Introduction

Morpheus is designed to foster the development of a peer-to-peer network, comprising personal general-purpose AIs capable of executing Smart Contracts on a user's behalf, termed Smart Agents. By offering open-source Smart Agents and LLMs that facilitate connections to users' wallets, decentralized applications, and smart contracts, Morpheus aims to democratize access to AI and the Web3 ecosystem for all users.

The architecture incorporates a user’s Web3 wallet for essential key management and to authenticate recommended transactions in interactions with the Smart Agent. It leverages a Large Language Model, which is trained on comprehensive Web3 data encompassing Blockchains, Wallets, Dapps, Decentralized Autonomous Organizations, and Smart Contracts, ensuring informed and secure operations within the network.

In this article we will analyze the token economics of the Morpheus network, looking into the tokens utility functions, distribution and emissions. Toward the end we will explain the launch of the MOR token and look at some potential launch prices for MOR.

Token Utility

The Morpheus network introduces the MOR token, which serves as a broad utility token for multiple functions within the smart agent protocol. Primarily, the MOR token acts as the base currency of the protocol, allowing users access to inference and rewarding the key shareholders in the ecosystem. We can analyze the utility of the token by shareholder:

Users

The Morpheus network, through the work provided by the various computer providers, can produce a maximum number of Lang Tokens (language tokens, similar to characters of text) per day. This maximum is constrained by the compute budget of the network. Each MOR token can access a pro-rata share of this compute budget per day and thus a pro-rata share of the number of Lang Tokens (LT) generated per day. In this way the MOR token finds utility in its ability to access the underlying decentralized computational power of the network. For example, if a user holds 10% of the circulating MOR tokens, that user has the authority to access 10% of the networks daily compute, allowing the user to generate 10% of the total output of the network that day (the output here being the number of Lang Tokens returned by the compute providers).

Users are also able to use the MOR token as currency in order to acquire access to specialized smart agents released by developers onto the smart agent protocol. They can also opt-in to selling their data in order for smart agents or LLM developers to train specific models.

Compute Provider

Compute providers are entities running full nodes that provide access to computation resources to allow users to access inference from models that cannot be handled locally. They typically will operate Graphical Processing Units (GPUs) either on-site, in the cloud or via decentralized DePin networks such as Akash or Render. Compute providers offer Inferences Per Second (IPS) bids through the Morpheus router. Essentially the compute providers allow users access to the outputs of computationally intensive models and in return they are rewarded with MOR tokens for each successful interaction with a user.

This mechanism is similar to the Proof of Work (PoW) consensus that the Bitcoin network runs on. Miners in the Bitcoin network are rewarded with a BTC block subsidy for each successful block they validate and build. Compute providers find utility in the MOR token in a couple of ways:

• Qualification - To qualify as a valid compute provider for the network and receive compute requests from the router, the compute provider's public address must hold MOR tokens. This is to dissuade Sybil attacks.

• Payment - Operating the infrastructure to facilitate compute requests is costly. GPU’s are expensive and they require a large supply of power to operate, on top of the Devops work that goes into successfully fulfilling requests. The MOR payment for compute therefore acts as revenue for the provider and enables the Morpheus compute network to dynamically service compute requests via the free market. For example, if demand for compute is low and the supply is high, the most inefficient providers may be operating at a loss and will leave the network until an equilibrium is reached. This dynamic also incentivises the most efficient compute providers to facilitate requests, since they are able to offer the lowest bids to the router (this could be through access to the long-tail of GPUs or cheap energy sources throughout the world). Simply, the software pays for the hardware.

Coder

Coders play a crucial role in the development and upkeep of the Morpheus network by contributing to the creation and maintenance of smart contracts, off-chain software, and the development of smart agents. Coders contribute to the Morpheus codebase and are rewarded with a pro-rata share of the coder MOR emissions (discussed later). For example, if a coder provides 10% of the total hours contributed to the codebase of Morpheus, that coder will receive 10% of the MOR emissions from the coder allocation. In this way the MOR token provides utility by incentivising open source contributors to build the software that allows the network to run smoothly, whilst also incentivising developers to create a flourishing ecosystem of smart agents for users to interact with on the protocol.

Coders are also able to use the MOR token as payment to access specific training data from users of the network in order to help train new LLMs or smart agents. For example, a coder could pay a user for their specific blockchain data in order to help train a DeFi smart agent.

Community

Community builders provide frontends and developer tools to the Morpheus network. Connecting to the Morpheus API, they create gateways for users to access inference. The contribution these community builders provide can be calculated as the pro-rata share of MOR transaction fees burned by each community builder. For example, if a community builder facilitates 10% of the output of the network each day and thus burns 10% of the fees, they will be entitled to 10% of the community allocation of MOR tokens for that day.

Capital

Capital providers provide staked Ethereum (stETH) to the Morpheus capital contribution pool. The yield generated from these stETH enables the protocol to create a robust liquidity pool for the MOR token via the Techno Capital Model (TCM), which we will explore in a later article. Capital providers receive a pro-rata share of MOR emissions from the capital provider allocation.

