Our Token Model
We’d like to foster a community of those interested in sharing their knowledge on Gnosis prediction markets and applications. We hope for our token model to help us in building network effects which will eventually result in a sustainable, independent, yet supported community. To do this, we created a fee model that lowers the barrier to entry for repeat users and incentivizes continuous platform use.
When working on the redesign of our website, we’ve decided to rebrand our previously called WIZ tokens to OWL.
Our Token Model
The tokens that were sold during the Gnosis token sale on April 24th, 2017 are known as Gnosis tokens, or GNO. This was the only time that GNO tokens were created, and the total supply of GNO is fixed to 10 million GNO which are tradable on several exchanges.
Fees will be charged to participants for using Gnosis as a platform every time new outcome tokens are created. ERC20 compatible outcome tokens are created for every event outcome. That means that every event contract will be associated with at least two outcome tokens (for a prediction market asking “Where will Amazon locate its next headquarters?”, the outcome tokens would be a) Phoenix, b) Chicago, c) Austin, or d) other).
These platform fees can be paid in OWL tokens. One OWL can be used to pay for the equivalent of one USD in fees. While paying fees in OWL is the expected and preferred form to pay fees, alternatively, fees can also be paid with the token a prediction market is traded in (i.e. collateral token). This ensures efficient markets even under a temporary shortage of OWL tokens. In addition to paying fees in OWL, some prediction markets may be even traded in OWL. In this case, predictions and initial funding can be made with OWL.
GNO generate OWL
Gnosis tokens (GNO) are the generators for OWL tokens. OWL can only be created via activating the utility of the GNO tokens. This is done via a smart contract system. The smart contract works as follows: A GNO token holder “locks” a number of their tokens in a smart contract. Locked GNO tokens cannot be traded or transferred. The holder can specify the lock period. The amount of OWL tokens that are then created depends on the length of the lock period and the total amount of OWL tokens in the market.
The total amount of OWL to be in circulation is targeted to be 20 times the average monthly usage of OWL for the preceding 3 months. The smart contract applies the selected lock duration to a formula that is designed to regulate the total market supply of OWL tokens.
Prior to locking their GNO tokens in the smart contract, users will be able to see exactly how many OWL they will receive as a result of executing the locking transaction. Once users lock their GNO, 30% of the total OWL they will get from locking their GNO will be distributed for immediate use, and the remaining 70% will be distributed proportionally over the lock duration. Once the lock expires, the locked GNO cease to generate OWL and the GNO can be transferred again. There is no limit (other than duration) for how many times GNO tokens may be used to create OWL. There is also no limit amount of GNO tokens that can be locked.
OWL used to pay for fees are not credited to Gnosis or any other market participants but are instead consumed (“burned”). If the event’s collateral token (the currency in which the event is traded in) is used to pay the fee, this token will be converted into GNO by the Gnosis smart contract system using an auction mechanism. These GNO tokens will then be used for fee reduction mechanisms and permanently held by the fee reduction contract. Burning OWL or GNO means that they will be collected in a smart contract that cannot be accessed by anyone.
Why would users pay in OWL when they can also use other ERC20 tokens?
A core value proposition of Gnosis (and decentralization) is to guarantee future characteristics of platforms to both users and developers without relying on the trustworthiness of an operating company. In order to do this, elements, including fee rates, must be codified into the software itself. It is expected that OWL will be the overwhelmingly predominant method for paying fees in the Gnosis ecosystem due to the following reasons:
- It is utility that arises from locked GNO tokens.
- When OWL is used, holding GNO will generate new OWL.
- There will likely be an inflationary mechanism built into it where more OWL tokens are created if less than 90% of the fees are paid with OWL.
<div class="infobox"><span class="appendinfo">This article was originally published on: <a href="https://blog.gnosis.pm/" target="_blank">The Gnosis Blog</a> on </span></div>