ABC & The Common Pool

In order for you to understand how our budgeting and rewards system works, you need to have a good understanding of the crypto-economic system that was collaboratively designed by our community. The two main economic components that you should understand are the Augmented Bonding Curve, and the Common Pool.

Token Bonding Curves

Token Bonding Curves are an emergent crypto-economic primitive that allow for tokens to be issued and destroyed on-demand following preset rules. The special mechanisms of this primitive allow a token to hold several important properties, the most important ones being:

1. A dynamic supply: there is no limit to the amount of tokens that can be minted and every token can be burned to release collateral.

2. A deterministic price: the price of tokens increase and decrease as tokens are minted and burned (respectively).

3. Infinite liquidity: tokens can be bought or sold instantaneously at any time.

Token Bonding Curves contain at least two distinct tokens: a reserve currency, and an asset token.

The reserve currency can be anything but in our case, the Token Engineering Commons will be using wxDai (the ERC20 version of Dai on xDai worth ~ 1 USD) as our reserve currency, and the TEC token will be our asset token.

These two tokens are mathematically linked and provide a relationship between the Token Supply of our asset token and the Token Price of our asset token.

The asset token can be minted or burned (created or destroyed) by the bonding curve contract. When someone wants to purchase the asset token, they send the reserve currency to the contract and it mints the asset token. Likewise, when someone wants to sell the asset token back, the contract burns the token and returns the reserve currency.

A bonding curve contract acts as a counterparty of the transaction and always holds enough of the reserve currency to buy tokens back. As the number of minted tokens increase or decrease, so does the price of the token asset. The price moves along a mathematical curve which dictates each step up or down.

Now that we have a good understanding of how token bonding curves work, it is time to introduce the Augmented Bonding Curve (ABC) that has been implemented within the Token Engineering Commons. The ABC utilizes the early Token Bonding Curve designs and introduces additional mechanisms that will allow us to create a method for raising funds for our organization and to align the incentives of all the stakeholders that participate within it!

The ABC introduces three new components to the traditional bonding curve contract: a common pool, a token lockup mechanism, and inter-system feedback loops. We will only be going over the Common Pool for Budgeting & Reward system purposes.

The Common Pool

The Common Pool is a floating pool of capital that is collectively managed by all TEC token holders. The purpose of this pool is to fund TE projects and initiatives as well as the operations of the Token Engineering Commons.

The Common Pool is continuously being funded by a mechanism within the Augmented Bonding Curve called Entry & Exit Tributes. When an agent purchases (mints) or sells (burns) TEC tokens through the Augmented Bonding Curve, a small percentage of those funds are allocated to the Common Pool, providing more funding for the Common’s mission.

During a purchasing (minting) event, an agent sends the reserve currency (wxDai) to the ABC. The Entry Tribute is deducted and sent to the Common Pool while the remainder is sent to the Reserve, and a corresponding amount of TEC tokens are minted for the purchaser.

During a selling (burning) event, an agent sends TEC tokens to the ABC. The TEC tokens are then burned for a corresponding amount of the reserve currency (wxDai). The Exit Tribute amount is deducted in wxDai from this amount and sent to the Common Pool. The remainder is sent to the seller.

These tribute mechanisms are the source of continual funding within the crypto-economic system of the TEC. This is the economic engine that allows our budgeting and reward system to operate as they do.