Historical Analysis: ESB Token Dynamics

Token Valuation and Income Tied to Commodity Money

Historically, the valuation of the ESB token was closely tied to breeders boxes sales. At first glance, this might seem like a straightforward mechanism. However, when we delve deeper into economic theories, this model bears striking resemblance to the Commodity Money system. In such a system, the value of the currency (or token, in our case) is directly pegged to a physical commodity. For ancient economies, this commodity was often gold or silver. For Breeders Zone, from the inception of the game, the primary revenue generation method was envisioned as the continuous sale of space ships. Breeders earnings primarily came from the initial NFT drops.

The immediate advantage of such a system is that the currency has an intrinsic value. For ESB, this meant that as long as breeders boxes had value within the Breeders Zone ecosystem, the token had a clear, tangible value. The breeders box was conceptualized as an economic tool to be sold in ESB. An oracle was set up to constantly adjust the selling price to maintain a stable dollar price. All collected funds were earmarked for burning to control inflation. However, when the currency plummeted, the fixed supply of breeders box was no longer appealing, leading to decreased purchases.

This presented an issue: the main asset (space ships NFTs) for revenue generation had its profits burned to deflate the token, which lacked other utilities or governance functions. Such systems can introduce significant volatility. If, for any reason, the demand for breeders boxes declined (similar to how gold demand might wane due to external factors), the value of the ESB token would be directly impacted. This creates an environment susceptible to sharp fluctuations, making it challenging to maintain consistent token value.

Inflationary Pressures and the Quantity Theory of Money

The ESB's inflationary trajectory is a pivotal aspect of its historical dynamics, deeply influenced by its dual staking mechanisms: NFT staking and token staking. This combination, recognized as one of the pioneering non-custodial NFT staking systems on the WAX network, offered high APY returns.

NFT Staking: In this innovative approach, users stake their non-fungible tokens (NFTs) to earn rewards. The uniqueness of each NFT, with its distinct attributes and value, dictates the rewards it generates. This means that rewards can vary significantly between two NFTs, even if they're from the same project or series. The potential for high returns, especially for rare or valuable NFTs, makes this form of staking particularly enticing. Recognizing the potential inflationary pressures, the Breeders Zone team introduced staking rewards halvings specifically for NFT staking. This mechanism reduced the rewards over time, aiming to balance incentives with sustainable economic growth.

Token Staking: This more traditional mechanism allows users to lock up a portion of their tokens, earning rewards in the form of newly minted tokens or other incentives. While token staking can theoretically reduce the circulating supply, providing an upward pressure on the token price, it can also introduce inflationary pressures if not calibrated correctly.

It's crucial to note that the only way to mint new tokens from the contract has always been through staking. Importantly, no amount has ever been allocated to the project developers. They have participated in the economy on the same terms as any other user, ensuring a level playing field and demonstrating a commitment to fairness and transparency.

The allure of such high APY returns from both staking mechanisms, even with the NFT staking reward halvings in place, encouraged a significant portion of the community to stake their assets. This led to an increase in the token supply. When more tokens and NFT rewards enter circulation without a corresponding rise in demand or utility, inflationary pressures naturally mount.

The underlying principle here aligns with the Quantity Theory of Money, suggesting that when the money supply (in this case, ESB tokens) grows faster than its utility or demand, the value of each unit tends to decrease. For Breeders Zone, the utility and demand for ESB tokens were largely tied to their role within the ecosystem. Thus, as more tokens were minted due to attractive staking rewards, their individual purchasing power diminished. This was further complicated when a halving event was introduced for NFT staking, but not for ESB, skewing the balance even more.

Market conditions within the Breeders Zone ecosystem further intensified these inflationary pressures. The economic environment often oscillated between inflationary and deflationary states, making it a challenging landscape for token valuation and stability.