Understanding ENG tokennomics/design


#1

Hi all,

I’m hoping to better understand the mechanics of the ENG token. Appreciate any insight on the following:

Preface: Pretend you’re running a secret node (or later on, a consensus node)

Someone wants to run a secret contract and this requires computational work. That work is paid through the ENG token to the node. In this example let’s just say 1 ENG = $1. And there are 100 units of workload required. The price of computation will be an open market, therefore if someone wanted to run work through a secret contract they can state how much they’re willing to spend and what not. It’ll be in ENG, but they would of course look at the spot price of ENG and determine it (ie: Say they want to spend $50… well in this example it will be 50ENG).

Okay that’s all good/fair and makes sense. The 50ENG is then split between the secret nodes who did the computational work. Now here is the part I’d really like to understand.

Fast forward say 2 years. 1ENG = $ X. And now there are 1,000,000 units of workload required because Enigma’s awesome and it’s gaining traction :wink:. Once again, the price of computation will be an open market… At this time I actually expect the price of computational costs to most likely be converging down* (*Assumption: in fiat pricing, as the computation costs likely edge towards better efficiency and there is more competitive bidding)

What actually pushes the price of ENG up (outside of speculation). What specifically in the tokennomics makes it tethered to the success of people using Enigma protocol and thus increasing workload capacity/traction (or lack thereof) over the long run? I think that is the key/goal of the tokennomics (make sure the ENG token captures that value. That value being increasing demand for private computational work being done) Because let’s just pretend the market is in a super bull and 1ENG = 100. Once again say someone is looking to run a secret contract and spend $50. Well in this case is .5 of an ENG bid, workload is done and split between the nodes who did the computational work – okay sure. But what in this example actually pushed it to $100 besides say speculation?

Assumption:

The increasing demand of workload would have more stakeholders looking to buy ENG so they can pay for secret contract work --> the actual cost of work would stay the same, so therefore even if price of ENG is high it will cost the same fiat wise (and would just require less ENG to pay for computation). Requiring less ENG to compute -> less demand on market to buy ENG. The “sinks” in token supply (staking for nodes/staking for consensus on blockchain) would also take away from liquidity and likely push price up on the open market – but once again that would just be offset by needing less ENG to run computations.

Basically in a round-about-rambling way what I am getting at it is ENG is a work token for computation. It is of course variable in price at present value (derived from what the market feels its future value will be). The actual costs in computation will over time converge towards efficiency and be priced in ENG (but the bids will of course reflect the cost of ENG -> fiat in real time – so stakeholders paying for these computations can expense them properly in their own financials). Putting aside speculation: what economics specifically make it so if this computational model takes off (people want to pay and use secret contracts!) – how is the ENG token designed to capture (or be tethered) to the success of that increasing future demand?

TL;DR:

I know the price of ENG must be a >= certain price to provide for network security on their blockchain, yes (given it will be PoS). I also know by removing liquidity/supply off the market (being locked in for staking or running a node) would also produce some upward pressure. But this question is in isolation of those two things: I am just wondering if anything specifically with respect to going from say year 1: 10,000 computations to say year 3: 100,000,000 (or whatever) organically would push the price of ENG up as well?

Thank you!


#2

Let’s say 1 Eng is 100 dollars. There are 1 million units of workload. If say all workers started charging 1 cent per computation, that would yield $10,000 dollars per year to all workers. Let’s say the combined total of all tokens staked is 75 million (or 7.5 billion market cap.)

Now let’s pretend you own 1 percent of that 75,000,000 (750,000 tokens or $75,000,000). You would only get 1% of revenue ($100 of the 10,000). Your ROI would be terrible (0.0000013333%) Most people are not going to price themselves down to such a terrible ROI. Most people may look for something like 5% ROI, which would be 3.75 dollars per unit.

It all just depends on how rational you think workers will be as a whole when pricing for computations.

In your example in your TLDR, for ENG to stay the same price and generate the same amount of USD revenue, workers would have to slash their prices by 99.99%.