Now.. let’s get down to some of the nitty gritty..

OST Tokens required you say?

OST is an ERC-20 utility token that act as a form of currency within the OST Ecosystem. As it stands now, any service offered up separately (separate from ostKIT) like OST KYC or OST CAMPAINGS will have to be paid in OST (not USD).

The crucial role that the OST Token plays in theOST KIT solution (tokenising for businesses) is the following:

OST tokens will be staked by the company that seeks to tokenise in order to mint their branded tokens and represent the value (in USD) of their BT Economy (like how gold used to back the USD)

Now is a good moment to point out the following:

Staking of OST to back the BT’s is done on the Ethereum Main Net ( the value chain ) (any staking of OST will remove that OST from the circulating supply)

of OST to back the BT’s is done on the Ethereum Main Net ( ) (any staking of OST will remove that OST from the circulating supply) Transactions of BT’s from businesses to customers and vice versa however will run across side chains to the Ethereum Main Net (the utility chain)

By having the transaction run through their own side chains instead of on the Ehtereum Main Net ensures that much faster transaction times can be achieved and transactions won’t suffer from any Ethereum network congestions (remember crypto kitties?). Multiple chains will be used to ensure a large scale high volume transaction throughput.

This is one of their key innovations; using open scalable side blockchains (blockchains that run parallel to the main blockchain network). OST tokens are staked on the public Ethereum Network against the Branded Tokens on side-chains.

The OpenST Protocol enables the creation of utility tokens on a utility blockchain while the value of those tokens is backed by staked crypto-assets on a value blockchain.

The “side chains” in question are scalable Ethereum-based blockchains with all the benefits of public Ethereum, but without the scaling challenges.

The OpenST Protocol is also ideally suited for DAPPS as they can run as Ethereum smart contracts, in parallel, with micro-transactions; ideal for machine-to-machine, and at high transaction throughput (at least 100 tx/s per side-chain) OpenST can transfer value from Ethereum to and back the side chains. But what happens to the OST that backs a certain amount of BT’s when for instance users transact amongst each-other or cross spend the BT’s in another BT economy? This will be further detailed in OpenST Protocol version 1.0

The branded tokens powered by OST are technically ERC-20 tokens but they are locked from being traded for anything but OST. So the more demand for BT’s, the more demand for OST. Users of the BT’s always have the right to the underlying OST supporting the BT’s.

Smart Contracts

So OST tokens are staked in order for the company to mint their BT’s. A company before minting their first branded tokens can set the exchange rate of OST to BT at any rate they desire, but once they set it, it is fixed and cannot change. That ensures that companies don’t change the rules on their customers.

So, let’s say OST is trading at $1, and you set your exchange rate to 1 OST = 1000 BT. Then, each of your BT is initially worth $0.001.

The price of the BT does not fluctuate on its own, as it is not tradable on secondary markets. So, each BT is always worth 1/1000th of and OST.

However, OST does fluctuate and could go to $2 or $10, or $50.

“Wait.. I as a company will have my Branded Tokens subjected to the volatility of OST on the market?”

Price Oracles

Although the ratio of OST to BT is set in the smart contract and cannot be changed, there are ways a company can ‘stabilise’ their BT’s USD value.

A few factors come into play there.

First, price oracles could be used to set prices within the company’s branded token economy so that even if OST goes up and down, the relative price of the good or service in the Token Economy does not change. For instance, let’s say in the example above that you allow your users to earn $.01 each time someone likes someone else’s product review. By setting the value of the service at $0.01 using the price oracle, it would start off at 10BT per liked review, but would auto-adjust to say 5BT per liked if OST rose to $2.

Get it? Ok.. one more example..

Say OST trades at $5 a piece and the BurgerMcBurger inc. has set their BT (McBurgerToken) to:

1 OST = 10 McBurgerTokens.

Then 1 McBurgertoken (at the time of minting) would have a USD value of $0.50.

So one day, OST goes through the roof on the open market and is now $50 per OST. 10x!

Luckily BurgerMcBurger inc. has made use of a price oracle that automatically adjusts their BT Economy: Before, a single burger costs 1 McBurgerToken but now it only costs the customers 0.1 McBurgerToken.

In that example, the customer who had 1 McBurgerToken from when 1 OST was still $1,- now has 10x the value in McBurgerTokens. Now is that a problem? For most companies seeking to tokenise there is no way around that in the current market conditions as most tokens are subject to volatility.

But it certainly hasn’t stopped the Steemit platform from doing very well. Being a tokenised economy, they have grown fast.

The other concept that can be deployed is price guarantee mechanisms. The company could sign up with a 3rd party to provide price stabilization to insulate its end users from price fluctuations. Imagine for instance if a user earned 100,000 BT worth $100, and then the next day it was only worth $50 or suddenly was worth $250. The user would either lose faith in the system and could start either hoarding or cashing out. With price stabilisation mechanisms, the company could hence insulate its end users from wild swings in the OST price. While the company uses some percentage of upswings as buffer for the downswings, as well as the company could retain some profits from OST increases.

So a 3rd party could “loan” the stake for a company in exchange for a monthly fee at a premium. e.g. a 3rd party could stake $1M worth of OST for a company, and provide price stabliziation and other services to them, for say $50,000 per month over 24 months.

It really depends if the company wants to expose their end users to fluctuations of crypto. Today probably not. But as more companies build on ost it will become more stable on its own.

What OST.com would love to accomplish is that any OST holder could sell a contract whereby he/she provides a stable stake for a set period. They charge a premium for ensuring a price, and they take on the risk/reward in exchange for that premium. And then, they could potentially even charge an even higher premium if they are willing to share the upside. Fully decentralised price stabilisation contracts for staking offered by any OST holder would be the ideal.

Another important thing to note is that any BT owner will always have a legal right to the OST that backs it. Branded Tokens will be interchangeable amongst customers (through use of OST Wallet)and BT’s can be ‘cross spent’ meaning if you have BT’s from Joe’s Coffee but want to spend them at McBurger you can as the underlaying value that is being exchanged is OST (you go from BT1 > OST > BT2) However, BT’s will not be tradable on any open exchanges as OST allows companies to easily mint BT’s but it’s not intended to launch and ICO.

OST.com has stated however that they are building an “ICO-on-ramp” so that BT’s could request them to unlock the trading restriction if they want to sell some of their tokens to the public and put a price on them, so in that way they can use OST as an on-ramp to their own ICO: First prove out their token economic model within the safe confines of the OST ecosystem and then potentially spin-out on their own after some time (but now I’m getting a bit ahead of things!)

In general it would be nice to enable end users of BT to participate in at least some of the rewards of OST rising because of the community support for the various BT’s, but at same time price stabilisation mechanisms could be used to guard against unintended consequences from wild swings.

Here’s a link to the official document on Stabilising Branded Tokens: https://goo.gl/vTs71j

So is unstaking OST Possible?

Once OST’s are staked against BT, any end user/customer who has earned or purchased or otherwise acquired one of those BT has a legal right to the staked OST against it. Any OST staked that are not backing up any such earned OST, could be unstaked at any time so long as the associated BT were also burned and removed from circulation. But wait, won’t that happen automatically in the staking smart contract that holds the staked OST? No, the smart contract holds only staked OST, while BTs are redeemed by minting. In order to unstake OST, a sufficient amount of BTs should be sent to the smart contract to initiate the unstaking.