The TCM enables the bootstrapping of the Morpheus network in an extremely fair way. The mechanism through which Morpheus bootstraps liquidity is as follows:

1. Users contribute their stETH to the Capital contract

2. stETH tokens rebase once a day at 12PM UTC when the oracle reports changes in ETH2 deposits and changes in ETH rewards from users. This rebase is the yield from staking.

3. Whilst a user places stETH within the pool, their yield is used by the Morpheus protocol.

4. At a regular interval, 50% of this yield is swapped for MOR tokens via an AMM.

5. The other 50% of the yield (which is still in stETH) is then paired with the recently acquired MOR.

6. The MOR/stETH is then placed into the univ2 style as liquidity.

7. Fees generated from this liquidity position, in the form of stETH and MOR, will be reinvested into the pool.

8. The liquidity is then permanently locked through the burning of the LP tokens.

9. The pro-rata MOR rewards for capital providers is calculated per block. For example, if a provider makes up 10% of the pool for a day, they will receive 10% of the capital provider MOR allocation for the day.

Overtime, the capital provider's contribution to the network should serve to increase the on-chain liquidity of the protocol's token, benefiting all shareholders in the ecosystem. As the capital contribution of TVL grows, the daily amount of MOR bought back on the open market will increase. The free market will ultimately determine the TVL of this pool. For instance, should the Annual Percentage Rate (APR) for contributing stETH to this pool fall below the acceptable threshold for some participants, due to concerns over smart contract risks, they may choose to withdraw from the pool. This withdrawal would decrease the Total Value Locked (TVL), thereby elevating the yield, assuming all other factors remain constant.

MOR Token Distribution

The MOR token will be a fair-launch token, with a relatively simple distribution. Within the Morpheus ecosystem there are four key shareholders that contribute to the growth of the network and are thus rewarded, they are:

• Coders - The coders in the Morpheus network are the open source developers that create the smart contracts and off chain components that power Morpheus. They are also developers who build smart agents on top of Morpheus.

• Capital Providers -  The capital providers in the Morpheus network are the participants who commit their staked ETH (stETH) to the capital pool for use by the network.

• Compute Providers - The compute providers provide agnostic compute power, mainly in the form of GPUs.

• Community - The community allocation in the Morpheus network refers to shareholders who create frontends in order to interact with the Morpheus network and their smart agents. It also encompasses any users who provide tools or do work to bring users into the ecosystem.

The final component of the MOR token allocation is the protection fund, which serves to reimburse any victims in the event of losses through smart contract exploits or bugs.

The MOR token has a maximum supply of 42,000,000 tokens and is emitted daily in the following proportions:

• Coders - 24%

• Capital Providers - 24%

• Compute Providers - 24%

• Community - 24%

• Protection Funds - 4%

Emissions

On the 8th of February 2024 at 12pm UTC, the MOR protocol started emitting tokens. The block reward for the protocol started at 14,400 MOR per day. Each day the MOR reward declines by 2.468994701 MOR until the reward reaches 0 on day 5,833 (~16 years later).

The first day of emissions will therefore look like this:

Like both Bitcoin and Ethereum, the MOR token is a scarce digital resource with a decelerating inflation rate. However, unlike Bitcoin’s halvening, the rate at which MOR emissions decrease is linear:

The first 16 years of emissions will follow this schedule, until all 42 million MOR tokens have been emitted:

Burning MOR

The MOR token will have some burning features implemented, similar to Ethereum’s EIP-1559 mechanism. The full details of this haven’t been released yet.

Fees / Long term tokenomics

Long term the fees of the system should overtake the emissions and be the primary incentivisation mechanism of the system.

Tail Emissions

A key issue that is often referenced when analyzing the token economics of the Bitcoin network is the lack of a block subsidy or tail emission after the final block subsidy some time in 2140. In this not so distant future, the miners validating the Bitcoin network would start to operate at a loss if the revenue from transaction fees alone does not cover the cost of electricity and run costs. The resultant effect would be a mass migration or shutdown of hashrate on the network, greatly decreasing Bitcoins security.

The Morpheus network seeks to add in a tail emission, optimizing for a few goals:

1. Enable efficient compute providers, coders, community builders and capital providers to continue to operate in the event of less than expected revenue from fees paid.

2. To keep the MOR tokens scarce, never surpassing the maximum supply of 42 million tokens.

The tail emission phase will commence upon the completion of the initial token issuance period spanning 5,883 days. By this juncture, a total of 42 million MOR tokens will have been issued. However, it is important to note that the actual circulating supply of MOR will be less than 42 million due to the implementation of a token burning mechanism, which will effectively remove a portion of MOR from circulation.

The tail emission follows this 5,833 or 16 year epoch and applies 50% of the cumulative burned tokens in the previous epoch as the tail emission for the new 16 year period. However, this cumulative tail emission cannot exceed 16% of the total circulating MOR at that time. Through this approach, approximately 1% of the annual MOR rewards, relative to the circulating supply of MOR at that time, will be allocated to support future coders, compute resources, community initiatives, and capital investment in the network.

