Actual token utility for HIFI

Lounge
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Note: This is me talking, not the team. I’m very passionate about having an actual use case for the token, as I think it’s the best way for us to withstand bear markets and succeed in the long run.

The consensus in the community regarding token-utility right now is that the new HIFI token will be used for governance voting, as well as staking. Staking would be a way to act as a backstop in case the protocol gets hacked, where stakers would lose a share (or the entirety) of their staked HIFI tokens. They would, of course, be incentivized to stake their funds thanks to a healthy APY.

While it’s not official yet whether or not there will be a staking mechanism in the token-economics proposal of the Hifi team (while I’m part of the team, I’m not aware of the exact plans yet for the token-economics), it’s clear to me that a staking mechanism isn’t enough.

We need actual token utility.

Governance isn’t actual token utility. Yes, you get to use your tokens to vote, but it doesn’t make the token part of the protocol itself. Proof is there are a lot of projects out there where the token is only used for governance, and they could perform equally well with or without it.

Staking isn’t actual token utility. In the current way we (the community) think of staking (where it acts as a backstop), all you do is deposit your HIFI tokens in the protocol, and that’s it. It can still be a passive investment. Someone could invest, come back in 5 years (while not having voted on any governance proposals) and have benefitted massively from this staking mechanism without having done anything for the project (except acting as a kind of insurance mechanism in case the protocol gets hacked).

Some examples of actual token utility include Ethereum where ETH is used to pay for transaction fees as well as to secure the network thanks to proof of stake, Synthetix where SNX is used to act as collateral to enable the creation of synthetic assets, The Graph where GRT is used to signal noteworthy subgraphs as well as a reward those who index subgraphs…

These protocols are built around their token, whereas usually the opposite happens with the token being grafted to the protocol. We want to be in the camp of those with a protocol built around the HIFI token, because that’s how we will withstand bear markets.

This is a call to the community to start QUICKLY and SERIOUSLY thinking about the best ways we could get actual token utility. We can get governance voting for the token, we can get a staking mechanism acting as a backstop, but we need more.

There have been countless discussions about the token-swap ratio, which doesn’t matter ultimately, whereas this does. If something is going to make you rich, it will be the actual economic system backing the HIFI token, not the swap ratio. It’s in our best interest to figure this out.

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Do you have any rough ideas for utility?

I’m of the camp that the utility needs to be easy to understand and accessible to all. Staking + Governance, are in my opinion, utility, although it’s on the bottom end of the utility spectrum.

Making the protocol open to all, should be how its run. The question we should ask ourselves is…
A) where do we lock out non-MFT holders?
or
B) Where do we insert additional benefits to MFT holders?
B1) The benefits need to be sustainable practice. IE, no taking 100% from PB treasury weekly and giving to stakers/holders.

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I do not think a backstop is required and do not think we should look to existing (current) models too closely as that was ‘degen sh*t’ and we want to build a more ‘traditional’ app.

I suggested in discord and would like to discuss it further

"irl, banks gives me a variable APY for parking my funds there, paid for by borrowers. they keep some (most) and i get some (least), but i’m free to do whatever i want with it whenever i want - but they do have custody of my funds.

  • why can’t we do this, but give stakers the most and the treasury the least?*

i suppose we can’t give E directly, because it’s a security or whatever, but we could hide it in a contract, swap E for MFT, distribute the MFT. Then, if they dump it, they are just buying back what we sold."

Stakers can vote, too, but we should not need to be a backstop and we can reward MFT from borrowed yield, no?

Why over complicate it?

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Backstopping indirectly acts as Insurance, and it adds an extra layer of peace of mind for users knowing that even if a hack were to occur, they wouldnt go to zero and they would get something back.

The treasury is what will be funding HiFi’s development post DAO I believe, so we want this to be healthy in size. In the future if the treasury is too big, then sure, lets give some to holders/stakers. But the treasury comes from usage of the protocol, and I think to start the flywheel we need to embrace the idea that the protocol is safe, and theres no better way to do that, than to stake MFT/HIFI tokens equal to our conviction.

I agree there should be a simple “Deposit X USDC, get X% APY back” feature that makes it brainless to earn.

Also agree that we can give some ETH/Tokens back to stakers, but would prefer that it leans more on the Treasury side, than stakers to help bootstrap the team to work long into the future. But say after 2-3 years of runway is accrued then switch where holders get majority share and protocol gets less.

