Dual Token Model: Solving the Classic Dilemma of the Encryption World

In the field of blockchain, 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 topic is attracting increasing attention and research from developers.

The traditional single token model undoubtedly has advantages such as high liquidity and ease of use, which is also the approach adopted by mainstream blockchains like Bitcoin and Ethereum. However, only a dual token model can truly resolve the long-standing economic contradictions in blockchain: the actual use of the network can instead hinder its growth.

A Thought-Provoking Paradox

Essentially, all blockchain projects share a common goal: to reliably record transactions, store economic value, and promote network development. While the methods of achieving this vary, with some excelling in privacy protection, the overall direction is consistent.

Currently, the vast majority of blockchain ecosystems rely on a single token. This token reflects the project's value and serves 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.

Token holders, as project supporters, naturally hope for the project's success. They purchase tokens because they are optimistic about the technology, trust the development team, and believe that the project and its native assets will appreciate.

However, if they use the token to pay for fuel fees, it will reduce their share in the entire ecosystem. Conversely, if the token is not used, it will lead to a decrease in the actual utilization rate of the network.

This contradiction seems simple, yet it is difficult to reconcile. Unlike ordinary currencies, encryption assets have the potential to appreciate significantly over time, attracting long-term holders. From the perspective of blockchain development, this is conducive to forming a united community that developers strive to build, which is a positive signal.

Users face a dilemma between actively using the protocol (while reducing their holdings by paying gas fees) or expecting profits and holding tokens, which is both an economic conflict and an emotional contradiction.

Another important issue is that in certain ecosystems, users spending tokens may lead to a decline in their rights and influence within the governance model. This further reduces users' willingness to use the hard-earned tokens for on-chain protocols.

However, we have an alternative.

Let Economics Work

Tokens should not be used solely for trading value. It's like buying coffee with Starbucks stock, or purchasing the latest iPhone with Apple stock. This feeling is especially strong when network congestion causes gas fees to soar.

In February of this year, the gas fee for Ethereum surpassed the $20 mark for the first time, setting a new historical high. For loyal supporters of Ethereum, every time they spend $20 worth of ETH on a transaction, it feels like discarding a lottery ticket before the draw. After all, that $20 could be worth $200 in five years.

The dual-token economic model addresses this issue. In this model, one token serves governance duties while the other token is solely used for paying gas fees. Holders of the former can be seen as the "owners" of the network since they have the right to influence the project's direction through voting. At the same time, the token used for paying gas fees is completely separated from the main asset, resolving the issue of "using the protocol will reduce equity."

The dual-token system is still a minority at present, possibly because established blockchain projects are unwilling to make a complete change to their token models. In the past, we have witnessed several blockchain forks, and the consequences are often unpleasant. Introducing an independent fuel token to modify the basic rules of the protocol is a decision that should not be underestimated.

However, the second and third generation blockchains have recognized the benefits of issuing separate tokens for governance/payment and incentive/fuel fees. Not only public chains, but many game finance projects, stablecoin protocols, and lending/financing platforms have also adopted a dual-token system, which means their users no longer need to sacrifice liquidity or compete for scarce on-chain resources.

Some projects are experimenting with different dual-token models, and in my opinion, these attempts are forward-looking.

However, like any experimental technology, the design of the protocol itself may have flaws. The catastrophic collapse of a well-known blockchain project proves this point, as the project used native assets to help maintain a dollar-pegged stablecoin.

Researchers pointed out that the design of the network created an incentive to short stablecoins before its collapse, a problem that would not and does not need to be repeated in other dual-token systems.

Dual Token Support Ecosystem

As some projects have already proven, the economics of a dual-token system is reasonable. The dual-token model typically has the following common characteristics:

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

In contrast, auxiliary tokens (or utility tokens) have unlimited or elastic supply. They are used for on-chain payments and gas fees, and are distributed as rewards to ecosystem participants or main token holders.

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

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

Following this model, the economic/emotional conflict that forces users to choose between actively using the protocol and long-term investment is resolved. When utility tokens are used for ongoing incentives and system growth, main token holders are simultaneously encouraged to participate in on-chain activities and protect the network.

In the face of cutting-edge technologies like blockchain, we need to embrace novel ideas. The dual-token model is no longer a bizarre fantasy, but a viable solution to the aforementioned perplexing paradox. In terms of blockchain economy, the dual-token model does indeed outperform the single-token model.