6.2 Modelling the tokenomics

We paid special attention to the tokenomics. Most crypto-assets do not use rigorous modelling for determining parameters and systemic setup. This negligence might result (and often results) in a situation when the coin is hyperinflationary and must be burnt, or those parameters must be reset which always damages some stakeholders, or nodes are not motivated enough, and extra incentives must be added etc. Very commonly, the utility tokens are unluckily designed as mandatory-to-use, hoping to create an artificial or ‘forced’ demand. In a nutshell, if a rule of thumb is used instead of a sophisticated design, the project’s flask is leaking and hotfixes using duct tape make it leak elsewhere. Or explode. Without naming any, there is a number of good projects with millions of users suffering from this.

We designed a stock-flow consistent model to test and parametrize our solution. Unlike the DSGE (dynamic stochastic general equilibrium) models, our model does not assume a general equilibrium. Therefore, it can be used to identify systemic failures and prevent them. The model was programmed in Minsky (version 2.30), a software designed exactly for modelling flows of money, named after Hyman Minsky, an American economist who studied the instability of financial markets. The software was created by Australian scientists Steve Keen and Russel Standish. Steve Keen won the Revere Award for the best prediction of the Credit Crunch in 2008 (the one ‘no one could see’). Minsky works with a unique method of Godley Tables. Those force the user to comply with accounting rules so that faulty or unrealistic operations must be avoided. Minsky strictly distinguishes between stocks (of money, tokens, users…) and flows (of the same entities). Minsky also allows us to simulate the dynamics in the model. It operates in continuous time, using Runge Kutta and calculus to calculate values for all possible timeframes. It is very easy to design a model that crashes during the simulations. This helps to identify systemic flaws that could otherwise be overlooked.

 The model should solve several tasks in order to design suitable tokenomics for TENT:

1. To assess the dynamics of TENT’s user base
2. To assess money flows in terms of fiat
3. To assess the INTENT token distribution schedule
4. To define a measurable utility of the INTENT token
5. To simulate the behaviour of various TENT users and the dynamics among them
6. To derive the expected price of INTENT token in time based on the previous findings
7. To analyse it under the default conditions (Monte Carlo model for presented parameters)
8. To analyse it under different conditions (Monte Carlo model for different parameters)

Dynamics of TENT’s userbase

Before we get to TENT’s userbase, we must define the size of the relevant market. As TENT’s services are meant mostly for the EU’s citizens, we must calculate with Europeans using crypto. (Note: to be precise, the TENT services will be fitting into non-European remittance and payments markets too, however, due to our conservative approach, we decided not to reflect these markets in the existing mid-term outlook).  Using data from 2020, the population of the 27 member states is approximately 447 mil. We use this as a parameter, not a variable, as we don’t expect the population growth/decline to be significant. We assume that 10% of the EU population has some experience with cryptocurrencies as of today. We concluded at 10%, as studies from Europe and USA suggested some 8% in 2020 and newer 2021 data from Australia suggest the suspected amount closes on 20% already.  We expect that this percentage will grow relatively quickly due to the high adoption rate in the past years mixed with today’s state of the world’s economy. We assume that the crypto share of the population could double every five years. As we operate in continuous time, not discrete, the increase is also continuous. However, in order to make the growth more realistic, we assume that the growth slows down as more people get lured into crypto. If a crypto Jesus would walk the streets and told the good news to everyone he met, gradually he would meet more and more people who have already been converted. The maximum capacity thus works like some form of a repelling magnet that slows this growth as it approaches it (PP). The following formulas were used:

PP=11+Share of population×(52-1)

Share of populationddt=share of population ×ln (52×PP)

To facilitate the understanding, we offer a graphical approximation:

This results in the share of the crypto population reaching 100% in roughly 75 years and doubling to 20% in some 5,8 years. The red line represents 100% of the EU’s population, and the green curve represents the share of crypto-savvy people in it. Time in years is on the horizontal axis.

