Context for Akash Token Economics
In our past updates, AMAs, and most recently in our Primer on the FIrst Decentralized Cloud Marketplace article, we covered the current state of the cloud computing industry, projected to be a $370 billion market by 2022 (IDG 2019), and its dominance by an oligarchy of four cloud service providers (AWS, GCP, Microsoft Azure, and Alibaba Cloud).
We shared how Akash’s decentralized cloud computing marketplace will revolutionize and redefine the cloud market. Akash’s platform enables organizations to access the 85% of server capacity currently underutilized at 8.4 million data centers, and on individual servers.
Through Akash, anyone can buy cloud compute at 10x less cost, and sell cloud compute for 4x more earnings.
The Akash platform achieves these benefits by integrating blockchain, advanced containerization technology, and a unique staking model to accelerate adoption, built on Tendermint and Cosmos. Core to the platform is a token economic model that uses a native currency, Akash Token (AKT) to solve for volatility (one of the biggest challenges for adoption in crypto), while ensuring economic security of the platform’s public blockchain.
The model bootstraps early supply by using inflation as a subsidy, and activates an incentive structure that unlocks network effects to accelerate growth.
In this article, we focus our attention on developing an understanding of the economic nuts and bolts of the Akash Token (AKT) and its economic potential.
Following is a brief list of articles that can help serve as a primer of resources for contextualizing much of what we’re going to cover, so give them a read if you haven’t already! Spoiler warning: we estimate the expected reading time to be many, many minutes:
Now that you’ve reviewed these articles, you’re ready! Let’s walk through the valley of Akash Token Economics together. But before we dive into the economics, let’s level our understanding around several key questions.
What is Akash building?
In the simplest terms, we’re building a virtual marketplace where individuals and organizations can meet to participate in the frictionless buying and selling of cloud compute. An analog for what we’re doing in the cloud compute space is Airbnb. For this comparison, we’ll focus on the similarities between Akash’s Supercloud platform and Airbnb’s rental platform.
The Airbnb platform, though nuanced and complex in its own right, can be distilled down to something quite simple: it’s a short-term rental marketplace that enables any excess or underutilized living space to be rented. Similarly distilled, the Akash platform is a marketplace that enables any excess or underutilized compute capacity to be rented. Each marketplace effectively leverages existing, but previously unavailable inventory (property for Airbnb, and compute for Akash).
Why is Akash building the Supercloud platform?
To answer that question, we’ll continue with the Airbnb analogy and focus on two benefits Airbnb succeeds in offering their marketplace participants: providers of accommodations (providers) and tenants of accommodations (tenants).
First, Airbnb effectively drives prices down for short-term accommodations by increasing the supply of available properties that are fungible with hotel rooms, which gives tenants the ability to shop between true alternatives, breaking hotels’ near-monopolistic hold on the lodging market. Secondly and more directly, Airbnb enables previously underused properties to be monetized–unlocking the earning potential of these properties. The same benefits will be made possible by the Akash marketplace for our participants: providers of compute (providers) and users of compute (tenants).
First, Akash will drive prices down for cloud computing by increasing the supply of available compute capacity that is fungible with existing cloud service providers (CSPs) like AWS, Microsoft Azure, and Google Cloud. This gives tenants seeking on-demand compute a true alternative, thereby breaking the near-monopolistic hold existing CSPs have on cloud compute. Akash enables owners of idle or underutilized compute capacity to become compute providers–earning income, or monetizing, on what was previously considered waste. This is the core essence of what we call earning potential.
Now let’s briefly examine why crypto is necessary for Akash’s marketplace and explore what it enables.
Functionally and philosophically, the blockchain enables true decentralization such that the network, and ultimately, the platform and marketplace are, and will always remain sovereign and not under the control of any single entity.
Transparency is achieved on the network as the receipts (leases) of completed transactions are all stamped on the blockchain.
Proper maintenance and continued development incentivize strong governance.
Lastly, the use of our own cryptocurrency, Akash Token (AKT), gives us the ability to leverage financial subsidies that are made possible by having a sovereign economic system. By enabling subsidies vis-à-vis the Akash token (AKT), we can accomplish two critical goals necessary for a thriving two-sided marketplace: lower costs for tenants (users of compute), while simultaneously increasing returns for providers (providers of compute).
By giving tenants the lower costs they’re searching for and giving providers the return they’re seeking via AKT subsidies, we can efficiently accelerate growth and facilitate greater efficiency in the Akash marketplace.
Show me the money!
Now let’s dive into Akash Token’s earning potential. We’ll demonstrate how Akash is the first token of its kind to actually have quantifiable intrinsic value.
Where does the earning potential of AKT come from?
The driving force: Gross Merchandise Value (GMV). Simply, GMV is the total value of all completed transactions in a particular marketplace in a given period of time. It’s critically important to mention that the features which make AKT intrinsically valuable are not theoretical or speculative, but grounded in simple economics.
We’ll use a specific point of comparison in Bitcoin (BTC) and examine what gives it value. As of the writing of this piece, BTC has a market price in excess of $9,500 USD. Where does this value come from? The short answer is: faith (trust) and adoption or more accurately expressed as people’s willingness “to accept them as payment.” This is true not just for Bitcoin, but for all money not backed by anything of tangible value like gold or silver.
There is no doubt that being “backed by mathematics” is super cool, and the essential underpinnings of decentralization that has made what we see in crypto possible today. But Bitcoin’s value is still trust or faith-based.
Akash’s value, by comparison, is a direct function of, and backed by the total value of transactions in our marketplace made possible by a take rate where a percentage of transactions is paid to the marketplace owner. The concept of a take rate is not unique; Apple, Google, Uber, DoorDash, Amazon, and many others all feature take rates in their respective marketplaces. In the case of Apple’s App Store, Apple takes 30% of all transaction revenues (take rate) in their marketplace, and uses the proceeds for building, maintaining, and improving their marketplace.
Akash’s proposed take rate is 20% and all of those proceeds go back to all AKT token holders, not to Akash.
Let’s use some real-world numbers to illustrate what this might look like for Akash:
- Total number of AKT tokens at genesis or network launch: 100 million
- Projected Cloud Services Spending by 2023: $370 billion (our total addressable market or TAM)
- Proposed Take Rate: 20%
- Assume Akash reaches a market penetration of only 1% by 2023
- 1% x $370 billion = $3.7 billion (annual GMV)
- With a take rate of 20% on a GMV of $3.7 billion
- 20% x $3.7 billion = $740 million
- Based on a 1 year snapshot of this hypothetical year of 2023
- holders of AKT in 2023 earn $740 million in the form of a network dividend where each AKT token would earn $740 million100 million = $7.40 per token
We’re oversimplifying in the example above, but the simplicity of this exercise helps illustrate the source and nature of AKT’s intrinsic value and by extension, the earning potential that AKT represents. We recognize that there are other significant contributing characteristics that will influence the value of AKT, supply and demand, and faith-driven value being chief among them, but those are only contributing factors to an already intrinsically valuable token.
Now, what can your token do?