Let’s walk through a couple of examples:

If we assume the average burn rate of MOR in the first 16 years is 25%, then 10,500,000 MOR will have been burned, meaning of the 42 million MOR emitted only 31,500,000 are currently circulating. If we take 50% of the cumulative burn amount (10.5M / 2), we get 5,250,000 MOR tokens. However, since this amount of MOR is greater than 16% of the current circulating supply of MOR (5.25M / 31.5M = 16.67%), we set the tail emission to a flat 16% of the circulating MOR. In this case, that is 5,040,000 MOR tokens, creating a daily tail emission of ~863 MOR. This process perpetually repeats, following 5,833 day epochs.

We can generalize this approach to see the daily tail emissions that would result from different average burn rates, which will depend on network usage:

The burn rate and thus the tail emissions also has a pronounced effect on the number of MOR tokens in circulation through epoch epoch:

We can see that a high burn rate compounded over multiple epochs has a great influence on the number of MOR tokens in circulation:

Fair Launch

At the core of the Morpheus network is decentralization, open innovation and the fair launch of the MOR token. As such, the Morpheus network is undergoing a 90 day bootstrapping phase without taking capital from VCs in a private round or completing a pre-mine. The bootstrapping phase utilizes the TCM with a one time 90 day delay. During this initial 90 days, between Feb 8th - May 8th 2024, MOR tokens are not claimable / sendable by users, meaning these MOR rewards from code contributions, capital contributions and compute / community are accumulated.

Throughout this 90 day period the various Morpheus smart contracts are calculating each shareholders share of MOR rewards and on May 8th once the bootstrapping period is over and the compute / router contracts are expected to be online, MOR tokens will be claimable and sendable on the Arbitrum network. The Morpheus network opted for this bootstrapping period so that once the MOR token is live to trade, there isn’t an extreme scarcity issue that will be a detriment to price discovery. If we take a look at the launch of Zcash we can see why this phase is needed:

Zcash launched on October 29th 2016 with only a small fraction of the total supply available to trade. The resultant effect was eager buyers of this new technology entered Zcash on the launch day at wildly high fully diluted valuations, with some buyers purchasing the ZEC token for as much as $3,191 per token. It took the market almost 3 months post launch to reach an equilibrium price of ~$50 and establish rational price discovery. Early investors and notably all market analytics sites like Coingecko would show the ZEC token down ~99%, leading to many believing this to have been a failed project. The bootstrapping period enables the initial circulating supply to fulfill the various utility functions throughout the network.

At the beginning of day 91, a total of 1,286,111 MOR (3.06% of total supply) will have been emitted:

The capital provider allocation will be claimable to all users who participated and the coder allocation will be sent to each contributor's submitted address. Since the compute contracts (full node, contract and router) will not have been live during this bootstrapping phase, the compute allocation will be stored within the compute distribution contracts and will only be distributed based on factual compute provided. Likewise, the community allocation will be stored within the community distribution contracts.

AMM

The protection fund will have accumulated 50,482 MOR tokens during this bootstrapping phase and in order to submit a transaction to create the liquidity pool for MOR, the network will use these MOR tokens as a one time event. These 50,482 MOR tokens will be paired with all of the accumulated stETH from the capital contribution pool.

By analyzing the number of stETH within the capital contribution contract, we can get a rough approximation of the number of stETH the initial MOR tokens will be paired with in the AMM. We can therefore work out the launch price of MOR.

To work out the launch price of the MOR token we have to make a few assumptions / guess a few variables:

1. The average number of stETH within the capital contributor pool for the 90 day duration. This allows us to work out the stETH yield that will be paired with MOR at the token launch.

2. The ETH price. This will affect the dollar denominated price of MOR.

3. The stETH APY. The yield on stETH can change due to a variety of factors, however the most common deviation in rewards is due to variance in the base fee and MEV rewards.

With the assumptions made in the table above, we can see that when the Morpheus network bootstraps the MOR LP, they will pair ~874 wETH with 50,482 MOR from the protection fund. The liquidity will be a combination of full range and concentrated, with:

• 52% of the wETH and 50,482 being placed as full range liquidity.

• 48% of the wETH being placed as one-sided liquidity from range 0 to the initial listing price.

The results are the following:

In this scenario the initial launch price of MOR will be ~$27 and the MOR LP would be just under $4 million and growing each day as capital contributor yield is LP’d. We can sensitize the two main variables in this analysis (ETH price & capital contributor TVL) to work out the varying prices at which MOR may launch at:

Liquidity Pool

The TCM provides a small, consistent buyback of the MOR token before adding this MOR and stETH to the liquidity pool. As such, the LP is set to slowly grow over time. In the example below, we assume a steady state TVL in the capital contribution contract of 150,000 stETH (allowing for a decrease in TVL post the initial bootstrapping period), an stETH APY of 3.5% and and stETH price of $3000. In this scenario, ~14.38 stETH are earned each day as yield, with half of this buying back the MOR token.

The TCM model creates a way to fair launch projects without pre-sales, LBPs or pre-mines and enables on-chain liquidity to grow alongside the project. TCM has been widely successful and represents a viable way to fair-launch projects, opposing the supply-concentrated, VC funded projects we have seen of late.