Back to the future: “Utility” Tokenomics
Imagine there is a land of industrial age, where nothing grows, so every factory built works solely on contract manufacturing.
Total output capacity of those factories is measured in engine’s daily rotations. Nobody could own rotating units and to establish a fair (competitive) access, factories decided to use finite number of “Plastic Passes” that could be freely traded among the clients.
This move divided actual price of manufacturing from the price of “PP” so that the cost of an operation doesn’t had to be changed every time the market moved and created an instrument that allowed factories to prioritize high profiting orders.
This land was not alone on the globe, so there were margins where prices of “PP” could fluctuate for factories to remain operationally active. It should not have being higher than competitor’s rates — and should not have being less than the total cost of sustaining those rotating engines.
Clients working with factories created different cycles of manufacturing periods, and sometimes due to shortage of factory availability, price of “PP” would rise. This rise effected particular businesses, that understood that it became more profiting for them to hold “PP” over the total value of their produced goods at that time.
Even after many bumps and adjustments, the problem kept going as there was a delayed price adjustment relationship between “PP” and the rotational capacity. The second variable updated quicker as only was influenced by factory availability in time, while “PP” prices captured many variables and had to adjust across the long value chain of outcomes and expectations.
This “PP” price volatility created an unstable ground, where businesses who used “PP” only for manufacturing access, had hard time in planning production cycles and rapid changes in price effected their operational margins.
Plastic Passes started initially as a “forced” utility instrument - only by using them clients could access the factory capacities to produce their goods, (medium of exchange) but as the second hand market emerged and allowed “PP” fungibility, It became a complex instrument as started to capture different value expectations of produced goods by different vendors of different cost structures. (Store of value) So that the ratio of each “PP” started to fluctuate to an actual amount of rotations that could be bought at a particular time. (Unit of account)
Factories realized that, they needed some kind of a responsive mechanism in order to maintain pricing level between available rotations and “PP”s, that would allow businesses to adequately plan and use the output capacity. So by controlling the “PP”s on the market, they could easily inform businesses of the real time utility capacity and enable them to adjust expectations quicker.
In order to stabilize price levels of “PP”s they had several options:
- Set up their own reserve management system, that would supply or contract “PP” based on the market demand and gross output.
- Fix the “PP” exchange price to a dominant payment unit used by client businesses externally.
- Abandon “PP” accounting system and allow any other method for access.
Factories following the first path, established a current monetary system, No matter if the control plugs for supply were in a central building or automatically adjusted based on the output data of real time — “PP” was an instrument for price level adjustments.
Second path created an anchored system (Currently used by many countries) that was fixed to external “accounting systems”. No matter if “PP”s were attached to one single medium or basket of goods, currencies, beliefs and etc. It provided a stabilisation mechanism of “PP” units.
And third path just took entire monetary burden off the factories and allowed competing mediums of exchange to co-exist on the market. It had it’s own risks, added lots of accounting for the factories, and still is the system yet to be explored, but seems more of a natural path.
100 years forward, we are mapping new lands with digital computation capacities and reinventing things that are already part of our interactions, calling them different names and squeeze out various applications of it. But one thing is crystal clear: Every so called “Utility token” comes with a responisbility of money!
