The Ottó blockchain uses two tokens to power its unique Proof of Stake (PoS) consensus mechanism. This keeps the chain hard working and totally secure while also accruing value. This article explains how the two-token economy on Ottó works and the logic behind how it benefits the ecosystem.
What tokens are available on Otto?
There are two tokens on the Ottó network:
- OTTO token: the native asset used to reward staking, pay gas transaction fees and take part in governance. It is for all intents and purposes the ‘main’ token on the chain.
- Catalyst token: used to stake on the Ottó blockchain. Those wishing to take part in the network’s consensus mechanism and receive block rewards must purchase the consensus token. This generic asset can only be bought as a whole token using OTTO. Every time a Catalyst token is bought the price goes up. This way the token also becomes a direct store of value that supports validation on the chain.
Why are there two tokens?
Ottó is designed to make the world of DeFi and financial protocols accessible and safe for investors. To do this we are committed to ensuring our blockchain is fast and highly secure. In essence, this means crafting a strong and robust consensus mechanism. By using two tokens, one of which is entirely devoted to staking, we enable a hard-working chain while also increasing security by creating a second store of value.
To understand a bit more about how it works we need to dive into the Ottó blockchain’s unique consensus mechanism.
How does the Ottó Consensus Mechanism work?
What is a consensus mechanism?
Consensus mechanisms are systems used in a blockchain to achieve agreement (or consensus) on events and transactions on the network. In many ways it is the core logic of the chain which ensures that the majority of the governing community agrees that the information entered into the blockchain ledger is correct. This is essential in a self-governing decentralised ecosystem as it provides a trustworthy alternative to having a single authority determine what is entered into the ledger. There are many different types of consensus mechanisms; a robust mechanism ensures that we have a secure blockchain ecosystem that is both accurate and fair.
What is Proof of Stake?
The Ottó blockchain uses a Proof of Stake (PoS) consensus mechanism. PoS traditionally involves validators (network members who want to participate in the forging of new blocks) holding or ‘staking’ tokens in a specific wallet. These tokens act as collateral or a form of financial promise pledging that the validators will perform their duties correctly. If they succeed they are rewarded with block rewards. Staking protects the network by ensuring token holders are financially invested in correctly following the blockchain protocols.
Proof of Stake on Ottó
The Ottó blockchain uses the PoS concept but has tweaked it slightly to increase the security of the chain and free up the potential of the OTTO token. Instead of staking their existing OTTO tokens, validators on the Ottó chain will purchase specific Catalyst tokens to take part in staking. The Catalyst token is now the financial collateral rather than the native asset token.
Every time a Catalyst token is purchased, the price goes up. So for example, if the first Catalyst token costs 1 OTTO, the second will cost 1.0004604 OTTO and so on. This means that the value of the Catalyst token will rise over time as it becomes gradually more expensive to purchase. OTTO tokens used to purchase Catalyst tokens go back to the treasury and are themselves used to pay block rewards. This circulates the supply of OTTO on the market.
Note: Catalyst token #50,000 triggers the first halving, whereby block rewards are reduced in half. This number of Catalyst tokens is considered a good level of decentralization.
Otto’s consensus mechanism achieves a few key things:
Stores value to secure the blockchain:
The Catalyst token is purchased using OTTO tokens and so is representative of the token’s value. A bit like a gold bar made from melting your store of gold coins is representative of the value of those coins. Because the price of the Catalyst token rises with every purchase, the worth of each Catalyst token is continuously increasing.
This means that the staked collateral or financial incentive for validators is always becoming more valuable, increasing the incentive to follow blockchain protocol and protect the blockchain.
Affordable gas prices:
The Catalyst token is continuously increasing in OTTO value meaning it becomes an investment or store of value in its own right as well as a practical tool for staking. This takes the pressure off the OTTO token to provide all of the value on the chain.
This means that the OTTO token stays affordable and predictable to enable reliable transactions and a hard-working blockchain.
Auto balancing between the two tokens:
Ottó community members want to hold OTTO tokens to be involved in governance but they also want to purchase Catalyst tokens to take part in staking and earn OTTO rewards. The balance of these two desires results in the balancing of the two-token economy. The community constantly moves between storing OTTO tokens (which itself makes the token more liquid) or purchasing consensus (Catalyst) tokens either through the Ottó chain or the open market.
In line with basic demand-supply economics, every time Catalyst tokens become very expensive, holders will be moved to sell them on the open market, increasing their supply and making them more available to the community which will ultimately reduce their price.
Similarly, when community members accrue lots of OTTO they will be moved to store that value as a Catalyst tokens, reducing the OTTO tokens available in the ecosystem and increasing their value relative to the Catalyst token.
Through these two trends sometimes it will be more valuable to hold OTTO tokens, sometimes more valuable to hold Catalyst tokens — but the required utility of both means that the community will always be driven to move between them, thus initiating the demand-supply balance.
Prepare your OTTO tokens to take part in Ottó blockchain’s unique PoS consensus mechanism
About Ottó Blockchain
Ottó Blockchain is the first KYC-compliant, Curated Smart Finance blockchain. Ottó Blockchain leverages NFT identity attestation, and Multichain functionality, vouching for you to service providers, custodians, and other market participants while allowing users to maintain privacy.