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ya, i get what the purpose is. but it’s an artificial incentive to further encourage yield farming and, like we see time and time again, once taken down, we see a mass exodus.

i suppose if the incentive is clear (start and stop date) and it’s not too high, fine, but it still feels like ‘more of the same’ of something that I think ‘did not work’ - where as yield from the lending side is the tried-and-true banking model that has worked for literally centuries.

1.25% APY isn’t exciting to degens.

But isn’t that also the point?

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I will leave if for others to suggest the more technical and crypto native utility options, however I will focus on grass-root level via this suggestion as I do feel this can be often overlooked and also for no other reason than to open the mind to possibilities that may exist.

Utility by definition is something that is useful and beneficial & we can have multiple layers. The suggestion below is not intended to be the sole or primary utility, more of a lower level supporting one.

I wish to suggest Utility which leverages Hifi’s best and most important assets - It’s people.
This ranges from Doug all the way to the current community. There is value to be unlocked.

I have yet to see a project do on-boarding/education/support/rewards well outside of some NFT Alpha groups.

As an additional utility, via a tiered $MFT structure, holding $MFT could be the gateway to accessing our team and it’s personalized services and/or reward/loyalty programs (to be created).

These services could range from events, merchandise, education, 1:1 support, ad hoc meetings/overviews of the project/space, alpha sessions, mentoring, networking and anything which adds value to the user and assists with Hifi Ecosystem adoption, usage and in particular, retention.

IRL Financial Institutions & Companies provide such tiered personalzed and reward services to high & low value customers as they know they need to add value beyond the products they offer. What does the crypto space have in comparison? I have yet to come across anything that may already exist.

We want users, we need users (as does everyone) and we will need to keep them once obtained.
I feel there may be an opportunity to bake in utility which supports & helps our customers (users) to prosper and grow. Adding an emotional element via utility can help to and strengthen the relationship with our brand which intern makes the entire experience more valuable and thus more successful.

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@jaydubb.eth I think your describing FWB (Friends With Benefits), and they have certainly carved their own niche being a social DAO. Im sure HiFi could learn something from how FWB onboards users. Maybe @max can shed some light on this area better, as I think he might be a member of FWB.

@taekwonkrypto

but it’s an artificial incentive to further encourage yield farming

I disagree on this, recapping my idea below

Screenshot 2022-07-24 10.23.06 PM
Screenshot 2022-07-24 10.23.06 PM1228×728 139 KB

Clarifying some points here

a) it does not lock, its based on total staked. so if you staked at 5% today and in 2 months, we saw 75% staked, then everybody would be getting 18% APY as a result.

b) As more stake gets deposited, rates go down, as more stake gets unstaked, rates go up. i’ll clarify the reasoning for why its so high above as well… but basically since we are using the MFT/HIFI tokens as insurance, we need a VERY large amount, due to the goal of using the HIFI tokens as insurance that covers the NFTs (i assume) as well as all of the tokens on the HiFi platform. HiFi right is at a $37m marketcap, which means if we have 50% staked, we have insurance up to $18.5m, which should help relieve concerns of users who are unaware of HiFi and how secure it actually is.

c) Its all real time. it would work just like a typical yield farm, where the APY gets recalculated everytime there is a deposit or withdrawal

d) Synthetix bootstrapped themselves with 700% APY, and I figured we could do something similar with less APY. Turns greed into a powerful motivator to do the right thing (which is staking as a backstop)

e) At a certain point, the scales tip, and the community believes its very safe to stake, and in such situations, you want the APY to be low, since theres little risk involved, which is why post 50% the APY declines drastically.

Just to make sure that everybody reading this is on the same page here, I would view the temporary inflation, exactly the same as we view the tokenswap. Meaning if there is 100m MFT tokens and the current Marketcap is $100m and we increase the total tokens by 10x, each token will be valued at 10% of what MFT was prior to the tokenswap, but since we have 10x more, the marketcap will stay the same at $100m. Now imagine if we did a tokenswap but only those who participated in discord, bought pawnbots got a 5x bonus, while those who didnt do anything positive for HiFi got a 1x bonus during their tokenswap. Thats what i am suggesting here. Do something positive for HiFi like staking, and you get that great 500% APY. Choose to not participate and you get actively harmed by having your tokens over time become worth 1/5th of what they were before staking went live.

TLDR; by using Staking as a Backstop, we provide high APY’s as the main incentive for users to participate. Those who do not stake, get actively diluted since they are choosing a passive role. If staking APY is 300%, it means everybody else around you is getting 3x more tokens while you stay at 1x. so your missing out. Being fearful of dilution or being greedy is what I believe we should be tapping into here in the early stages.

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What’s to disagree with? Aside from you can do the APY without the backstop, it’s the insane APY that’s the draw here.

