The Economics of VeChain
(Mr) Nicola Dimitri (the only applicant), https://docenti.unisi.it/en/nicoladimitri, Professor of Economics, Department of Economics and Statistics www.deps.unisi.it, University of Siena www.unisi.it, Piazza San Francesco 7, 53100 Siena-Italy.
For completeness I have mailed my CV to [email protected] from which you can evince my profile and experience. As you can see, my main recent research interests are in game theory, auctions and their applications, blockchain and cryptocurrencies. For your perusal, in the CV I underlined the activities/publications which are closer to the blockchain/cryptocurrencies fields. I would also like to add that I’m recently being involved in other blockchain based-projects, not yet included in the CV.
Let me also notice I am currently Associate Editor of the journals “Frontiers in Blockchain” and “IET Blockchain”.
USDT(ERC-20): 0x57c1aaab04c8de5f4404f1b0cf2cf795159f9204
The project will consist of one paper where I aim to explore in details the economic implications of the two (currencies) tokens, VET and VTHO, in the Proof-of-Authority (PoA) based VeChain platform. From an economic perspective I find the VeChain monetary system particularly interesting since it exhibits some similarity, for example, to that countries where there is one legal currency circulating together with another, non-legal, currency which is adopted by the population for price stability reasons. In particular, in the project I would set up an economic model where the preferences of a representative agent for holding the two currencies, and obtaining rewards, are considered. The analysis should provide insights for a better understanding of the main variables' dynamics in the double token VeChain platform.
- Economical models / Incentive mechanisms / Governance
Double-token system; monetary dynamics
Based on Chapter 4 of the VeChain White paper “The Economic Model”, the project aims to produce one paper to study in details the economics aspects of the double-token (currency), VET and VTHO, Proof-of- Authority based VeChain system. In particular, by explicitly introducing a representative agent’s preferences for holding the tokens, and obtaining rewards, the work will provide potentially interesting insights on the dynamics of the main VeChain monetary variables. For this reason, I believe that the outcome of the analysis could offer to the platform users, and governors, a fruitful perspective on how the system may evolve over time from an economic perspective. Possibly, this could also be of support for policy decision making concerning the platform.
To my knowledge, the paper would be the first contribution with a rigorous economic analysis of the VeChain system, studying how the main economic variable are determined and how they may evolve with time.
The reference background is the macro-economic literature on monetary economies, as well as game theory, however now applied to the specific features of the double-token PoA based VeChain platform. Though refererring to Proof of Stake based platforms, this recently published paper of mine https://www.frontiersin.org/articles/10.3389/fbloc.2021.443966/full provides some indications on the type of economic modelling that I intend to work with.
I plan to adopt in the analysis a rather diffused approach (in the economic literature) to the study of dynamic economic systems, the one based on the so called "representative agent" (RA). Such an approach has advantages but also limitations. As for its merits, the approach allows to capture in an accessible way some of the main economic elements driving the system. As for its limitations, the importance of users’ heterogeneity can be partly neglected since the model is considering, as a first step, an "average agent" to study the entire system. The RA approach is typically based on an explicit formulation of the agent's intertemporal preferences, represented by the utility function U.
Conceptually, the main economic issues in VeChain are intrinsically dynamic, and this is why a model based on RA could be a fruitful framework. In particular, for the VeChain analysis, it will be interesting to study the following, fundamental, trade-off faced by VeChain users. The larger the amount of VET in one's wallet the more the user could affect governance decisions and obtain rewards, but the lower the number of VETs available to implement transactions and smart contracts. To model such trade-off the utility function of RA would contain as arguments the amount of VET held in the wallet, as well the amount of VTHO demanded: that is, U=U(VET,VTHO). The RA approach provides a microeconomic funded analysis of a macroeconomic system. Therefore, based on the RA analysis the next step would be to consider the aggregate demand and supply of VET/VTHO to study the main quantities of the system. More specifically, again from Chapter 4 of the white paper, it will be interesting to investigate how in the expression for the demanded VTHO tokens, E=vVt=pG, the quantities v,t,p,G vary at system level to keep the economy in equilibrium. It is worth noticing that by considering VET and VTHO as two different currencies, from the expression E=vVt the product vt could be interpreted as the exchange rate between the two tokens.
The study will be based on economic (mathematical) models, and so no particular risks are expected.
Upon approval, the project will start at an agreed upon date.
Then, these are the proposed milestones
- Presentation, possibly in a seminar, of the draft of the paper for comments (after 5 months from the start)
- Finalization of the paper, in collaboration with the VeChain team for an improvement plan of VeChain's monetary policy (after 10 months from the start)
- Submission of a VeChain Improvement Proposal (VIP) on the monetary policy of VeChain to GitHub (after 12 months from the start)
The budget requested if 30.000$. This is because I plan to dedicate about 60 days of work to the paper, over the year long project. Considering that for academic, scientific, consultancy on average I’m paid a daily rate of about 450€ (roughly 500$) this explains my request.
My proposal would be to split the payment, over the three milestones, according to the following criterion:
- 12000$ at the beginning
- 9000$ upon approval of the first draft of the paper
- 9000$ upon approval of the final version of the paper and of the VIP
The following are two standard references on the representative agent approach
- Blanchard O. Fisher S., Lectures in Macroeconomics, MIT Press (1989)
- Romer D., Advanced Macroeconomics (4th Ed), McGrawHill (2012)
This is a standard reference for the game theory part of the paper
- Osborne M., Rubinstein (1994) A Course on Game Theory, MIT Press
This list of papers is drawn from my CV, as my publications strictly related to blockchain and cryptocurrencies
- Coordination in an EMAIL Game without “Almost Common Knowledge: Journal of Logic, Language and Information 12, 1-11 (2003)
- Correlated Communication; in “Cognitive Processes and Economic Behavior” (Dimitri-Basili-Gilboa eds), Routledge-London (2003)
- Efficiency and Equilibrium in the EMAIL Game; The General Case : Theoretical Computer Science, 314, 335-349, (2003)
- Bitcoin Mining as a Contest, Ledger, 2, 31-37 (2017)
- The Blockchain Technology; Some Theory and Applications, Maastricht School of Management Working Paper, 2017/3 (2017)
- Transaction Fees, Block Size Limit and Auctions in Bitcoin, Ledger, 4, 68-81, (2019)
- Monetary Dynamics with “Proof of Stake”, Frontiers in Blockchain doi: 10.3389/fbloc.2021.443966 (2021)
- Consensus: Proof of Work, Proof of Stake and Structural Alternatives, in Enabling the Internet of Value, (Tasca P.-Vadgama N. eds) pag. 29-36, Springer Verlag, (2022)
I truly hope this project will be considered interesting for the VeChain Foundation and considered for collaboration and funding