As mentioned before, the Chubby Five will be based on a native token ($CHU), therefore the design of this token will directly affect the ecosystem growth and its reaction to external shocks. We believe that a successful Play and Earn metaverse must be sustainable, allow continuous adoption and capture long term value. To achieve this, it is really important to reduce or eliminate the potential impact of malicious actors that may target the ecosystem to make a personal profit by exploiting the true users.
After exploring the more “traditional” approach of a limited supply token, we found that it wasn’t the best solution to reach our goals, since the market will have full control of the $CHU price. Big price jumps can be seen as desirable, but since all users entering the game will need to buy $CHU we could easily reach a point where the token is too expensive or just unavailable for them, therefore limiting game adoption and long-term growth. The opposite is also dangerous since all game rewards are $CHU-based: if the price drops, the value of the rewards will drop proportionally, potentially leading to a self-destructing loop where users want to exit the metaverse to look for more profitable games. In short, a fixed supply token isn’t suited to build a dynamic and sustainable metaverse.
However, dynamic supply tokens also have their own risks. Most of the time, the project owners can unilaterally mint new tokens, adding a source of uncertainty to the metaverse actors. Early investors can reasonably see risks of dilution, and users would worry that their potential rewards will have less value than they initially expected. In some extreme cases, disproportional token minting could even lead to the full destruction of the metaverse by flooding its economy and leading to “run-to-the-bank” situations.
To avoid the downsides of a fixed supply token and the uncertainty of project-controlled ones, we’ve decided to use a TBC (Token Bonding Curve). This state-of-the-art solution was made possible thanks to the evolution of SCs (Smart Contracts) and AMMs (Automated Market-Makers).
A Token Bonding Curve is essentially a SC that has control over the token supply, and continuously mints and burns tokens alongside a mathematical function “Price = F(Total Supply)” commonly known as “The Curve”. This SC consequently acts as an on-chain AMM that ensures liquidity for anyone willing to enter/exit the metaverse. Usually, the price increases when minting and decreases when burning.
The main advantage of TBCs is that they offer a dynamic token supply but in a predictable, controlled way that can be easily simulated and they provide a “reference price” for the token over time that follows demand. By using the formula behind the Curve, it’s possible to know the reference price for a given supply, therefore creating certain and healthy expectations for the whole ecosystem. This solves the uncertainty issue with the dynamic supply token discussed previously.
Furthermore, thanks to its AMM nature, the Curve will also stabilize the prize all over the network. Even if the community creates additional exchange solutions for the token like a DEX (Decentralized-Exchange) pool, sudden price fluctuations will lead to arbitrage opportunities between them and the Curve that can be exploited by anyone (probably bots will take care) therefore stabilizing the price no matter where the token is trading.
Another interesting advantage is that the Chubby Five TBC is configured to react softly to big buys/sells, reducing the incentives for short term speculators (“pump&dump” schemes) while ensuring new users will always be able to enter the ecosystem at a reasonable price. This supports continuous game adoption and hence the long term growth of the ecosystem. While this can be seen as an “upside limitation”, it’s also a “safety” measure when demand shrinks. Not only the price will decrease along the Curve, limiting sudden price crashes, but also the burn feature will result in a greater decrease of the Market Cap thus making the project more attractive for new users.