Whitepaper

HYPE was created as a social tokenomics experiment to allow users to collectively control the inflation and deflation rates of the total token supply. HYPE is the world’s first decentralised and consensus-based inflationary + deflationary token. The HYPE experiment requires active participation of users by freezing HYPE and voting on the inflationary and deflationary rates on a monthly basis. 

How Does Inflation & Deflation Work?

Source: Psybrsrkr

Inflation

Inflation within the HYPE experiment refers to the ‘INCREASE’ in token supply. This is reached through ‘minting/creating’ new HYPE tokens as ‘Freezing Rewards’.

Deflation

Deflation within the HYPE experiment refers to the ‘DECREASE’ in token supply. This is reached through ‘burning’ a certain % of existing HYPE tokens whenever a transaction/transfer is made.

For instance, if John sends 500 HYPE to Alice, x% of the total transferred amounts will be burned. Therefore, Alice will only receive “500 — burned amounts” of HYPE.

Consensus

“I try to forge a consensus… if a discussion were to lead to a narrow majority, then it is more likely that I would postpone a decision”— Wim Duisenberg, former President of the European Central Bank.

“An important question in economics concerns the implications of collective decision making on policy outcomes. Prominent examples of decisions made by a group of individuals, rather than by a single agent, include fiscal and monetary policy. Decisions concerning public spending, taxation, and debt are made by legislatures whereas the target for the key nominal interest rate is selected by a committee in most central banks.” (Source: Ribno and Ruge-Murcia)

 

Above statements indicate how important forging a consensus is when it comes to making decisions in central banks. Consensus within the HYPE experiment refers to the ‘Voting Events’. All HYPE users are eligible to participate in the voting events by simply freezing their tokens. In the HYPE tokenomy, HYPE holders are therefore, equivalent to the committee selecting key nominal interest rates in a central bank.

Voting Weight

Voting Weight (vw) refers to your ‘voting power’. The more voting weight you have, the more ‘voice’ your vote carries.

EXAMPLE:

  1. Users A, B, C, D, E each have 10 voting weights. (50 vw in total)
  2. They all vote for the month’s burning rates to be 1% per transaction.
  3. User F has 60 voting weights and she votes for the burning rates to be 10% per transaction.
  4. Voting Results = “10% burning rates per transaction” as it has the most voting weights accumulated on it.

How is Voting Weight (VW) calculated?

PLEASE NOTE! Voting consensus only takes place from SEPTEMBER 2019.

The equation shown below is subject to change as we constantly research for better alternatives to fairly distribute voting weights.

VW = Exponential Average of (frozen hours * frozen balance * [+y or -y]) / percentile factor

 

Voting weight for your address is accumulated from Day 1 of your HYPE Experiment. The longer you use a single address to freeze and unfreeze HYPE, the more voting weight your address will carry over time.

Due to the exponential moving average type, historical data will have an impact on the calculations. We will take into considerations the “collective sum average of freeze balances” (average of all frozen balances of the token contract).

“y” depends on the frozen balance of the address. If it is less than “x” it will be a positive “+y” and if it is more than “x” it will be a negative “-y”.

x = 1/collective sum average of frozen balances

This allows us to prevent whales from manipulating the votes.

Monthly Voting Event

Commences from SEPTEMBER 2019
  • Who is eligible?
    All HYPE holders who have frozen tokens
  • What is voted?
    Upcoming month’s burning % and daily freezing rewards %
  • How is it conducted?
    1. Eligibility is validated through a dapp (decentralised application)
    2. Voting weight is calculated automatically
    3. Votes are recorded & revealed at the end of the campaign
    4. Changes made to the token contract’s burning % and freezing rewards %
    5. Repeats every month
  • When is it conducted?
    Voting Round begins from the 20th-27th (00:00 UTC) of each month 
    Votes are reviewed and revealed on the 28th (00:00 UTC) of each month
    Changes are made on the 1st day (00:00 UTC) of each month

Quarterly Voting Event

Commences from JANUARY 2020
  • Who is eligible?
    All HYPE holders who have frozen tokens
  • What is voted?
    The ‘Melting Period’ of the next 3 months 
    (time required to wait until tokens are spendable after unfreezing)
  • How is it conducted?
    1. Eligibility is validated through a dapp (decentralised application)
    2. Voting weight is calculated automatically
    3. Votes are recorded & revealed at the end of the campaign
    4. Changes are made to the token contract’s melting period
    5. Repeated every 3 months
  • When is it conducted?
    Voting round begins from the 20th-27th (00:00 UTC) of the voting month 
    Votes are reviewed and revealed on the 28th (00:00 UTC) 
    Changes are made on the 1st day (00:00 UTC) of the consecutive month

Freezing Rewards

By freezing HYPE tokens, the user will not be able to send his/her tokens to anybody else. So… why bother freezing? When a user freezes HYPE, they are able to increase their ‘Voting Weights’. In return for freezing to participate in the voting events, the user will receive rewards (minting new HYPE tokens) on a daily basis — which contributes to the overall INFLATION of HYPE’s token supply.

