The Economics of Essence - Part 3

Updated: Jun 25

Confused? Read parts 1 and 2 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!


Make sure to answer the poll at the end.


Solutions to this problem are not hard to nail down: E2 will have to engage in Utility Cost and Supply manipulation to make the token liquid again.


If an increase in Supply occurs, it will lower prices in the exchanges as people will opt to pay lower prices, and if an increase in Demand occurs, it will increase Supply as people opt to pay higher and higher amounts to achieve the perceived value of the token. Both concepts can be flipped to achieve an opposite result.


There are several vehicles to do this, the first of which is something akin to Quantitative Easing or Helicopter Money as a practice, but not quite the same:


Adjusting Distribution to meet Demand

Scholars are going to be producing Essence by engaging with the game, and E2 controls how much Essence is produced by their activities; how this affects price is by increasing Supply. If Supply reaches equilibrium with Demand, the price of Essence will stabilize, and if Supply is more than Demand, prices will fall.


The second is by adjusting Utility Cost to manipulate Demand, or Fixed USD Pricing.

Scholars and Land Owners will both need to engage in transactional activities. If the cost to upgrade a Jewel is (€)0.10, the price of Essence itself is $10.00, E2 can increase the rate of transactions by re-denominalizing the cost of upgrading a jewel to (€)0.01, which would lower Demand.


This could happen in real time to reflect a target price such as $0.10, however there would be other issues, such as system overload as people could be waiting for the price of Essence to increase in the nominal sense, allowing them to effectively spend less money (after Essence rebounds normally) by spending during short stints of upward market turbulence.

Real time cost reflections of Essence Utility transactions are therefore not desirable; however, a similar effect could be achieved with sensible and timely changes in the Utility Cost of Essence controlled more closely by E2, or at semi-regular intervals, thus disincentivizing exploitation in game.


Expanding on transactional problems, the issues caused by a real-time change in the price of Essence reflected in game are that if the price of a given transaction is tied to the real-time ticker price of Essence, people will engage in gamification of transaction costs. Negative effects of such things will include at best, queues for a transaction to be performed, and at worst, total server crashes as 2,000 people simultaneously teleport as the price of Essence rises for a split second—to say nothing of scripted transaction bots or other exploitation tactics yet to be created.


Complex Solutions

So, we have two methods of price regulation so far: Increasing or decreasing Essence Supply through distribution as a result of platform engagement, and changing Utility Cost so that price in the cost of Essence is adjusted to fit a target price and therefore Demand.

Of the others, there are methods of increasing prices which do not work to decrease price. Staking, for instance, is one such method.


Staking is similar to purchasing a bond or CD, but in this case, the intended purpose is to lower Supply by rewarding players for, in most cases, locking their tokens in an unusable state, usually via contract. Staking can increase the price by decreasing Supply, while paying out individuals an agreed upon amount of a certain commodity or Essence for removing their tokens from the pool.

The problem with Staking, of course, is that while it is capable of removing liquidity from a market, it can also cause the reverse problem when staking a particular token results in tokens which

were not at risk being in velocity being locked up and then rewarded for not being used, which was already the case. If the reward for staking is more of the staked token or fiat, or a commodity which can be easily converted into the fiat, the intended behavior modification is not only not being created, but is being rewarded for whatever portion of that token which was never at risk of going into Supply to begin with, to say nothing of the markets you’re interacting with if the reward isn’t monetary or easily converted into money.


Additionally, and furthermore, the amount being staked can and eventually will re-enter Supply, causing market turbulence if the amount is great enough at the end of a staking period—this can create perfect storm inflationary cycles when done at scale.


Finally, we come to Quantitative Easing, a latter stage Eco-Sim possibility which requires the Eco-Sim to achieve a stage of complexity similar to our own monetary system today.

Quantitative Easing, true Quantitative Easing, requires that a centralized monetary authority create or re-enter into Supply money stock which is then used to purchase assets or bonds for the purpose of creating market liquidity. While it is hard to imagine E2 repurchasing land with Essence, or purchasing contracts, bonds, or certificates, I assure you, if E2 is the game that Shane has made it out to be, these things will not only be likely to exist, but will be some of the most exciting aspects of the machinery of gameplay. But, if the time comes that a major Sim-Wide economic downturn occurs, E2 might well start playing the role of the Central economic authority, and in turn, opt to carry out means of maintaining the perceived value of these monetary devices by holding them themselves. Demand for money, after all, is an article of faith, and E2 must maintain faith in its enterprise, even if that means buying up Essence to create Demand. They will be the central Economic authority, and it is in their interest as a company to maintain interest in their token, as well as interest in the player base to use the token, as the value of the token comes from the utility of the token within the game, not only to give it stability, but to give it recognizable value as a commodity to the world at large. All money is ultimately a display of the belief that someone else will believe it has value.

If there are any questions, please leave a comment.


Signing off,

FrazierDanger


Should E2 intervene to regulate Essence's value?

  • Yes - Intervention helps keep our investments more secure

  • No - Intervention removes that factor of decentralisation


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