I mean, I get it, you want to use the insurance angle to encourage staking, because it puts more risk on the staker, and I’m also not sold it should be permanent, but because it is insurance, you have to offer insane APYs to get people to do it.

What I’m saying is ditch the opposite and offer more reasonable APY, more like traditional banking, because given the option of staking at 3% with no risk or hodl for 0%, I’ll stake. I imagine most would. Same reason I put money in a bank, at all (and not under my mattress).

We know this works and doesn’t require an off switch. The APY is based on actual usage of the protocol (and/or possibly rates we get on treasury yield).

That aside, I am in favor of your proposal (and, sure, ofc, I’d love insane APYs!) as a 1 year offering, to get it on-ramped to a more traditional model.

I mean, it’s a cool thought to get to 85% at 3% and then switch to 3% no matter what.

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I think we are saying the same thing, just in different ways?

We know this works and doesn’t require an off switch. The APY is based on actual usage of the protocol (and/or possibly rates we get on treasury yield).

I think since the token is on Ethereum, its going to be about $15-20 to stake and $20 to unstake and that destroys 33% of their profit after 1 year if they deposited $5k worth of MFT. Thats why I think the APY should be astronomical, because this way by dilluting all those who are not staking and have their coins sitting in their cold wallets, and on exchanges, get dilluted so those who stake actually have a larger share of the overall token supply as a result.

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Staking for the sake of staking, is an obvious bad thing that most new tokens offer as an incentive not to sell so the VCs & team will dump on you. Kenji makes a good point here, so i’ll let you guys read it.
https://twitter.com/VirtualKenji/status/1553062563033731072

Within the context of HiFi

  1. Staking acts as a pseudo insurance
    1a) To incentivize MFT being locked up, offer high APYs via inflation
  2. Once HiFi finds Product Market Fit after 1-2 years, we replace the inflation incentive mechanism with revenue that the protocol generates or alternatively have half the protocol revenue go to stakers and the other half of the protocol revenue go towards building a real insurance fund.
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Not sure if this is new but seems like it:
Binance MFT staking: https://www.binance.com/en/earn/mft

Raised the question and source in Discord here

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Understanding what a utility token is and how it should be used is essential.

A utility token is a crypto token:

  • that serves some use case within a specific ecosystem
  • allow users to perform some action
  • is unique to its ecosystem
  • not mineable cryptocurrencies
  • has no other use beyond its value proposition

The main difference within a Security token are:

  • A monetary investment
  • People invest because they expect to make money
  • The investment is a “common enterprise,” meaning investors will only make money based on what the issuers of the investment do
  • Profits are dependent on the work of a third party

If the investment in question checks the above boxes, the SEC considers it a security. It’s not difficult to argue that they can apply to most tokens and cryptocurrencies.

Providing access or performance on certain networks to a specific service or product using a utility token, but not crossing beyond that is key.

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Very important topic and well presented.

Does an individuals perception/belief come into consideration? For example, If a Token is purely as per the definition of Utility token you outline, however the individual has perceived/felt they are making a monetary investment and expect to “make money”. Is this valid or does the Utility definition override?

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Would you create a list of perceptions or beliefs to take into consideration?
Are those perceptions or beliefs aligned or dispersed based on emotions?

Utility tokens could have more than one utility based on that outline don’t you think?

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I feel the definitions you provided are clear. & I assume these form the criteria and view of regulators? If this is correct, moving forward, their is clarity. My query comes from the prior to these definitions being known perspective as I can see how a persons view at time of purchase may be a mixture of both.
As for lists etc, I am a fan of simplicity and having concise points as you outline, is the way to go IMO.

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What do you think about RWA and tokenization of them as utility?

There are some reasons why a token with real world assets may be something to bring utility:

  1. Increased liquidity: By tokenizing real world assets, it can make it easier to buy and sell these assets, as they can be traded on digital platforms and exchanges. This can increase liquidity and make it easier for token holders to access these assets.

  2. Fractional ownership: Tokenization can allow for the creation of smaller, more manageable units of ownership in real world assets. This can make it easier for individuals to get involved in these assets, even if they do not have the means to purchase them outright.

  3. Increased accessibility: Tokenization can make it easier for individuals in different parts of the world to access and get involved in real world assets. This can help democratize access to these assets and create more opportunities for token holders.

  4. Improved efficiency: Tokenization can streamline and automate many of the processes involved in buying, selling, and managing real world assets, making it more efficient and cost-effective.

Overall, tokenization of real world assets has the potential to create new opportunities and improve the efficiency and accessibility of these assets for token holders.