The Economics of Essence - Part 2
Updated: Jun 24, 2022
Confused? Read parts 1 and 3 here
This is part of a series, which discusses the fundamentals of Essence. The full series takes 10-15 minutes to read and digest fully. Please enjoy!
The envisaged economy of E2 will significantly depend on the supply and demand of its utility token known as Essence.
At its core, Essence exists to create a reason for people to engage with E2. As landowners, we often engage with the platform understanding our value is largely tied up with the land itself, and not to anything as liquid as a token; that is to say that so far, there hasn’t been much need to consider how Essence is spent and on what, or the supply of Essence.
As soon as tomorrow, or as late as next year—whenever it happens, we will eventually need to worry about the fluctuation of Essence prices on the exchanges in order to keep certain parties employed in our interests.
We have interests: We are land owners. Land owners, having interests, of course, have to be interested in paying people a proper wage in order to keep them engaged in our economic system. Whether or not the contracts that E2 eventually builds automatically dictate terms relative to value is irrelevant—people must be able to get paid, and paid enough to keep them engaged on our terms.
Now, consider this: If Essence costs $1.00, and it costs 0.10 Essence to teleport to Singapore, it costs $0.10 to teleport to Singapore. If the value of Essence goes up to $2.00, that same 0.10 Essence is now equivalent to $0.20. Naturally, this means that since the cost of Essence has gone up, it now costs more to travel to Singapore. If travelling to Singapore to complete a transaction or do work costs more, it is now less economically beneficial to travel to Singapore than it was before. Less people will be traveling to Singapore, necessarily, especially once that same value is expanded to $10.00.
If each transaction on the platform is tied directly to the price of Essence on an exchange, rather than to a pegged value, then Essence is going to be transacted at a lower and lower rate as the value goes up. If Essence was a purely rational token, it would remain at a place where the supply was always equal to demand, such that teleporting to Singapore would remain optimally cheap, while still causing demand to exist relative to the optimal value necessary to cause in-game activity among the “Scholars”.
Essence cannot be a rational token because it has value which can be tied explicitly to real world currencies and can be traded for whatever value people perceive that value to be outside of the context of use in E2 as a utility token at any point in time.
What does this mean for Essence?
It means that if 0.10 Essence is the permanent and flat value for a given transaction in E2, when economic pressure is sufficient to drive the price up, 1/10th of the value of Essence (in dollars) will be the cost of any transaction which costs 0.10 Essence. People won’t be so interested in spending Essence if every transaction costs as much as an hourly wage in their country, and this cannot be a long-term value in that case, as we are relying on people to come in and make the platform sustainable for our investments.
Part 3 will follow soon with Frazier suggesting ways to address this