VeChainThor Primer: The relationship between market performance of VET, VTHO and tokenomics

In the past few days, quite a lot of heated debates have occurred surrounding the value proposition of VeChainThor, the market performance of VET and VTHO as well as the tokenomics that govern the network. This article attempts to alleviate some of the misinformation around these topics.

As preamble to this, I would recommend reading this article to understand the somewhat complex tokenomics of VeChainThor: https://bredgarlichouse.medium.com/vechainthor-primer-keeping-transaction-costs-stable-fe00a8e85c0a

Also recommended is to read this twitter thread: https://twitter.com/BredGarlicHouse/status/1355495388988510212?s=20

Let’s start by addressing the elephant in the room: Is it in the interest of VeChain (Or VeChain’s customers) to keep the price of VET or VTHO low?

The answer is an emphatic NO.

It is not in anyone’s interests to keep the price of either token low. Far from it. Rather, a high token price for either token suggests increased market interest, which is complementary to fundamental progress.

Where VeChain differs from most other public blockchain projects is the ability to shield enterprise users from crypto price volatility; through its multi layered tokenomics and levers. Once more, the tokenomics are designed not to suppress price/ market performance, rather; cushion its effects on transactional costs.

Let’s see how this works in practice.

Imagine VeChain tech as your Internet Service Provider (ISP). They provide an infrastructural layer (VeChainThor blockchain; think of it analogous to internet access that an ISP provides)

Imagine every VET in existence as a prepaid internet access card that the ISP has issued. Anyone can buy a card for a one time fee (The price you pay for VET) and the card gives you 1GB of data/ day to use the internet. Think of this 1GB of data, the amount of VTHO every VET token produces per day. If you bought two prepaid cards, you’d have 2GB of data/day. And so on. There are only a limited amounts of these prepaid cards (VET) in existence and no more can be issued.

Now some people may choose to use this data packet of 1GB of data for their own use (Let’s say, enterprises who use the VTHO to write their own Tx to the chain).
Some other people may choose to trade this data packet in the open market because they don’t have much use for it (Let’s say, the ordinary VET holders who trade their VTHO in the open market).

Now imagine this is the early days of the internet. 1GB is a lot of data and most people don’t need it. They trade it in the open market, but since there isn’t much of a demand, the price is low. At this point of the evolution of the internet, it may actually be more cost effective for an enterprise to buy the data packets for as many GBs as they need in the market (Because of the low price) than to buy their own prepaid cards.

Now some prepaid card owners (Ordinary VET holders) are betting on the internet to become massively used in the future. They are counting on Youtube and Instagram and TikTok and several such applications to be built on the internet, which will consume massive amounts of data. Consequently, they hold on to their prepaid cards (VET) and the data packets each card generates per day (VTHO) in hopes of future price appreciation. This sets a speculative price floor for both.

This is where we are now.

Let’s fast forward a few years into the future. The internet (VeChainThor) is being used by a lot more entities now. But not all these entities have their own prepaid cards (VET). Naturally, this increases the demand for data packets(VTHO) in the open market. consequently, its price goes up. This is the scenario where increased network activity results in an increased price for VTHO in the open market.

Let’s imagine the price of the data packets (VTHO) has gone up very high and remains high, because of the constant demand enterprises have for data. At this point, some enterprises may decide that it’s more cost effective to buy the prepaid cards (VET) in the open market and generate their own data packets (VTHO).

Now suddenly, all the ordinary holders who were holding on to their prepaid cards (VET) see increased demand for the cards in the open market. This pushes the price of the cards (VET) higher. Consequently, the demand for data packets in the open market is lowered, but does not drop below a certain point, where supply and demand meet. This point of course, is higher than in the early days of the internet because of the increased network usage.

This is the scenario where increased network usage and VTHO demand has a flywheel effect on increasing the price of VET and slowly lowering the price of VTHO (But keep it at a floor higher than the speculative floor discussed previously)

Now let’s fast forward a few more years, where the Youtubes and Instagrams of the world are live and used by millions of people (Analogous to a huge number of applications being live on VeChainThor and burning massive amounts of VTHO)

At this point, 1GB of data is not considered to be a huge amount anymore and network usage has reached a point where network users are using more data packets per day than they are created, and are eating into the stockpile of data packets that have been accumulating over the years.

This is the scenario where the daily burn rate of VTHO consistently is higher than the daily generation rate.

Obviously, there is now a huge demand for data packets (In the market). Many enterprises have their own prepaid cards (VET) to generate their own data packets (VTHO) and when that’s not enough, they buy the packets from the market. But the supply is just not enough to meet the demand.

At this point, the ISP (VeChain) and the biggest network users (VeChain’s enterprise customers)sit down to optimize the network, so that the applications use less data than before.

This is the scenario where the first lever of VeChainThor’s tokenomics is deployed (Adjusting the VTHO:GAS ratio).

Does that mean that the price of the prepaid cards (VET) and the data packets (VTHO) see downward pressure in the open market?

In the short term, perhaps. But then, both resume an upward trajectory.

Why?

Because the internet is so commonplace in our lives, more and more people are using Youtube, Instagram and so on.

This is the scenario where VeChain customers are using less VTHO than before for a given amount of transactions, but the network usage has scaled up so much that they are doing a lot more transactions and burning just as much, if not more of VTHO.

At this point, it’s a foregone conclusion that anyone who wants to use the internet (VeChainThor) extensively MUST own their own prepaid cards (VET) as the most cost effective way to use the internet. This softens the demand for data packets (VTHO) in the open market, but since supply is also reduced (Most VET holders at this point are using VTHO for their own use), the price floor is maintained

Now lets fast forward even further into the future. Now internet is the heart of every moment of our lives. 1GB is no longer a massive amount of data. In fact, at this point, 1GB is way too low.

At this point, the ISP (VeChain) updates the prepaid cards to generate 10GB of data per day.

This is the scenario where the second lever ofVeChainThor’s tokenomics is deployed (Adjusting the VTHO generation rate per VET)

Now, there are enough data packets (VTHO) out there to power everything that’s using the Internet (VeChainThor). Every enterprise who needs massive amount of data packets (VTHO) already have stockpiled prepaid cards (VET). In fact, some enterprises stockpiled prepaid cards (VET) primarily to sell data packages in bulk to other enterprises.

At this point, both network usage and the supply/ demand curve have both reached maturity level and the market performance of both prepaid cards (VET) and data packets (VTHO) have reached a stable equilibrium.

Until the next wave of usage explosion happens, the levers are deployed and the cycle repeats itself again.

This in a nutshell, is an overview of how the on-Chain tokenomics and market performance of VET and VTHO could correlate. To re-iterate, keeping either token price low is not the intention of VeChain or their customers. Rather, the tokenomics are designed to cater for a future where network usage explodes exponentially.

And all we, as ordinary holders, need to do is to strap in, sit back and wait for the future to come to us.

VET/ VTHO Tip Jar: 0x22e0820aC11F093e317446458f79C11CFaf58084