ELI5: Worldwide Asset eXchange™

WAX token economics explained.

Parts of this ELI5 may be outdated and are updated as WAX releases new information.

WAX is an e-commerce platform running on its own multi-purpose blockchain, build using the EOSIO technology tailored especially for its needs. It’s not a just a token trading on another blockchain or a dAPP running on Ethereum.

With its launch at the end of June, it is supposed to be fully decentralized, open source and compatible with all EOS DApps.

WAX is targeting the gaming market because it is used to trading and collecting virtual items that are nothing more than digital assets, but WAX is not a gaming blockchain in itself. WAX is not just about ‘skins’ either. Skins are one of many things that are traded on WAX. The WAX block-explorer currently lists 19 different categories, from digital items like games or top-up cards to physical objects like electronics or merchandise. Only one of these categories is limited to skins.

As mentioned before, WAX is an e-commerce platform, but what does this actually mean? It means WAX is all about making money. The goal of the WAX platform is to allow people to earn money ‘actively’ and ‘passively’.

WAX is going to do this by providing users with the means to sell their goods on webshops others set up or to set up their own decentralized webshops, without the need to invest into, or care for security and infrastructure. And some users will earn acting as ‘digital mailman’ or physical escrows.

The majority of people will earn by taking part in governance through staking and voting.

So who is earning:

Besides buyers and sellers, we have four different types of entities.

The Guilds, these are the guys & gals running the show. They are validating transactions and provide the chain with its computational resources.

In return, they are paid a specific amount of WAX each day based on their performance.

Marketplaces, almost anybody could run a Marketplace, a big company running something like a decentralized eBay, a publisher selling software licenses, games or ebooks, a game studio running an in-game market or an average user running something like an Amazon/Shopify/Etsy marketplace store.

Next up we got Transfer Agents, in short TAs. TAs are Users that set up a bond in the form of a stake and in return are entrusted with the goods to execute transactions that can not be handled through smart contracts. For example, a valuable Fortnite customization that can only trade by ‘physically’ meeting up in-game. The TA functions as an escrow adding a second layer of protection to the trade. He picks up the ‘skin’ from the seller and delivers it to the buyer. This way it is ensured that what is sold is what has been advertised and that the buyer receives the item. Every transaction a TA executes has to be protected by collateral, so in case of a rogue TA, the seller still receives his payment, and the buyer gets refunded, making the transaction trustless.

Last up we got the token holders.

WAX has several reward mechanisms for token holders that stake their tokens and participate in the voting process. This way users are encouraged to hold WAX to generate passive income. Check this article for further information.

Details on how Marketplace commissions are to be distributed has yet to be declared. The following examples are based on what we originally knew from the whitepaper.

How what is earned on WAX:

For every trade carried out through a guild, a commission is collected.

This commission is shared among the Guild, the Transfer Agent, token holders, and a share will be burned reducing the circulating supply. There are a lot of ways how assets can be traded on WAX.

Let’s examine the flow for two examples, first an easy one where the item already is a token. In this case, things are pretty straightforward, we already know the asset is authentic, the seller owns it, and the transaction can be handled through smart contracts.

Step 1: The seller locks the item and sets his price in WAX or fiat. Let’s assume he opts for a rate of 100 WAX.

Step 2: A buyer is found and locks in the trade, committing to purchase.

Step 3: The buyer pays for the item, either in crypto or one of 50 fiat currencies from over 200 supported countries worldwide.

Step 4: The payment is converted into WAX by the WAX payment gateway.

Step 5: The item is delivered to the buyer and the payment is released to the seller, excluding the deduction of the Guild fee, let’s assume 10%.

Step 6: The fee structure is applied as initially set by the Guild. Let’s assume 75:25, so the guild receives 7.5 WAX, and 2.5 WAX are shared among token holders.

As a second example let’s take something that could usually not be traded on a Blockchain, like Fortnite skin:

Step 1: A seller from the US puts up his skin for $100.

Step 2: A buyer from Europe locks in the trade and can decide what currency to pay in.

Step 3: The buyer decides to pay in Euro instead of USD or crypto, so he pays 88€ through the payment gateway.

Step 4: These 88€ get converted into or pegged to WAX via WAXT, a WAX based ‘stable coin’, and locked up in a smart contract until the Transfer Agent receives the skin from the seller.

