Oxen tokenomics explained: Infinite supply, staking, and burning
Pretty much every cryptocurrency has its own economic model. Whether you’re trying to drive the value of the token, generate value for the network, or do something else entirely — the monetary policy you choose can have a huge impact on the way your project is used. Token supply, token concentration, locked tokens, and burned tokens are some of the first things people check out when they’re first looking into a new project. All these indicators are decided by how you create and distribute tokens —or more commonly, your tokenomics.
Designing your tokenomics is an important part of any serious project — if you get it wrong, it can be hard to fix things later. So it’s important to do the legwork to make sure your tokenomics suit your goals. Some projects design everything around ‘the pump’ — creating conditions that will, theoretically, pump the coin. You might’ve heard this referred to as pumpenomics, and as much as watching big green candles fly off your screen can be a lot of fun, these models are usually unsustainable.
Back when Oxen first got started, we put a lot of time and effort into designing our tokenomics. We worked closely with economists to make sure the model we created would sustain the vision for Oxen for the foreseeable future.
The Oxen vision
Seeing as I keep going on about choosing tokenomics to suit the goals of your project — let’s go over the fundamental goals of the Oxen.
Oxen is a decentralised network that can be used to power private services and applications — like Session, Lokinet, and much, much more. Ideally, the network is large (high number of nodes), performs well (each node is powerful), and diverse (run by as many different people as possible).
Having a large network means the network can handle a larger number of users, resist censorship, and has high tolerance for individual nodes being faulty; a performant network makes sure the apps built on Oxen are fast and reliable; a diverse network helps the network resist censorship, increases privacy, and prevents against certain network attacks.
The class of nodes we created to maintain the Oxen network are called service nodes. Service nodes can be run by anyone, and they’re responsible for powering all the apps built on Oxen. No service nodes, no network. In the end, the number one priority for Oxen is to make sure lots of people are running lots of service nodes.
The block reward is the key to incentivising service nodes. Rewarding service node operators with OXEN makes it worth their while. This has proven to be extremely successful, and over its lifetime, the Oxen network has continuously grown.
However, having a permanent reward for service nodes means there is constantly more OXEN being created.
The infinite supply
Generally speaking, cryptocurrencies have either a fixed supply or an infinite supply. Often, people are worried about tokens with infinite supplies because of the threat of inflation. But in reality, not all infinite supplies are made equal. What really matters is the emission rate — because this decides how quickly (or slowly) inflation occurs.
Oxen has a fixed emission, so the rate of inflation is constantly decreasing.
Long term, this puts Oxen in a much better position than tokens with fluctuating emissions. It also means Oxen won’t ever have to deal with the instability and volatility predicted by purely fee-based rewards.
The service node stake
In order to get rewards, every service node has to stake 15,000 OXEN. That OXEN is removed from the circulating supply — it can’t be bought, sold, or moved at all while it’s staked to a service node. This means that the more service nodes there are, the more OXEN is locked up — no longer in the circulating supply.
This has a major chilling effect on the inflation and sell pressure created by emissions. Even as the number of service nodes increases, the rate of emission does not change. This means the effective circulating supply can be reduced (in spite of emissions) due to more service nodes being created.
At the time of writing this article, over 47 per cent of the total supply is locked in 1,710 service nodes. That’s over 25,650,000 OXEN. This number has consistently trended upwards, and as the apps built on Oxen become more and more popular, we’re expecting that number to keep going up.
Even though it is slow and steady, the bottom line is that inflation will occur if you don’t find ways to permanently remove tokens from the total token supply.
Luckily (or maybe it was designed that way 😉), Oxen has plenty of ways to burn tokens.
Like many other cryptocurrencies, some OXEN is burnt with each transaction that takes place on the network. This means that the more OXEN is used, the more will be burnt. But most tokens can’t win the fight against inflation using transaction fees.
However, we can use the applications built on Oxen to facilitate more buying and burning. By monetising apps like Session, Lokinet, and other apps utilising the Oxen network, more and more Oxen can be burnt. With monetisation, as long as the applications being built on Oxen are being used, then the people using them will guarantee the future of the network.
Because OXEN’s inflation rate is constantly decreasing, it’s inevitable that the effects of burning will eventually match — or even outweigh — the impacts of the block reward.
A sustainable future
Designing a system with high emissions, no burning mechanisms, and an infinite supply is a surefire way to put an expiry date on your project. Even though Oxen technically has an infinite supply, the supply won’t continually trend towards infinity if the burn rate is sufficient.
We’ve put lots of economic safeguards in place to make sure that Oxen lives up to its potential long into the future. With Session monetisation on the horizon, Lokinet making huge development strides, and a well-established network that could power even more applications — Oxen can sustain itself long term.