The Economic Protocol: January Deliverable is Shipped
We are thrilled to announce the specifications for the Economic Protocol, as part of our road to mainnet!
The Economic Protocol is a key component of our tech stack and unique blockchain. It gives smart contracts new and powerful capabilities, while opening up a whole host of use cases and benefits for developers, enterprises, and users.
The Economic Protocol is a game-changer for smart contracts, fees, and gas, giving developers more freedom and options than ever before and removing one of the highest friction points for users, and will become a requirement for mass adoption.
The Economic Protocol enriches smart contracts on Dusk with three key features:
1 - Smart contracts can charge fees
2 - Smart contracts can pay gas fee
3 - Smart contracts can act autonomously as autocontracts
The introduction of these configurations changes the fundamental way developers build on-chain, the way users interact, and the way business models can be designed.
In all our interaction with existing institutions and established organizations in classic finance, it was clear that these features were an absolute must. Obliging financial institutions to explain to their clients the mechanics of gas costs is an absolute conversation and adoption killer.
Once Dusk’s mainnet is live with the Economic Protocol built in, it will become the standard, and anyone operating without the same mechanics of “real world applications” (not just real-world assets, but anyone who wants to onboard Web2 users) will not be able to compete.
This enables us to integrate traditional finance (TradFi) and blockchain technology, transcending the mere tokenization of assets. This integration represents a crucial element of our technology stack, offering users and institutions the necessary tools to revolutionize the financial landscape.
Let’s dive into the Economic Protocol, what it is, and what groundbreaking use cases could be born from it!
The Economic Protocol: Empowering Smart Contracts to Create Economic Value
We will look at each of the features in detail, focusing on what this means for blockchain users, for institutions/financial services, and others, with a focus on practical use cases.
1 - Smart contracts can charge fees
2 - Smart contracts can pay gas fee
3 - Smart contracts can act autonomously as autocontracts
Want to read the technical paper? Here it is.
Let’s examine each of these benefits, what they mean, and what the use cases are.
Smart Contracts Can Charge Fees
Currently, smart contracts cannot charge fees. The closest developers can get is to put a tax on transactions (typically buys or sells), but this is not the same as a fee or subscription mechanism.
Charging fees turns smart contracts into revenue-generating machines! Developers can charge subscription fees and monetize their services in a way they haven’t yet been able to.
This changes the economics of blockchain projects, and reduces the reliance on tokens for funding.
Why should a smart contract charge fees?
Dusk makes the same economic tools that are available to businesses in Web2, available in Web3, on-chain.
From billion dollar institutions that charge membership fees, to dApps that want to charge a subscription fee to use their services. Developers and organizations now have a revenue-generating tool at their disposal.
So many blockchain business ideas fall at the first hurdle as there’s no way to generate revenue. The solution often ends up being launching a token, but this is not always the ideal solution.
In fact, I’d bet a lot of developers out there would prefer to not have to launch a token, to have users not token holders, and to not have to contend with price talk that can overshadow the quality of their service!
Potential use cases of a subscription-charging smart contract
A leverage trading DEX that wants to charge a fee to use their services and offset the gas fees
Consider a leverage trading DEX that wants to not only take advantage of Dusk’s built-in privacy, but also wants to charge a fee to generate revenue. They don’t want a token (at least not right now), and are instead focused on delivering the best service possible, and building up their revenue and user-base.
They charge a monthly subscription fee to their users, and are able to build a business that is self-sustaining and profitable.
Other on-chain ideas: Launchpads that want to charge a subscription for access to IDOs, a DEX that wants to offer zero swap fees for subscribers, subscription-based membership to communities, etc…
A traditional financial services entity moving to blockchain
Here, we could see traditional stock exchanges, or other financial services companies, charging fees to access their services. Much like a DEX, but with regulated assets (a RegDEX?), the company would be able to offer their access to their stocks to members, or have tiers.
These fees could be used to cover the costs of the administration that is necessary to issue new stocks, not to mention the fact that businesses need to be profitable. Not only will Dusk save organizations money, they can also move their current business model over.
This allows everything to be done on-chain, from start to finish the entire lifecycle of a financial asset to the business model around it, can be on-chain.
Other traditional financial services ideas: insurance premiums, brokers, asset managers, hedge funds, etc…
Smart Contracts Can Pay Gas
In the standard model, users pay gas. If you’ve made any on-chain transactions, you’ll have experienced this. Paying gas is, to use the technical term, really annoying. Gas is used to pay for blockspace, prevent bot attacks, and pay the validators who are securing the network.
It’s an incredibly high friction point, that by now you’re probably used to if you are active on-chain, or avoid and find it puts you off using blockchains for transactions.
Why is gas such a high friction point?
Because if you don’t have it, you can’t make transactions. You might run out of gas without realizing, gas prices might spike and you no longer have enough, or you might not know how to even get started. It adds extra steps to making on-chain transactions, and can leave you stranded if you don’t have any.
It’s also very complicated for people who aren’t used to it. Which is the majority of people in the world.
Can you imagine a multi-billion dollar stock exchange telling their clients they have to buy gas on a CEX, and then withdraw it to their wallet before they buy a stock?
Obviously not.
Why should smart contracts pay gas fees?
The clunky and complicated user experience due to gas is one of the biggest obstacles to the meaningful, at-scale adoption of blockchain.
By allowing smart contracts to pay gas fees, users can have a seamless, frictionless experience that is on-par with what they’re used to in Web2. They never even have to know they’re using blockchain.