Next, we deal with already existing TENT users and TENT token holders. We assume that TENT will start with approximately 1,000 initial users (existing community of ex-Snowgem owners; Note: Snowgem project was formerly a joint venture with TENT, terminated and forked earlier in 2021, gaining a user base of around 1,000 TENT wallet users). For the underlying basis, we assumed that the number of TENT users would quadruple every year (double every six months). To make a realistic estimate of growth, we created a similar limitation to the growth as in the share of population growth formula.  We also assumed that TENT cannot attract hypothetically in any distant future more than 1/3 of the potential (Total Addressable) market. The base formula then looks like this: 

Crypto users=447m×Share of population

KK=Crypto usersCrypto users +(TENT users × 4-1×3)

TENT usersddt=TENT users × (4×KK)

So far, we have only covered organic growth in the formula. The organic growth is done via users referring the TENT application to their social bubble. In order to speed up the growth and reach the expected around 50 000 users after 1 year from the full launch of the token, using the parameters presented, an initial (at least three-month long) marketing campaign is needed starting no later than three months after the launch, that could attract around 20,000 early users. This estimate is also supported by a unique product design, allowing users to obtain regular payment card and use it via Apple/Google Pay as a full-regular payment card across EU literally in seconds. With this setup, the TENT application aspires to reach around 1,000,000 users some three years after the official launch (also called as SOM – Serviceable Obtainable Market). The next graph shows the same timeframe with nominal numbers of people (in hundreds of millions). The green curve is the entire crypto population again, the blue line represents TENT users. When modelling a 50-year predictions scenario, it will never surpass 1/3 of the crypto population (limited to ca 150mn users). In the language of start-ups’ ultimate market potential, this number would represent TAM (Total Addressable Market). 

Money flows in terms of fiat

TENT chooses a transparent and straightforward fee policy. Every conversion (fiat2crypto, crypto2fiat, or crypto2crypto) is proposed to be subject to a flat 5% fee on average, resulting from fees charged by providers of the critical components and existing on & off-ramps (such as payment gateways, Mastercard card payments), crypto exchanges fees, KYC and KYT fees etc. With the long-term growing maturity of the crypto industry and growing transaction volumes, we expect these fees fiat-to-crypto payment fees to slowly, but constantly decrease, however, the model operates with 5% as a parameter). To follow the rule of making TENT services as accessible to the widest market possible, there are planned no other fees related to using TENT and there are other hidden fees – i.e., no ongoing card fees, no transaction fees, no monthly or yearly fees, no mandatory INTENT token buys etc., as users might know it from some other existing services. As payment transactions (in their general meaning) are getting commoditized, we predict that as such will not be subject to any material senders’ fee in the future. Only specific events within TENT, such as card plastic printing and shipping, lost card re-issuance etc.  might be  subject  to  additional  charges (covering the extra costs associated).  In the total  numbers, the  significance  of those extra-cost items  is  going to be from  low  to  neglectable,  due  to  focusing primarily on the more secure and convenient digital form of cards not associating unnecessary costs (such as NFC Google  and  Apple  Pay, making plastic cards soon a history etc).

The proposed 5% flat rate is competitive in the existing world today, when compared to fees paid in DeFi, typically at decentralized exchanges on Ethereum, even more so when compared to time costs and network fees connected to bridging tokens among layers and on&off ramps. Especially when the user does not perform transactions worth tens of thousands of Euros.

However, TENT aims at large users of crypto too and here is exactly where INTENT comes to play. INTENTs held in TENT custodial wallet or the user’s non-custodial wallet connected to their TENT wallet generate Loyaltent credits on a continual basis. Loyaltents are worth 1 Euro each and are automatically used to cover the user’s fees – Loyaltents are automatically written off and the user gets reimbursed in Euros/EURTENT stablecoins. INTENTs can be also understood as a prepaid membership, with a very important difference:

• INTENTs are transferable. When the user no longer wants to use TENT or when they just know that for a certain period of time, they will limit their expenses, they can simply sell the tokens for a market price!