Step 5: The Transfer Agent receives the skin and verifies the authenticity. Then releases the payment to the seller minus the commission.

Step 6: The seller receives the payment, they can either keep or cash out directly into fiat or another cryptocurrency using the WAX payment gateway.

Step 7: The TA delivers the item to the buyer and closes the transaction.

Step 8: The commission is split.

Let’s assume the guild collects 5% fee, in this case resulting in 5$ worth of WAXT, and the fee structure is set to 50:40:10.

The Guild receives $2,50, the transfer Agent receives $2, and the remaining $0.50 are shared among token holders as staking revenue.

Since all involved parties are players, there is no need to involve the developer, and they could not prevent it without prohibiting trades altogether.

Instead of a Fortnite skin, this could have been almost anything that can be traded, even something physical like a trading card or a piece of art.

How Value is generated:

Three major factors will drive the value of the protocol token.

1.: With an increasing market share more and more WAX Marketplaces will be founded. Since marketplaces need to collateralize their assets using WAX, there will be a constant demand.

To quote one of the founders:

We imagine a world where there are hundreds of thousands of websites all running on the WAX market APIs pulling product info and transacting directly on the WAX blockchain. Think of it as the ultimate affiliate program. One store might be a flower store or another for sneakers, and another a virtual game item store and all of them have access to every item on the WAX blockchain.

2.: Turnover. As mentioned a Transfer Agent also needs to put up tokens as collateral for transactions he conducts. With a growing amount of Marketplaces, more TAs will be required, and in return, more tokens need to be staked. But at the same time with increasing turnover, the TA needs to increase the value of his collateral. So either the staked token need to increase in value, or the TA needs to increase the amount, creating demand, reducing supply, increasing price.

3.: Greed. Erm, I mean commissions. As mentioned, token-holders receive a share of Marketplace commissions but also staking and voting rewards. If market share and turnover increase, so does the payout aka return per token. Return always is self-regulating, if it goes up, demand goes up. If demand goes up, the price goes up if the price is going up again the return per token decreases in terms of value percentage.

A ‘simple’ calculation: In 2017 the secondary market for digital assets was 50 Billion. OPSkins, the creators of WAX, were the leaders of the said market. Let’s assume as market leaders they transacted 10% of this market, so 5 Billion. The usual fee was 10%, this would have resulted in 500 Million USD in revenue.

Let’s further assume of the currently ~900 Million WAX 500 Million had been pledged to OPSkins as a guild back then, because some would be staked by Transfer agents, traded or not staked at all. Since trades were conducted by bots and no transfer agents needed to be paid we could expect a commissions share rate of 20%. So100 Million USD would have been distributed among 500 Million WAX. If that would have been the case and WAX had been in existence in 2017, this would have led to a total payout of $0.20 per WAX.

Naturally, we would expect a token to be worth more than its payout. In the end, the average annual staking revenue seems to be somewhat around 5%.

Now put into consideration, that this market has been exponentially growing for the past years and unlike OPSkins, WAX is not only targeting this secondary asset market but also in-game payment processing, retail, and other sectors.

What else the WAX protocol token will be used for:

As we had confirmed by now, WAX will be fully compatible with EOS.

All apps developed for EOS can be run on WAX without any adjustments. While WAX adds value through features like a provable fair on chain RNG and subsystems like WAX Pay.

Considering this we can not only expect the WAX protocol token to be used for voting of validators (aka Block producers) but also resource staking.

Should you rush and buy WAX now?

Holders of the ERC-20 token currently in circulation are eligible to receive the protocol token in a 1:1 ratio and can opt-in for an additional 100% bonus through the WAX Genesis Block Members Program. The token swap will take place from the 30th of June until the 30th of August. Only during this time, you will be able to swap the token and be eligible for the block members reward. The current token will be burned in the swapping process.

So you still have a couple of weeks left to do your own research and make up your mind.

For a bit more of an in depths view on WAX I recommend reading the articles:

The Technical Article Roundup

What sets WAX apart from other Tokens?

And the latest WAX Token Holder Update.

And if there are any questions left, join the community on Telegram!

I will treat this article as work in progress and will keep updating it if need be. If you have comments or questions feel free to reach out!