This means your parents can easily use dApps on Dusk. This means institutional investors can easily invest using Dusk as the infrastructure. This means mainstream adoption just got a lot closer.
Smart contracts being able to pay for gas, along with the customizable Dusk web wallet, means the UX can be just like people are used to, and no blockchain knowledge or multiple steps to get started are necessary.
Potential use cases of a gas-paying smart contract
A DEX that wants to compete for market share
Crypto is competitive, there’s no doubt about it! Thousands of projects are vying for attention, users, and token holders.
Imagine a DEX that paid the fees for you. Granted this might be more appreciated on Ethereum where gas can get out of control than on Dusk where gas will remain low, but the idea still works!
You could trade assets through the DEX without even needing to hold DUSK for gas, there would be no gas spikes the users needed to be aware of, it would differentiate a new DEX from old one, and gather increased market share due to being the go-to for newbies on the Dusk.
The “Get started on Dusk…Step 1. Use the GasLess DEX” threads write themselves!
Other on-chain ideas: This holds for any DeFi application, from lending to delegating to leverage trading. There is no dApp that couldn’t use this feature!
Traditional investing on-chain
This is likely the strongest use case; bridging the gap between Web2 and Web3, by removing the complicated part!
To go back to our stock exchange, traditional clients and investors can trade on-chain without ever needing to know they’re on-chain.
As far as the user is concerned they log into their “Stock Exchange” wallet (branded and customized like the stock exchange thanks to Dusk's web wallet), and trade their assets as they please.
It’s the best experience they’ve had; their trades settle instantly, they don’t have to pay such high fees, they have custody of their assets, counterparty risk is reduced, and finance is allowed to evolve.
This is the type of innovation that makes it possible for blockchain to be used by the masses.Of course things like speed are important, but if the UX is too niche and requires a deep dive into blockchain, it will never gain mainstream adoption.
Other traditional financial services ideas: Every financial services institution that wants to use blockchain will want this! It’s impossible to expect your clients to buy gas from a CEX. From insurance to hedge funds, if a financial services institution wants to use blockchain, they will both require and demand this feature.
In a few years we won’t know how we lived without it.
Other real-world asset projects
The Dusk blockchain is also perfect for other real-world asset projects to build on. Take a real estate-focused dApp that offers fractionalized ownership in housing development projects.
They want to not only appeal to blockchain users, but to people who are not familiar with blockchain too. Thanks to being able to offset gas costs for users, they are able to transcend the crypto-space and attract all types of investors, from institutional ones to “normal” people who want to invest but simply don’t know how to use blockchain.
Smart Contracts Can Optimize Gas Payments and Autocontracts
Our third, and final, innovative feature is the ability to optimize transactions according to gas fees and create autocontracts.
The ability to optimize gas payments comes from the fact that smart contracts can pay gas themselves. Now that smart contracts can pay their own way, they can execute a function without a person needing to do it. They are now autocontracts.
Autocontracts can listen to events, and even execute within the same block within which the event occurred.
This could be optimizing for gas, it could be a limit order based on trading volume, or even transferring assets from one wallet to another (for example in case of an unexpected death).
While the Dusk blockchain will have low fees, the price of gas will still fluctuate depending on the demand for blockspace. Everyone has at some point said “I’ll do it later when gas is lower”.
Well, now smart contracts can be programmed to perform functions when gas prices are lower.
This will allow smart contract developers to save money and increase profitability. It also means they can essentially automate parts of their process as the smart contract can pay for gas itself, rather than needing a person to do it.
Not only do developers not need to watch for when gas is lower, they can set a smart contract to execute when gas is in a given range (or when other conditions are met as smart contracts can listen to events), and let the smart contract do the work.
Why should smart contracts optimize gas payments or be autonomous?
Because it’s expensive!
For an individual a spike in gas due to network demand can be annoying. For a business needing to make thousands of transactions a day, it can be a significant expense.
By making it possible for smart contracts to listen and then “act” without needing to be told, developers can automate and optimize their processes. And who doesn’t want to save time and money by automating processes?
Potential use cases of autocontracts and gas optimization
A DEX that allows for orders based on very specific criteria, for example when volume > x and price < y or could even trigger you to sell when your overall wallet value reaches a certain threshold.
Other ideas: There are almost endless on-chain use cases for this limited only by creativity and what can be emitted as an event. From saving gas on airdrops, to advanced orders, to transferring assets to a new wallet if the old one doesn’t confirm within a time frame, there are so many possibilities.
Optimizing business practices
Moving away from the more creative uses, imagine a huge business that is financially on-chain, and wants to pay people when gas is low. They could set their smart contract to pay their employees when gas is in a lower range.
This would not only save them money, but could also automate the process, saving them man hours too.
Novel ideas for the future
As blockchain becomes more mainstream, and more and more businesses get onboard, we could see the ability to listen to on-chain events and act have more and more uses.
Insurance claims, that once approved and verified as having happened on-chain, automatically pay out a claim or inheritance being transferred to children when they turn a certain age.
To conclude
The Economic Protocol introduces 3 new features to blockchain:
1 - Smart contracts can charge fees
2 - Smart contracts can pay gas fee
3 - Smart contracts can act autonomously as autocontracts
These key features are game-changers for blockchain now, but will be requirements in the future! They pave the way for mainstream adoption by removing a key friction point and drastically improve the UX.
Without these features it’s highly unlikely that institutions can offer services to their clients that are on-chain.
