Local Tokens are a non speculative stable value digital currency using distributed ledger technology for security, assurance and transparency for accounting, payments, transfers, conversions and smart contracts.
Stable value tokens are especially suited for transactions, financial contracts and applications, as they retain a known value during the process of execution.
The smart contract technology allows for innovative applications such as incentive rewards, peer lending, merchant prepaid subscriptions and automated conversions with any of the multiple collateral assets held in reserves.
Multi-Collateral Liquidity Reserve
Local Tokens will have a multi-collateral liquidity reserve, a basket of crypto tokens and tokenised assets. Assets will be convertible to and from Local Tokens through an automated liquidity smart contract.
The majority of collateral reserves, for example 80% will be of the most stable value, such as those pegged to major currencies as well as fairly stable highly liquid tokenised assets.
A second portion of the collateral reserves, for example 10% will be held in the most liquid of crypto currencies. A third portion, for example 10% will be held in Co-hereDAO Staking Tokens for fund raising and securing the network.
In stage 3 of the road map, specialized user generated tokens (merchant, club, org, fund raise, voucher etc – see “long tail“) will be facilitated through escrowed Local Tokens and will be liquid (convertible to Local Tokens) at their locality.
When the least stable value collateral asset exceeds an acceptable proportion of the reserves, a portion will be converted (using Bancor protocol, Uniswap and Liquality) to the more stable value collateral assets. Collateral asset ratio re-balancing could occur, for example twice a day or as appropriate, according to governance of the foundation and eventually stakeholders.
Collateral Conversion with Local Tokens
Co-here Local Tokens maintain a stable value based on the holding of a collateral reserve with 80% stable assets and 20% non stable assets.
The 20% non stable portion of the reserve has two parts. The first part includes the most liquid of crypto currencies which provides Local Tokens liquidity bridge with the wider crypto market. The second part are Co-hereDAO Staking Tokens for fund raising and securing the network.
In stage 3 of the road map, user generated tokens and their convertibility with Local Tokens are required to serve automated conversions in smart contracts for participating merchants, clubs, orgs, fund raises, voucher systems etc – see “long tail“.
In order to reduce speculation and dampen volatility when converting Local Tokens with non-stable tokens, an automated higher conversion fee will be incurred during price volatility and higher demand.
See Collateral Conversion with Price Stabilisation
Local Token Price formula
The aggregate value of all Common Reserve collateral and the total supply of circulating and budgeted Local Tokens form the basis of calculating a non speculative price for Local Tokens. The price formula and conversion rate for Local Tokens with the collateral assets will be transparent in real time and open source.
Local Token Price = Collateral Reserve Balance /
Local Token Total Supply x Dynamic Reserve Ratio
Local Tokens price will be calculated using a Dynamic – Fractional Reserve Ratio or Bonding Curve price formula (possibly augmented).
While the Local Token Reserve Ratio will generally be a FULL reserve, it will also be dynamic as additional tokens are issued and budgeted for incentives, development and operations and value matched with an issuance of staking tokens placed in the collateral reserve available for user acquisition (see below).
Network wide acceptance for the price value of Local Tokens allows for stable non speculative automated conversions and smart contract financial applications.
Continuous supply to demand
BUY: When the liquidity smart contract receives crypto collateral from a wallet to be converted to Local Tokens, the collateral is added to the reserve and Local Tokens are issued and sent to the wallet.
SELL: As Local Tokens are sent to the liquidity smart contract to be converted to crypto collateral, the collateral is taken from the reserve and sent to the wallet, while the “converted” Local tokens are destroyed.
Incentives, development & operations
An additional amount of Local Tokens are issued and allocated to a budget for incentives, development and operations, when new Local Tokens are issued on demand.
When wallet users convert Local Tokens back to collateral assets those Local Tokens are then destroyed.
These additional Local Tokens will be value matched with a parallel issue of Co-hereDAO staking tokens added to the Common Reserve.
Co-hereDAO staking tokens can be acquired with Local Tokens from the Common Reserve and converted back to Local Tokens via the decentralised locality nodes which each have their own liquidity reserves.
The total supply of Co-here staking tokens will be automatically reduced via buy back and destroy, funded by fees collected from collateral asset withdrawals and partial liquidation when staking tokens are converted to Local Tokens.
Note: Additional tokens will be introduced, issued, budgeted and implemented, in 3 stages (see roadmap).
A Ratio for issuing Additional Local Tokens
For example for every 8,000 Local Tokens issued when users deposit collateral to the Common reserve, another 2,000 Local Tokens are issued, allocated and budgeted for incentives, development and operations.
