The dual-token economy is a system adopted by various blockchain platforms in which two different types of tokens coexist: utility and governance tokens or security tokens.
Utility tokens, often referred to as user tokens or application coins, represent future access to a company's product or service. The defining characteristic of utility tokens is that they are not intended for investment; if properly structured, they may not qualify as securities and therefore are not subject to certain regulations that apply to securities.
Governance tokens give owners the right to influence decisions made within the platform or ecosystem. This influence can extend to decisions about the direction of the platform's development, feature updates, and even changes to the governance rules themselves.
The dual-token economy vs the single-token economy
In the single-token economy, one token serves all purposes in the ecosystem, including utility and governance. However, the two-token model separates these roles, providing a number of advantages.
The main advantage of the two-token economy is risk reduction. Separating the utility and governance functions reduces the risk that the value of one token will be affected by factors unrelated to its primary role. For example, if a governance decision causes controversy, it won't directly affect the value of the utility token.
Another advantage is the ability to control the economics of tokens in more detail. By having separate tokens, platforms can regulate the supply and demand dynamics of each token independently, providing greater flexibility in managing the economic health of the platform.
Examples of the two-token economy
Several blockchain projects have embraced the dual-token economy, most notably MakerDAO and NEO.
MakerDAO operates with MKR as a control token and DAI as a stablecoin, a type of utility token. MKR holders have voting rights in the MakerDAO system, while DAI serves as a stable store of value in the ecosystem.
NEO, another blockchain platform, uses NEO as a management token and GAS as a utility token. NEO owners can influence decisions about the future of the network, and GAS is used for the operation and storage of tokens and smart contracts, preventing the abuse of node resources.
A lot of blockchain games also use dual-token economy, for example, Undead Blocks game.