Why is the TXL staking program so interesting
Introduction
A few days ago, Tixl Org announced how they plan to implement their $TXL staking program. It is innovative and intends to appreciate the $TXL price in the short and mid term. In the long term, $TXL token will appreciate because there are so many other benefits and use-cases for it that it has no choice but to grow (I can discuss this in a future post).
If you haven't read how the program will work, this this link.
You might have read it but still don't see why it is so interesting. That's ok. I will try to explain below.
But before I start any explanation, you first have to understand the ETH - BEP bridge. What is it? What does it do? Why is it needed? What benefit does it generate to Tixl project?
The ETH - BEP bridge
What is it? What does it do?
I will use $TXL as an example. This token was created on top of the ETH blockchain. That means that, if you want to buy, sell or transfer $TXL, you will need to pay the ETH blockchain fees. Such fees are based on ETH.
Just for the sake of this example, let's assume the following:
- Fee to buy, sell or transfer TXL: 0.01 ETH
- 1 ETH = 5,000 TXL
- The buyer has 1.01 ETH in his wallet and wants to buy TXL
Back in Jan 2021, 1 ETH = US$ 250.00 - I don't know if that was its value but, for this will help illustrate the example. So, the person bought 5,000 TXL and paid 0.01 ETH in fees. The value of the fees in US$ was US$ 2.50.
Now, in April 2021, 1 ETH = US$ 2,500.00. That is 10x what it was just 4 months ago. Nice right? However, the investor would now pay $25.00 in fees to buy the same 5,000 TXL.
And the more ETH appreciates, the higher the fees become! Who wants to pay that?
It would be just so nice if TXL had been minted over the BEP blockchain, because the fees there are so much smaller...
Well, that is what the bridge is for. You put TXL (based on ETH) in one side and the bridge gives you TXL based on BEP on the other side. Buying, selling and transferring TXL tokens on the BEP chain is more than 10x cheaper than on the ETH chain.
Why is it needed?
What benefit does it generate do Tixl Project?
Well, nothing in this world is completely for free. It can cost very little but it will always cost something. Tixl Org is licensing the use of the bridge to the other projects and charges 0.2% of the US$ amount that goes thru it. In a little over 1 month, around US$ 4,000,000 went thru the bridge. Another way to say this is: in 1 month the bridge locked around US$ 4,000,000. I will not explain here why the use of the term lock - let's do this in another post.
Or we could say: the total value locked (TVL) last month was US$ 4,000,000.
This locked value generated US$ 8,000 for Tixl Org.
Suppose Tixl is able to roll-out this bridge for another 8 projects until the end of 2021 - I'm talking 1 per month until the end of the year. And let's assume that each project would lock an extra US$ 2M every month.
That would be US$ 2M in April, then US$ 4M in May, US$ 6M in June etc, until December.
From a revenue stand point, that would be US$ 4k in April, US$ 8k in May, US$ 12k in June etc until December.
You can do the math and check if I'm correct but that would mean that Tixl could generate US$ 144k in revenue until Dec 2021, just to do this!
In my opinion, US$ 2M locked per project per month is a really small value. And depending on the development team, I also think that 1 roll-out per month is a very conservative estimate
But I think you can figure what kind of benefit this will be generated to the Tixl Project.
Why do people want to stake their crypto coins?
Now let's understand why people want to stake their TXL tokens. This is pretty straight forward: I want to stake my TXL tokens because I want to get more TXL tokens.
So I will keep them locked somewhere, where the Tixl Project will define and, once they are there, they cannot be transferred or sold. They are locked. As a prize for keeping them locked, Tixl Project will pay this person a certain value, in TXL tokens.
How much will I get paid for locking my TXL tokens?
This question is the link to the bridge explanation above. Do you remember that the bridge is generating revenue? What do you think that Tixl Project is doing with this money? Well, they will buy TXL tokens.
Let's try to put numbers here:
- April - Revenue: US$ 4,000 - 1 TXL = US$ 0.40 - Buy 10,000 TXL
- May - Revenue: US$ 8,000 - 1 TXL = US$ 0.50 (yes, I considered appreciation) - Buy 16,000 TXL
- June - Revenue: US$ 12,000 - 1 TXL = US$ 0.60 - Buy 20,000 TXL
Now, let's consider that 10 investors decided to stake, each, 100,000 TXL. That means there is a 1,000,000 TXL locked there. Well, these investors will receive the TXL that was bought with the proceeds of the bridge.
I will just consider April, May and June, with the numbers I put above. Look, there is no way to know what is really going to happen, it could be less, it could be more. I like to think that I'm working with very conservative estimates and, in this case, there would be a total 46,000 TXL to be distributed amongst the 10 investors. Since each contributed with the same value, each one would receive 4,600 TXL. That is 4.6% return in 3 months. In TXL, not in US$!
To calculate the actual return in US$, I would have to know what is the exact policy that Tixl Project implemented to buy TXL. For the sake of the example, let's assume that they buy and distribute the TXL tokens every month.
A single investor who staked 100,000 TXL, invested a total US$ 40,000.
- He got 1,000 TXL in April - that is US$ 400 or 1% on his initial investment
- He got another 1,600 TXL in May - valued at US$ 800 or another 2% on his initial investment
- And another 2,000 TXL in June - or US$ 1,200 or 3% on the initial investment
In 3 months, this investor made US$ 2,400 on his initial US$ 40,000 - 6% in 3 months.
Is that all?
NO! THAT IS NOT ALL!
Consider this: when you stake your tokens, they are off-market. There are about 40,000,000 TXL tokens available today. Based on my example above, we just locked 1,000,000 of these tokens so now, there are 39,000,000 tokens available. They are more scarce, and scarcity makes things become more valuable. This is a fundamental economic principle and is always valid in the long term. However, we know that psychology can cause effects far more devastating in the short term. Without any reason, the price could go down and that would be a really good opportunity to buy more. Why? Because the economic principals are correct.
On the other hand, however, psychology could make the value of TXL jump to, who knows? US$ 5.00?
The principles we should look at are:
- Scarcity - as people stake their tokens, the remaining one become more valuable and
- Staking could generate 20% or more in return per year - that could attract more people to stake more tokens - go back to principle #1 above: more people staking, even more scarcity.
At some point, of course, there will be a balance between the amount that will be staked (I don't know if this term is correct) and the appreciation.
But if for some reason, we reach an all-time-high of US$ 5.00, those investors that invested 100,000 TXL or US$ 40,000, would now be sitting on over US$ 500,000. Not bad!
Conclusion
The people who are responsible for the Tixl Project know very well what they are doing. By creating this staking model, they encourage people to stake their tokens, they add value to them, create scarcity and, very importantly, don't sacrifice the TXL tokens they have in their treasury. Why is this so important?Because this is money that is usually used to hire people to the project, pay their salaries, pay for Marketing costs, infra-structure costs etc. This is so smart!
Go team! You really have the right ideas and you are implementing things properly!
- Telegram: https://t.me/diegoquast
- Twitter: @DiegoQuast
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