Melting Period

Whenever a user unfreezes his/her HYPE, the user is required to wait ‘x’ amount of hours before he/she can spend the frozen HYPE once again. This is a measurement implemented to allow users to ‘have a second thought’ before sensitively reacting to vote results, supply movements, and many other factors involved in the experiment. It will also serve as an important point to consider before users decide to contribute to the overall inflation of HYPE’s token supply.

External Token as a Collateral (ETC)

From time to time, we will introduce a new token that can be ‘frozen’ to mint HYPE tokens. To simply put, it’s about freezing other tokens to generate HYPE tokens. This token can be any ERC20 token and we will be using this feature as an early cross-promotional tool to bring in more users to the experiment.

Effects of Inflation & Deflation

When the Inflation Rates (Freezing Rewards) are higher as compared to the overall Deflation Rates (Burning Rates), the total HYPE supply will increase, resulting in what is known as ‘excess’ or ‘surplus’ for HYPE tokens.

When the Deflation Rates (Burning Rates) are higher as compared to the overall Inflation Rates (Freezing Rewards), the total HYPE supply will decrease, resulting in what is known as ‘scarcity’ for HYPE tokens.

Although the value of tokens are highly correlated to the overall supply and availability of the tokens, scarcity does not necessarily always result in increased value.

The scarcity principle is an economic theory in which a limited supply of a good, coupled with a high demand for that good, results in a mismatch between the desired supply and demand equilibrium. In pricing theory, the scarcity principle suggests that the price for a scarce good should rise until an equilibrium is reached between supply and demand. However, this would result in the restricted exclusion of the good only to those who can afford it. If the scarce resource happens to be grain, for instance, individuals will not be able to attain their basic needs. – James Chen (Investopedia)

Low supply does not carry any meaning if it is not coupled with a ‘high demand’. In fact, low supply coupled with a low demand will only result in a mismatch of market capitalisation and market volumes. This should be treated as an important factor to consider when it comes to voting for the inflationary & deflationary rates on a monthly basis.

EQUILIBRIUM: THE PERFECT BALANCE?

In economics, market equilibrium is achieved when supply equals demand. However, the markets are not always in equilibrium due to mismatched levels of supply and demand in the economy. When supply of a good is greater than demand for that good, a surplus ensues, which drives down the price of the good. Disequilibrium also occurs when demand for a commodity is higher than the supply of that commodity, leading to scarcity and, thus, higher prices for that product. – Chen (Investopedia)

 

With an upward sloping supply curve and a downward sloping demand curve it is easy to visualize that at some point the two will intersect. At this point, the market price is sufficient to induce suppliers to bring to market that same quantity of goods that consumers will be willing to pay for at that price. Supply and demand are balanced, or in equilibrium. The precise price and quantity where this occurs depends on the shape and position of the respective supply and demand curves, each of which can be influenced by a number of factors.

Cryptocurrency users are often fascinated with the idea of deflation and scarcity (low supply). When we consider the Social Psychology in this Scarcity Principle, consumers tend to place a higher value on goods that are scarce than on goods that are abundant. Psychologists also note that when a good or service is perceived to be scarce, people want it more. However, it must also be noted that when a product is scarce, consumers are more likely to conduct their own cost-benefit analysis. A low supply yet highly valued token is more likely to be evaluated for its cost-benefits rather than generate market demands blindly. Particularly for a product (token) which does not carry any intrinsic value nor have any ‘qualities’. Additionally, the law of demand states that as the price of a commodity increases, demand decreases, provided other factors remain constant. Also, as the price decreases, demand increases.

Therefore, to permanently ‘increase the value of a product (token)’ through scarcity, a growth in demand is necessary. Otherwise, markets will always only see temporary effects of the ‘artificial scarcity’ we collectively create through increasing deflationary rates. This is where the HYPE ecosystem – creating use cases for HYPE – comes into the picture which is explained at the bottom of this whitepaper.

