UtilityX was designed to replicate the role of a commodities exchange in a decentralised environment. Its primary function is the efficient handling of supply and demand of Blockchain resources as opposed to operating as a speculative trading venue. Whilst UtilityX resides on the UX Network as its smart contract hub, the 0rigin IBC protocol enables resources from other networks to now be listed and traded enabling a global resource price discovery venue for multiple resource markets.
This note deals with the core concept of TU and TC on UtilityX and their role in the current release of QuickStake.
Components: TU and TC
The UtilityX approach deconstructs a staking token T into two component parts for a specific length of time. We label these TU for ‘Token Utility’ and TC for ‘Token Capital’. We define them as follows:
TU: the right to use the underlying resources of T for that time period
TC: the ownership of T less the right to use the resources for that time period TU
Practically, this means that TU expires worthless at the maturity of the contract and TC reverts back to T as the underlying resources return.
TU and TC can be considered comparable to Treasury STRIPS where interest and principal are separated. TU represents a Utility Yield and TC can be thought of as a Zero Coupon (Utility) Bond.
Both TU and TC contracts will be listed on a quarterly expiry schedule extending to 5 years maturity. The product should not be confused with leasing contracts. Both TU and TC are fully tradable and fungible for identical maturities. The contracts will be quoted in T (‘In-currency’) and external currencies such as ETH or USD Stablecoins which establish an ‘Ex-currency’ yield for resources. It is this ex-currency yield that can establish relative capital values for the resource component of tokens.
Use of TU and TC
The earlier analogy to a commodities exchange is important. It does not aspire to replicate the association with fast money or quantitative high-frequency trading which has dominated the narrative recently. In fact, UtilityX employs a proprietary order-book mechanism that mitigates these activities. It is much more relevant to the origins of these businesses which were formed from industrial demand. For example, farmers wishing to hedge their financial risk to crop production for the following year could now employ futures contracts.
In the same way we believe the industrial demand logic exists for the UtilityX protocol.
dApps can purchase resources on a fixed time / fixed price basis in a transparent marketplace
Token-holders can sell their latent resources generating a natural yield and optimising their network.
TU + TC = T
T can be deconstructed into TU and TC for any given expiry and conversely TU and TC can be combined to make T. This is important as an identity since generally dApps will buy TU and token-holders will buy TC therefore:
Liquidity providers will sell TU and TC created from T.
Arbitrage pricing is essential to maintaining efficient and liquid markets.
The current version of UtilityX does not feature the full P2P ‘Markets’ version of TU and TC. The QuickStake feature is a one-way market which allows UX Network token holders to sell TU on the UTX token back to 0rigin. At this stage of UX Network’s evolution, we did not envisage the industrial demand for TU from anyone else other than ourselves. The two-way P2P market will be deployed in the next version.
UTX holders that wish to realise a UTX yield can utilise QuickStake for a series of maturities and select various options which affect the pricing.
- Upfront or rolled-up yield
- Locked or Unlocked Stake
In (1), the upfront price can be considered the payment for TU and the rolled-up price is the upfront price reinvested which conveniently equates to the TC return. In any event, since the token holder has sold off the resources for the selected time period, they are long the respective TC (T minus TU).
In (2), the user who selects an Unlocked Stake has the right to liquidate the position at any point in time up until the contract expiry and retrieve his T from the TC position. Since this gives us uncertainty as to the length of time we will have use of the resources, the price is lower than the Locked Stake.
The Locked Stake on the other hand provides us with absolute certainty as to the duration of our resource portfolio and therefore the price is higher. In addition, from time to time, if resources are utilised for specific projects, we may allocate further tokens based on our calculation on the benefit of those resources in any given example. This allocation is entirely at our discretion.
A common misunderstanding that we encounter with Locked Stake is that token capital is tied up for the contract duration. This is not the case. The Utility is locked up not the Capital. In other words, the TU is locked. The TC will be tradable on the P2P markets once they launch since the QuickStake TC will be fungible with the full markets’ version.
UtilityX Resource Optimisation
UtilityX solves the industrial demand problem with the creation of TU as a digital commodity. This allows token holders to maintain their capital position TC and generate a utility yield on their assets whilst they are not using their capacity. This applies to tokens staked for Block Production as well as time-locked tokens optimising the overall resource pool for the network.
The next version of UtilityX will be released in Q4 2021.
0rigin designs and builds blockchain and decentralised models that will have a profound impact on the global economy, by fusing traditional disciplines from finance and technology with cutting edge techniques and product innovation.