This means that the user does not purchase special membership (=cost), they allocate money in it (=investment). Also, every user can buy the exact number of INTENTs they intend to.

Looking at the project economics, on average, out of the 5% flat fee, approximately 3% is paid to third parties. The third parties are payment providers (gateways, card schemes), card issuers, banks, custodians, DEX fees, CEX fees, network fees and other infrastructure providers. Also, on average another up to 1% card interchange fee enters the system which is not paid by the users, but by Mastercard, who charges the merchants (depending on the card type and other factors exceeding the scope of this document). Out of the remaining 3%, TENT shares half of their incomes with the users by allocating (in the above-proposed calculation it would correspond to ca. 1,5%) back to the TENT infrastructure through the instrument called DISCOUNT POOL. The substantial long-term underlying value of liquid assets behind the INTENT token is of high importance in the overall token setup. 

We assume that an average user turns 1,000 Euros per month using TENT wallet. As we have already calculated the user base in time, we can outline this formula:

Discount poolddt=Users ×0.8 ×avg payment×12× 6% overall fee-3% Third party costs×0.5  Revenueddt = Users ×0.8 ×avg payment×12× 6% overall fee-3% Third party costs ×0.5

The DISCOUNT POOL is a pool of money dedicated on a bank account (EURTENTs on a dedicated wallet, respectively), which is behaving according to given, immutably programmed rules. Every time a user makes a transaction from which a fee is deducted, the appropriate portion of the Euros or EURTENTs will be sent to the DISCOUNT POOL. At the same time, a message with the information about how many Euros have been allocated to the DISCOUNT POOL will be uploaded to the blockchain within minutes. This is crucial for having the Loyaltent distribution automated, transparent, and auditable. 

For an easier comprehension of the relationship between the DISCOUNT POOL and a virtual pool of all Loyaltents held by users, see the image:

The two blue pools work like joined vessels. The rate at which INTENT holdings generate Loyaltents depends on the ratio between the two pools. There can never be more Loyaltents among users than there are Euros in the DISCOUNT POOL. The fact that the DISCOUNT POOL is growing by one-quarter of the fees being allocated to it, speeds up the rate at which INTENTs generate Loyaltents. As Loyaltents are practically claims for Euros on the bank account referred to as the DISCOUNT POOL, the claim for discounts of every INTENT grows with the TENT app being used (the more people use TENT, the more Discount Pool grows, the higher substantial value of INTENT’s underlying assets). This is the fundament of INTENT’s utility value, and its fair price can be derived from it (of course, we need to take into account that people have different, subjective valuations and budget restraints).

To be absolutely clear, INTENT is not an investment asset. It is a utility and a governance token. INTENT bears fruits, however, Loyaltents cannot be seen as dividends. They are not transferable. Loyaltents are credits fixed to an individual user’s wallet. They are meaningful only for those, who want to use TENT.

We need to prevent the situation when a user buys INTENT producing Loyaltents and then stops using TENT for any reason. Loyaltents would become permanently locked in such user’s app and the corresponding Euros would be also locked in the DISCOUNT POOL forever. What is worse, these sank funds would decrease the rentability of holding INTENTs for everyone.

To solve this, we implement demurrage to all Loyaltent holdings. Demurrage is a time expiration – a continual decrease of the Loyaltent credit in each user’s wallet. We can say that Loyaltents melt down like ice cream. The half-life of one Loyaltent is one year. This means half of the remaining (unused) balance expires every year, i.e.  if the user decided to sell all their INTENTs, in a year, their Loyaltent credit would halve. As the demurrage is not being applied to the DISCOUNT POOL, the DISCOUNT POOL tends to exceed total Loyaltent holdings. This, in turn, causes INTENTs to generate new Loyaltents faster. Demurrage does not punish users who hold INTENTs then. In the equilibrium situation (which is purely hypothetical), demurraged Loyaltents are immediately replaced by newly generated Loyaltents and the homeostasis does not break. In reality, the demurrage transfers discounts over time from former INTENT holders to present INTENT holders. Demurrage and user’s Loyaltent balance are in every moment calculated by exact and immutable mathematical formulas, (not disclosed in the public version of the Whitepaper), whereas:

