Injecting the economic value created on WAX into the Ethereum DeFi ecosystem
On the 30th September, 2020 WAX co-founder William Quigley shared some exciting news with the WAX community and wider audience. WAX will launch a new tokenomic model that combines the rapid growth of NFTs with the superior monetization capabilities of DeFi.
Simply put, WAX wants to inject the economic value created on WAX into the Ethereum DeFi ecosystem. More precisely, using what WAX does best — creating, selling and trading NFTs — and linking the value generated from that activity to Ethereum, the blockchain world’s monetary system.
This approach combines two blockchains — each the best at what it does — to create the foremost NFT collectible market experience.
We recently spoke about WAX as the king of NFTs on the blockchain. The protocol has put a heavy focus on the delivery of brand partnered NFT content since launch in December of 2019 gaining success in doing so. The first five major launches put NFTs into the hands of thousands of users.
WAX has not only surpassed Ethereum in terms of NFT trading activity — it is becoming the NFT platform of choice among many top global consumer brands. WAX’s rising stature in the NFT world is a result of our well-informed design decisions and careful attention to the needs of virtual item traders.
A new entertainment medium
Whenever a new technology emerges, it is generally first applied to an existing market. Real excitement happens only when the new technology is applied in a novel way that allows people to do something desirable and unexpected that they could not do before. Through offering utility and something beneficial to the user enormous value creation can occur.
NFTs emerged as consumer items less than three years ago. Yet based on rising consumer demand for new NFT content and strong interest from forward-thinking brands across a diverse set of industries, WAX believes NFTs will soon emerge as a stand-alone entertainment medium with global mass market appeal.
Total sales volume on the top WAX marketplaces has surpassed $1.8 million Since May 2020. By way of comparison, the global video game industry generates more than $100 billion in virtual item sales annually.
Separating consumer activity from DeFi functions
Whilst WAX may be a superior platform for making and trading NFTs (i.e. consumer activity), it is not the best place to custody and maximizes the transaction value generated from that activity (i.e. DeFi functions). A better solution would be to separate the NFT consumer activity from the financial rewards generated from that activity — using the blockchain that’s optimal for that purpose.
The WAX Blockchain will continue to perform the core NFT operational functions (i.e. item creating and trading), since it was designed specifically for that purpose and is currently outperforming every other blockchain in this area. While the capital generated from WAX NFT commercial activities will be transferred into the vast and growing network of financial services available on Ethereum.
Ethereum — The monetary hub
According to William Quigley and WAX, “Ethereum is best positioned to become the monetary system for all blockchains.” A bold, but accurate statement at this moment in time we feel.
Every other chain today is largely irrelevant in this regard as shown in our recent Q3 report. Of course, nothing stays still for long in the blockchain world. Another blockchain could serve the same functions in the future. But for now, the team at WAX is confident that Ethereum presents the best choice. Stating the following in an article on the WAX blog:
In this tokenomic model operational functions of NFTs will be conducted on the WAX Blockchain, a chain optimized for that activity, while Ethereum will become the capital vault of the WAX NFT empire. In essence WAX believes that it is best to let each provider excel in their chosen area and collaborate to create bigger success.
Right now, the Ethereum community is marching to the sound of DeFi, not NFTs. So if you believe we are in the early days of the blockchain industry, and that this industry will continue to grow from here, then you should assume the powerful principle of comparative advantage will take hold. WAX is taking the first step in that direction.
WAX tokenomics explained
The basic building blocks include four Ethereum-based components forming a part of the new WAX tokenomic model.
1. WAXP to Ethereum bridge — a new bridge that will enable WAXP token holders to convert their tokens into WAXE.
2. WAXE — a new Ethereum ERC20 utility token. A WAX Token holder wanting to participate in the WAX tokenomics will burn his/her WAXP tokens to receive WAXE (using the Ethereum bridge) and stake the WAXE in the Ethereum Distribution Contract.
3. WAXG — a new Ethereum ERC20 governance token. This token will govern the allocation and distribution of WAX Blockchain-derived economic value on Ethereum. The governance token will be distributed to WAXE stakers in accordance to a set timetable and in proportion to each staker’s percentage of the WAX Economic Activity Pool.
4. The WAX Economic Activity Pool smart contract on Ethereum — this smart contract will govern two different economic activity pools:
a. Distribution Pool — designed to accumulate a percentage of WAX Blockchain-derived value. WAX fees generated on the WAX Blockchain will be converted to ETH for distribution to WAXE holders who stake their tokens in the WAX Economic Activity Pool.
b. PiggyBank Pool — designed to perpetually accumulate a percentage of WAX Blockchain-derived value. WAXG token holders who decide to burn their WAXG tokens in the WAX Economic Activity Pool will receive their allotted percentage of the ETH-denominated value stored in the PiggyBank Pool.
The steps illustrated in the diagram below provide a basic overview of the WAX tokenomic process flow. For more detailed information make sure to read the full press release and keep an eye on the WAX Medium page for updates.
WAX has stated that it will publish a more detailed schematic of the WAX tokenomic system soon. The overview above is provided to give a solid understanding of the overall concept before diving into the deeper details.
As always we will continue to monitor and report on the WAX tokenomic model as they unfold. Make sure you bookmark DappRadar and sign up to our newsletter below to get updates direct to your inbox.