Dual Token Model: Solving the Classic Contradiction of Using and Holding Crypto Assets

In the blockchain field, is the dual-token model more advantageous compared to the single-token model? Although mainstream blockchain networks are unlikely to change their token models in the short term, this question is increasingly becoming a research topic of interest for blockchain developers.

The traditional single token model undoubtedly has its advantages, such as high liquidity and simple structure. However, only the dual token model can truly address the economic contradictions that have long existed in blockchain: the actual use of the network hinders the growth of the network.

The Root of the Problem

Essentially, all blockchains share a common goal: to reliably record transactions, store economic value, and promote network development. Although the means of achieving this vary, their developmental direction is fundamentally consistent.

Currently, the vast majority of blockchain ecosystems rely on a single token, which reflects the value of the project while serving as a store of value (similar to stocks), a medium of exchange (currency), a mining reward, and a tool for paying transaction fees. The problem lies here.

Crypto Assets holders hope for the success of the project. They purchase tokens because they recognize the technology, trust the development team, and believe that the project and its native assets will have good development.

However, if they use the tokens to pay for Gas fees, it will reduce their share in the entire project ecosystem. On the contrary, if they refuse to consume the tokens, they will ignore the actual usage value of the network.

This contradiction seems simple, but is difficult to reconcile. Unlike traditional currency, Crypto Assets have the potential to appreciate significantly over time, attracting long-term holders. From a blockchain perspective, this helps to form a united community that developers strive to build, which is a positive signal.

The choice between users actively using the protocol (and reducing their shares by paying Gas) and holding tokens for expected profits represents both an economic and emotional conflict.

Another important issue is that in certain ecosystems, the consumption of tokens by users can lead to a decrease in their permissions and influence within the governance model. This makes users less willing to "spend" their valuable tokens on on-chain protocols.

Economic Solutions

Ideally, users should not consume tokens merely for trading. It's like buying coffee with Starbucks stock or purchasing the latest iPhone with Apple Inc. stock. This feeling is especially strong when network congestion leads to soaring Gas fees.

In February of this year, the Gas fee of a well-known blockchain platform first surpassed 20 dollars, setting a historical high. For loyal users of the platform, taking out 20 dollars worth of tokens for each transaction feels like discarding a lottery ticket before the draw. After all, that 20 dollars might be worth 200 dollars in five years.

The dual-token economic model can solve this problem. In this model, one token is responsible for governance, while the other is solely used for paying Gas. This way, the holders of the former can be seen as the "owners" of the network, as they have the right to influence the direction of the project through voting. At the same time, the token used for paying Gas is completely separated from the main asset, addressing the issue of "using the protocol will reduce equity."

The dual-token system is still rare, possibly because traditional blockchain projects are reluctant to make fundamental changes to their token models. In the past, we have seen some negative impacts from blockchain forks. Introducing a separate Gas coin to modify the basic rules of the protocol is a significant decision.

However, the new generation of blockchain has recognized the benefits of issuing separate tokens for governance/payment and incentive/Gas. Not only public chains, but many GameFi projects, stablecoin protocols, and lending/financing platforms have also adopted a dual-token system, allowing their users to no longer have to sacrifice liquidity or compete for scarce on-chain resources.

Multiple projects are attempting different dual-token models, and these attempts represent the future development direction of the industry.

Of course, like any experimental technology, the design of the protocol itself may carry risks. The collapse of a well-known blockchain project has proven this point, as the project used native assets to support dollar-pegged stablecoins. Researchers had pointed out before the collapse that the design of the network created an incentive to short the stablecoins, a problem that could be avoided in other dual-token systems.

Dual Token Support Ecosystem

Existing projects have proven that the economics of the dual-token system is reasonable. The dual-token model typically has the following characteristics:

First, the total supply of the main token is limited, used for governance, SOV (share-of-voice), or dividends. It is typically distributed through public sales or giveaways.

In contrast, auxiliary tokens (or utility tokens) have an unlimited or elastic supply. They are used for on-chain payments and Gas, and are rewarded to ecosystem participants or main token holders.

When the growth rate of economic activity exceeds the inflation supply rate, the price of utility tokens rises. As the yield of utility tokens increases, the demand and price of main tokens will also rise until the yield reaches a new equilibrium.

Finally, the utility tokens create positive feedback for the main tokens through economic activities.

By following this model, the economic/emotional conflict between users actively using the protocol and long-term investments can be resolved. When utility tokens are used for ongoing incentives and system growth, the main token holders are also encouraged to participate in on-chain activities and protect the network.

In the field of cutting-edge technologies such as blockchain, we need to embrace innovative ideas. The dual-token model is no longer a bizarre fantasy, but a viable solution to the aforementioned contradictions. In terms of blockchain economy, the dual-token model indeed outperforms the single-token model.