• Demurrage is ‘eating’ Loyaltents at a descending (logarithmic) speed.
• Loyaltents at any given moment are calculated as a difference between Loyaltens generated and those ‘eaten’ by the demurrage over time. Generated Loyaltens belonging to each INTENT holder are derived from the amount of INTENTs held by the user at the given moment (share of each holder’s INTENTs on the overall INTENTs in circulation, respectively) and the actual size of the DISCOUNT POOL.

In the long run, the total amount of Loyaltents of all users converges to the sum of money in the DISCOUNT POOL. 

To calculate the Loyaltent balance for every user, the TENT wallet app or any B2B2C white-labelled wallet or API service linked to the TENT backend must read data from the blockchain, namely, it must know the current size of the DISCOUNT POOL, the user’s balance of INTENT in both their TENT custodial wallet and in their connected wallet(s) and the total number of INTENTs in circulation. Also, the app must subtract the used Loyaltents from the user’s balance immediately when it happens. Every time any of the observed variables change, the equation must make a snapshot in time t0 and restart the calculation. Every block in the blockchain has a timestamp which will be compared to the moment t1 when the user checks their Loyaltent balance. In other words, Loyaltents are not tokens, they are merely calculated results.

Distribution schedule

INTENT token airdrops – The airdrop Tier system has already been described in Chapter above and stands as follows:  

• • Tier 1 – 100 most active users will receive 1,000 INTENT for their weekly activity.
  • Tier 2 – 10,000 most active users will receive 100 INTENT tokens for their weekly activity.
  • Tier 3 – Every other active user will receive 2 INTENT tokens every week

• + Referral program extra 50 INTENT tokens for the referrer AND 50 for the referred user

A user only falls under one Tier. We assume that approximately 80% of the TENT users will be active users (meaning they will do at least one transaction on the TENT wallet every week).  Although the difference between Tier 2 and Tier 3 may seem large, the value every INTENT token generates via Loyaltents is dependent on the money in the DISCOUNT POOL and this Tier gamification encourages larger spending of users who want to ensure they rank for a higher Tier reward. Every user can also accumulate a substantial number of INTENTs by referring new users. Assuming the TENT user growth calculated in the subchapter above, the 1,200,000,000 INTENTs should be given out in approximately 5 years’ time from commencing its distribution. Then TENT ecosystem reaches its maturity.

INTENTs allocated for partners, investors and the team should also be released gradually in weekly tranches over the period of 5 years. This mechanism protects from supply shocks potentially negatively affecting the free float market (ensures a certain level of price predictability). 

Measurable utility of INTENT tokens

INTENTs serve two purposes. The value of INTENT as a governance token cannot be calculated just like the value of a citizen’s vote in an election cannot. We know that it increases the tokens’ value, but we do not know by which magnitude. That is also why the value of pure governance tokens such as Uniswap’s UNI is largely speculative.

Yet the value of INTENT as a utility token stands on solid ground. In every moment of time, we can simply divide the flow of generated Loyaltents by total INTENTs in circulation. This ‘claim’ shows how many Loyaltents a single INTENT token generates in a year. Because of the demurrage, the yearly return of this claim varies between 1 EUR/Loyaltent and 0.5 EUR/Loyaltent (in case the user does not pay any fees within the next year). If the user expected for example an APY of 10%, the subjective value of 1 INTENT would be between ‘claim multiplied by 5’ and ‘claim multiplied by 10’. In case the distribution schedule presented above holds and in case all the INTENTs are held in TENT custodial wallets or connected non-custodial wallets, the expected generated Loyaltents per INTENT in years 1-5 increase with time despite the continual predistribution of INTENTs. They can be seen in this table:

The table demonstrates increasing estimated generation of Loyaltent over time, which is coming out from increasing DISCOUNT POOL year by year. Imagining 1 Loyaltent as the fixed discount of 1 EUR for TENT services, the increasing generation of Loylatents results in the increasing relative annual yield (APY) of 1 INTENT as time goes.