The proposed amounts are to be reviewed with further research, parameterised and governed, initially by the foundation and eventually by the DAO staking token holders.
- Collateral backed Local Tokens issued (ex. 8,000 – 80% of 10,000)
- Incentives, development and operations (ex. 2,000 – 20% of 10,000)
Half (ex. 1,000/ 2,000) of the additional tokens issued are budgeted to incentivise specific kinds of participation in the network which are considered an aim and benefit of the ecosystem.
- Localisation incentive fund (400) stage 1
- Node Seeding stage 1, peer lending loan pool (400) stage 2
- Node liquidity stage 1&2, co-op seed funding (200) stage 3
Note: Additional tokens will be budgeted and implemented in stages (see roadmap).
Half (ex. 1,000/2,000) of the additional tokens are issued and budgeted for development and operational purposes.
- foundation – brand, legals, licenses (150)
- foundation – support, docs, media, meetups (200)
- development – technology ecosystem (500)
- development – integration, partnering (150)
Local Token collateral earning and fees
1) lateral transfer transaction fees (example 0.1% ^)
2) asset conversion fees (example 0.3% ^)
3) asset withdrawal fees (example 0.5% ^)
4) asset collateral DeFi earning (ex Dai Savings Rate as CHAI)
Actual earning & fees to be determined with more research & governance.
(^ see dynamic surge pricing for stabilisation & value capture via demand).
Bonus tokens for localisation – incentive to recirculate
The localisation incentive bonus (2.41% transferring to an inner locality) distributed to users, will circulate at that locality until it is transferred to a more inner locality (and receive another 2.41% bonus) or to an outer locality (see below).
Transferring to an outer locality incurs a 5% disincentive fee, which is returned to the localisation incentive fund.
Note: In order to take advantage of the localisation incentive you would need to spend more than half your tokens in an inner locality if you were planning to transfer the entire remainder to your global wallet.
Merchants access a lower de-localisation rate than users
Merchants will be required to sell their goods or services at the known National Locality conversion rate. There will be a fixed rate for Local Tokens in National wallets and all localities with in them. This ensures the value of the bonus incentive is not devalued in localities lower than the National Locality.
A merchant wanting to convert Local Tokens to National Currency will incur a cost of de-localisation. National locality nodes will manage a liquidity fund for conversions between Local Tokens and National Currency at a fixed daily rate.
In consideration a merchant will be able to de-localise Local Tokens from their own wallet to the locality at half the regular fee – 2.5% instead of 5%. They can also de-localise Local Tokens to wider localities up to the National Locality at half the regular fee – 2.5% instead of 5%.
Looking ahead to Stages 2 & 3
In stage 2 of Co-here ecosystem development, additional tokens are provided to a Common Loan Pool to help fund peer lending. These tokens can be borrowed to pay a reputable merchant for cash purchases or prepaid subscriptions. As the Common Loan Pool is repaid with interest, it is able to make these funds available to new loans, to recirculate inside the ecosystem.
In stage 3 of Co-here ecosystem development, additional tokens are provided to a Seed Fund for local social impact co-ops. The seed fund principal will not need to be repaid to the Seed Fund, but the principal must be spent in the Local Token economy, to recirculate inside the ecosystem and any interest due to staking or investing in the co-op will be returned to the Seed Fund.
Looking ahead to Stage 4 – localisation as decentralisation
Phasing out additional issuance for funding
The requirement for DAO funding through additional Local Token & Staking token issuance is planned for initialisation and adoption phase – to the end of stage 3 in the current roadmap. Upfront DAO staking through fund raising and issuance could be gradually replaced, as Local Token network adoption grows, has sufficient liquidity, earns a surplus in collateral interest and for fees above required for staking rewards. At which stage additional issuance of Local & Staking tokens can be phased out to eventually cease, with an agreed schedule for staking token supply contraction via staking token redemption.
Phasing out the Global Common Reserve
As the issuance of additional staking tokens for funding phases out, and Global Locality nodes gain sufficient liquidity in multi collateral reserves, the role of the Global Common Reserve can be phased out. The Global Locality nodes will be able to issue Local Tokens when collateral assets are deposited to the reserve and liquidate Local Tokens to refund collateral reserve assets. This process of the decentralisation of Local Token issuance and liquidation can continue to National, Regional / City and Village Locality nodes as they each gain reliable reputation and multi collateral reserve liquidity. The Co-here DAO will manage the decentralisation process and locality nodes upgrades.