 

LAW OF SUPPLY & DEMAND

Suggests that deflation is often over-celebrated as means of artificially increasing token value.
  • The law of demand says that at higher prices, buyers will demand less of an economic good.

  • The law of supply says that at higher prices, sellers will supply more of an economic good.

  • These two laws interact to determine the actual market prices and volume of goods that are traded on a market.

  • Several independent factors can affect the shape of market supply and demand, influencing both the prices and quantities that we observe in markets. 
                                                                                                                               SOURCE: CHAPPELOW

 

When deflationary rates are comparatively higher, the total token supply will decrease. This continued trend will result in what is known as scarcity. The law of scarcity states that the value of the tokens will increase as with the ever decreasing supply. However, the law of demand states that at higher prices, demand for the product (token) will likely decrease as with the cost-benefit analysis conducted by users. The law of supply states that at a higher value, sellers are likely to supply more (sell).

These indicate that with increased deflationary rates and decreased total supply, there will be scarcity, resulting in quickly decreasing demands and rapidly increasing supply (sellers rushing to sell their products at higher prices). Hence, an equilibrium will naturally be met. This brings in the question of whether an inflationary measurement is therefore, necessary.

It is highly likely that the inflationary measurement (freezing rewards) will initially serve as the attraction point to drive the demands. Without it, there will be no incentives to vote and participate in the consensus events to determine the deflationary and inflationary rates. HYPE experiment is all about collectively controlling the supply and it would be naive to think that users will generally be interested in the experiment without any incentives provided. In this case, the product (token) is used as an incentive tool to drive active participation of users. Thus, the argument of whether we need an inflationary measurement becomes redundant. 

Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.

Unlike the demand relationship, however, the supply relationship is a factor of time. Time is important to supply because suppliers must, but cannot always, react quickly to a change in demand or price. So it is important to try and determine whether a price change that is caused by demand will be temporary or permanent. (SOURCE: CHAPPELOW)

 

By understanding the law of supply, it can be noted that the rise in value will likely result in more supply of tokens flooding the markets as suppliers (sellers) rush in to sell their products at higher prices. Higher deflationary rates are therefore not always the winning case for established users (holders).

All these statements were cited to indicate that while the HYPE experiment sees deflationary features of the token as an attractive measurement to create scarcity, it should not be used solely as a tool to artificially and temporarily increase the value of the products.

When voting for the inflationary & deflationary rates, there is one thing users should always consider and that is the ‘Elasticity’.

ADDITIONAL THING TO NOTE: ELASTICITY

By applying this theory, we should change a few things to conform with the product (token) and demand (buy volume) we are dealing when it comes to the HYPE experiment.

The equation to find out the Price Elasticity Of Demand should therefore be:

Price Elasticity of Demand = % Change in Overall Buy Volume/% Change in Price

Any answers above 1 shows that the price is indeed elastic and new users are likely to be affected when similar products (tokens) are available. This theory indicates that raising prices can be one of the easiest ways to boost profits, but only if consumers (new users) are willing to accept the added cost.

Therefore, to permanently ‘increase the value of a product (token)’ through scarcity, a growth in demand is necessary. Otherwise, markets will always only see temporary effects of the ‘artificial scarcity’ we collectively create through increasing deflationary rates. This is where the HYPE ecosystem – creating use cases for HYPE – comes into the picture which is used to drive natural demands for HYPE as a product.

On the other hand, it must also be noted that users are highly likely to vote for high inflationary (freezing rewards) rates, particularly in the beginning of the experiment to maximise their holdings/supply. The idea of scarcity is therefore, a far-stretched notion which can only be realised after a long period of time has passed. Unless, users collectively agree to highlight deflationary features from the beginning of the experiment.

As a decentralised tokenomics experiment, we can only predict and analyse the outcomes based on historical data. The experiment can only mature when there are sufficient testers who understand these theories. Therefore, you should not make any financial predictions nor make any financial decisions based upon your notions or any of these theories, throughout the whole experiment. This is a free-for-all and opensource experiment created to test the herd’s ability to collectively and intelligently control the supply through voting (consensus), period.

ECOSYSTEM

A collection of platforms supporting the HYPE experiment.

JOIN THE ECOSYSTEM

Do you have a platform accepting HYPE? Join the ecosystem to support the experiment today. Email [email protected]