One of the most intriguing aspects of Ethereum (and Bitcoin for that matter) is the immense possibilities surrounding utility tokens, and how one could potentially mimic financial systems in a transparent and permissionless way.
Imagine having the ability to own a blockchain-based digital representation of any asset in existence. This could be a synthetic share, where holders receive dividends and have a liquid market to sell it to without actually owning those shares. I’m saying shares, but honestly, it can potentially be anything you want – futures, bonds, or any other financial instrument you can think of.
To achieve the desired outcome, you would need to create a set of tokens with deterministic rules which add value on top of each other. This means you are not creating synthetic value, but rather synthetic utility.
During the weekend, I had the pleasure to discuss the Zurbank project with its founder Daniel M Harrison (DMH), someone who I consider to be a true blockchain evangelist and crypto heavyweight.
To watch the full interview, please visit DMH’s YouTube channel.
Zurbank – Synthetic utility
As explained by Daniel Harrison: “Synthetically-mined tokens are tokens which are issued up to a specific hard cap and receive currency in their smart contract that is locked away. The value of this currency ‘backs’ the token and offers buyers a guide price as to the intrinsic value of the token. The contents of the SMT smart contract is always locked. It is the unpegged gold-standard of crypto.”
What this means is that you can potentially create new ways of saving within the blockchain sphere without the risk of losing value, as your investments are safely stored in smart contracts. There are three types of synthetic utility functions these tokens create:
- Synthetically-mined tokens: These represent any token which serves the purpose of mining into a certain smart contract in order to receive a reward (fee) for committing coins into said smart contract.
- Digital notes: These are tokens that are created by sending a synthetically-mined token to the DN smart contract. At a certain point, there is an event which unlocks a re-exchange, so the DN can be sent back to the DN smart contract and the owner can receive a proportionate share of the original unit of value used to mint it.
- Synthetic mining applications: These are tokens that by virtue of their software code can call a proportionate share of tokens stored in their smart contract to the wallet holder’s address.
Futereum, the future of synthetic utility
In essence, what Futereum brought to the Ethereum ecosystem was the very first synthetic form of value that is created automatically via smart contracts. The implications of this achievement are in no way minor. In order to successfully create synthetic utility and not synthetic value – directly associated with the terrible sub-primes which destroyed the housing market in 2008-2014 – one must take into consideration how said value comes into existence.
To put it simply, Futereum follows a number of rules that give it value:
- Have well-designed algorithms that follow standard rules and do not deviate from them (deterministic).
- Have set rewards based on checkable functions and variables, like block-weights (time).
- Have a basket of tokens (preferably with market value) that can swap back and forth with the main token.
- Have no degree of randomness in payouts, meaning investors can easily calculate payouts depending on the total invested amount, time period, and network value.
By not deviating from this formula, Daniel Harrison made sure that any token associated with Futereum smart contracts will reward the entire community.
There are five main tokens that make up the Zurbank ecosystem, including additional ERC-20 tokens that are used to mine the FUTB smart contract. The above image can be explained below:
- FUTB: Futereum Bitcoin, a synthetically-mined Bitcoin
- FUTR: Futereum, a digital note
- FUTX: Futereum X, a digital note
- FUTM: Futereum Markets, another digital note
- FUTC: Futereum Centurian, a synthetic mining application (smart contract)
- ERC-20 tokens, like ETH, BYT, MKR, VEN, BAT, and USDC among many others
Although I do not think the Futereum project is simple to grasp, its ultimate goal and inner-working mechanics are worth the effort to learn.
The interactions between tokens and how the payouts have been calculated are clever in order to properly incentivise holders to keep tokens circulating between contracts (for instance, some rewards are based on the Bitcoin mining rewards algorithm).
I tip my hat to Daniel Harrison for creating a well-designed and perfectly executed project. I’m looking forward to playing around with FUTR in the near future, as it seems an epic way to finally have a smart contract-based savings account.
Disclaimer: This article isn’t financial advice or promotional material; it represents my personal opinion and should not be attributed to Coin Rivet. I have savings invested in cryptocurrency so take whatever I write with a grain of salt. Do not invest what you cannot afford to lose and always read as much as possible about a project before investing.