What are we burning? We are burning tokens that are integrated into a blockchain ecosystem called Request Network. This seems like a very odd concept, but it really isn’t. This process is similar to natural nonrenewable resources like coal and oil. Both of which (these tokens and coal/oil) have a finite supply. However, this resource is intangible, completely digital, and resides within in the new decentralized network for payment requests, called Request Network. I will explain what the token does and how it is burned.
So what is Request Network? Well, my colleague wrote a great article outlining some of the disruptive features on the network/protocol. The usefulness of Request Network reaches into many different aspects of the financial world, ranging from peer to peer (P2P)invoicing/payments, merchant payments, Internet of Things (IoT), as well as Auditing.
Phewww, that’s a lot.
Right now Request Network is on the Ethereum blockchain, but according to its road map it will become it’s own blockchain with the ability to function across other blockchain’s. Request Network also invites other teams to build on top of their protocol, which will bring even more value to the ecosystem.
The REQ Token
So you may be wondering how the REQ token works into the ecosystem. Well, it gets burned, and that is the purpose it serves. This is not your average useful token play. Nonetheless, this token serves a purpose and brings value to the token holders as well as the Request Network.
So how does the burn go down exactly? It happens in a couple of steps, which I am going to outline in the following example:
- Adam owes Elise money for the beer she bought him after work. (This is a real invoice that you can see here.) So Adam sends Elise his Public Key (to his Meta Mask wallet)and she fills out the invoice on the Request Network and sends the invoice to Adam. Adam approves the invoice and sends the requested amount ETH.
- This invoice is transacted on the blockchain, which incurs the standard gas price, both ways. In addition to the gas fee, there is a network usage fee (paid by Elise in ETH), which can be anywhere from 0.1–0.005%, but never more than $1.50. The network fee in ETH is stored in a Burner smart contract. You can see the code for the Burner smart contract here. So to sum up what has happened so far; an invoice has been sent/paid, and the network fee has been collected and stored in a Burner smart contract.
- Anyone can go to reqtokenburn.com and initiate a burn. It will cost you a little bit of ETH, but it is cool to know that anyone can do this. I made a short video demonstrating how to do this. The Request Network Foundation can also call the burning contract at random times.
- When the Burner contract is called, it will swap the full amount of stored ETH for REQ. This happens by a market order being initiated on Kyber Network. So yes, this is all automated. You, me or the Foundation clicks on the “R” on reqtokenburn.com, you pay a small fee, the contract is initiated, and the market order is placed to purchase REQ for the full amount of ETH in the contract.
- The REQ is now stored in the burner contract and the REQ is burned. Below is a diagram showing how all of this takes place.
I am going to answer two common questions about “The Burn”.
- What is the point? The point is deflation. In short, the value of REQ will go up as the supply goes down. Here is a good Reddit thread speaking to this. If you want to hold REQ, you can go over to Ethex.market and purchase some. Ethex is a DEX (decentralized exchange) I work for. We only feature #usefultokens, so we are proud to have REQ on our exchange.
- Aren’t they going to run out of tokens since you are burning them? No! haha. Put your Satoshi Nakamoto hat on, and think like you are in blockchain/crypto land…. You can always add zeros to the decimal place….infinitely. Yeh, that’s a scary thought, but it is true. Right now the REQ token has 18 decimals in it. The team stated that if they need more, they can do a hard fork.
Booooom, MIC DROP.
Here is a good Reddit thread on it (yeh, I spend some time on Reddit, don’t judge me I do not troll people.)
Wait, I still don’t get it
Ok, I hear you, I’ll pick the mic back up. Still not getting the real value of a decentralized network for payment requests burning their own tokens. I mean, why don’t we just use the REQ tokens for the transactions and not burn anything. Good question. Using ETH is not a bad plan though. Why? Because it is the second largest cryptoasset by market volume, its network is (usually) pretty fast, and anyone that is involved in crypto knows how to buy it and move it around. ETH is crypto 101. So Request Network saw the value in using an already established cryptoasset for it’s main medium of exchange. Let’s take value a step further and talk about incentives.
We are going to start with the incumbents, Venmo and PayPal just to name a few. Respectively they charge 3% for Credit Card transfers and 2.9% + $.30 for business transactions. So if you were going to bill a company $1,000 for your work, Venmo and PayPal would take around $30. That seems like a lot to me.
Why does Venmo/PayPal/Visa or just about any company provide the product/service that they do? Because they are incentivized by the consumer. You and I will pay for their services, especially when we have no other choice. The revenue that is generated from this service goes to the company, which is then distributed to C-Suite, Board Members, Shareholders and to the employees.
Lets get into the idea of a token economy. In this case, a token economy represents services that the end user can utilize as well as hold the underlying asset that represents this token economy. Thus giving the user even more reason to use the services provided.
Incentives Bringing Value
If you are holding the REQ token, it is safe to say that you believe in the project. There is also potential monetary benefit. If there was not monetary benefit would you hold it? Maybe you would because you believe in the community and you want to be a part of something bigger than yourself. Or because you believe the project is helping others so there is an altruistic drive. These are all good reasons. But let’s think about mass adoption of a network that is built to provide multiple financial services and gearing up to take on some of the largest corporations in the world. Would altruistic reasoning or a great community take down multiple 900lb gorillas in an industry? Probably not.
Request Network wants to incentivize people to use the network. So they created the REQ token and built a burn mechanism into their blockchain protocol. I like this protocol so I want to support them by investing in them as well as using their service. So I go to Ethex.market and purchase a good amount of REQ. I then start to use Request Networks services and encourage my friends to do the same. I explain to them that they can own the underlying asset, use their services, and as a result the underlying asset becomes more valuable. Every time the service is used, more REQ gets burned, which proceeds to add value to anyone holding REQ. This is all based on the deflationary model which is baked into the Request Network.
In the world of open source projects and the motivation of skilled programmers today, can someone come along and build something similar? Yes, and it could be built on the Ethereum blockchain. The only cost could be the gas to initiate the smart contract. But if these programmers were not incentivized, there is less of a chance for the project to stay secure and updated. The only monetization option for this free project is to do such a good job, that a large company comes along and buys them up. And there goes your quality/free service.
The Three Options
Now that we have discussed incentives and what that means to a project and community, lets compare.
- Naturally, the incumbent is number one. Because they earned it, or did they? PayPal, Venmo, Visa, American Express, so on and so forth. These are payment services and credit cards that have done a phenomenal job of making themselves a necessity in our lives. Even though a lot of times they do not have our best interest at heart and do not “share the wealth”. This is a typical top down model.
- The open source free model. A project is built out of the desire to help others and provide a free service. This is a great idea, but this does not really put food on the tables for the founding team. It also has the potential to fail do to the lack of resources and the chances of scaling are slim, but some do survive.
- The token economy that builds a functioning product that delivers a quality service that can scale. The monetary benefactors of this service are the founding team as well as you and me (if we hold REQ). In this model, the wealth is distributed to those that are holding REQ, while giving us a vested interest and incentivizing us to help with scaling the project.
So which one would you pick? I would pick number 3. This fits with the future of economies that will give back to people that are using them, and will help support it’s growth while minimizing the income disparity that is rampant in the world.
Thanks for reading this article. I hope you learned something about the Request Network and the cool things that are going on in the blockchain/crypto world. If you liked this article show some love by giving me some claps (up to 50). Cheers to the future!