly dividend payouts.
If you purchase DX1S during the token sale, you receive the DXone utility token, DX1U, at no added cost. We will issue 200 million DX1U tokens. 50% of these tokens will go to DX1S token holders, while the DXone community has the opportunity to earn the other 50%.
The DX1U utility token model is based upon the findings of Sweetbridge, BlockScience, and CoinFund as described in their paper, Raising Social Capital: Tokenizing a Customer-Driven Business. The paper introduces the discount token model. We’ve adapted the discount token to save DXone traders on their trading fees.
The discount model rewards utility token holders. In the token spending model popular on other tokenised exchanges, token holders must spend their utility token to realise up to 50% savings on trading fees. This is not so in the token holding model, which incentivises holding of the utility token. This incentive, which leads to higher demand and lower supply, then contributes to healthy token dynamics.
In short, supply and demand determine the token’s worth. DXone never determines the value of the DX1U token. The community does. The first price someone is willing to pay will be the first price listed here on the market. The more traders on the platform seeking to decrease their trading fees, the higher the price could go.
Traders can ask questions such as, How much do I save on trades if I buy and hold the amount of DX1U needed to achieve a certain discount? What is the maximum I am willing to pay? Traders will need a certain amount of DX1U to achieve discounts of 25, 30, 35, 40, 45 or 50%, depending on his or her trading activity the preceding month (the more trading volume, the fewer tokens he needs) and the three month average price of the DX1U (the more expensive the DX1U gets, the fewer tokens a trader needs and vice versa).
As the DX1U token price increases due to short supply and increased demand, traders need fewer tokens to reach maximum utility. They might choose to sell, and thereby increase the supply. As in any market, if irrational exuberance grips the DX1U market, investors take on added risk due to overvaluation.
DX1U tokens held by traders in their wallets will not be deducted when using them to save on trading fees. The minimum number of DX1U tokens a trader must hold to save on their trades will be determined by his or her historical trading volume and the development of the DX1U price. Traders then decide their preferred savings rate. Amid long-term toke health, the number of tokens needed to achieve a certain discount could decrease— a big advantage for early adopters.
During the 16 day vesting period the DX1U cannot be sold or transferred — they are locked in the wallet. Traders still save on fees during this period. After the lock-in period, traders can then choose to acquire a number of DX1U tokens on the exchange to receive further discounts in trading fees by locking them for the next lock-in period. They can otherwise trade or withdraw them.
The DXone dual-token model captures value and aligns incentives between all stakeholders. Our security token, DX1S, gives investors peace of mind with a pioneering asset. The Liechtenstein FMA approved the prospectus, Switzerland recognises the prospectus, and the prospectus was passported to Germany and Austria in line with European law. Our utility token, DX1U, provides DXone traders with not only savings but also a dynamic asset with a value truly determined by supply and demand.