Behaviour of various TENT users and the dynamics among them

To simulate the market forces, we divided TENT’s user base into six groups. Each group decides whether they want to buy more INTENTs (Demand for INTENT) or sell their INTENTs (Supply of INTENT). Each group aggregates a certain proportion of fiat money that flows through their TENT account. The proportion is a randomly generated integer ranging between 5 and 25. The sum must give 100, of course. The proportion symbolizes two things. The market power of the group. And the group’s share on distributed tokens (the Tier system ensures that the users who spend more money will be rewarded with more pre-distributed INTENTs). 

The dynamics of the INTENT distribution among the groups is simulated using a Godley table. All groups start the simulation with 0 INTENTs. Three flows are attached to the stock of each group’s INTENTs. This way, the proportion evolves in time. Flow 1 is the predistribution. Flow 2 is the group selling their INTENTs. Flow 3 is the group buying the INTENTs. The derivative of INTENTs in circulation is equal to the predistribution which means that Flows 2 and 3 must cancel each other out (every sold INTENT must be bought by another group). Altogether the groups always make 100% of the holders of INTENT.

The six different groups seek to buy more INTENTs from the market or are offering to sell their own INTENTs depending on the current Price of INTENT on the market and on the value that every INTENT generates at the given time. The groups are as follows:

• G1: Always selling
  • This group doesn’t see any value in holding INTENT tokens. It will rather sell them and use the value generated by it elsewhere.
• G2: Only buying when the Value INTENT generates*20 > price
  • This and the following two trading two groups think rationally over the current price in the market and only buy INTENT when it meets their APY requirements 
• G3: Only buying when the Value INTENT generates*10 > price
• G4: Only buying when the Value INTENT generates*5 > price
• G5: The optimizers 
  • This group seeks to hold just enough INTENTs to cover the cost of fees they need to pay.
  • As 3/10 of all fees (1.5% out of 5%) enter the DISCOUNT POOL, the share of INTENTs this group seeks to hold converges to 3.33*their proportion on money flows.
• G6: Always buying
  • This group sees the potential of INTENT tokens and is always buying it no matter the cost.
  • INTENT is not supposed to be a speculative asset and cannot be presented as one, yet there are many speculators in the cryptocurrency market. We limited their influence to the maximum of 25% of the market force (and the Monte Carlo simulation ensures that their power in a default simulation is even lower).

Expected price of INTENT

Supply and demand meet in the market. To balance the supplied and the demanded quantities of the traded asset, a price that clears the market must be discovered. In any moment in the simulation, 4 out of the 6 groups decide whether they buy or sell INTENTs (Groups 1 and 6 don’t take the decision).

If a group sells INTENTs, the flow of supplied INTENTs equals the total number of INTENTs the group has. This in continuous time means, that their total stock would be depleted in a year, assuming there won’t be any inflows (such as the predistribution, which would allow freely distribute some significant amounts of tokens to the markets and affect the market price).

If a group buys INTENTs, the flow of demanded INTENTs equals the total INTENTs in circulation multiplied by the group’s proportion defined in Subchapter above. The disproportion between quantity demanded and quantity supplied forms ‘buy pressure’. The buy pressure is a simple QD/QS ratio. The actual number of INTENTs sold by the groups (Flow 2) equals their supply. The actual number of INTENTs bought by a group (Flow 3), though, equals the group’s demand divided by the buy pressure. For modelling purposes, the initial Price of INTENT is set to 0.1 EUR. The dynamics is modelled as follows: