Notices

1. Within the scope of this document the word “community” encompasses a wide spectrum of organizations with varying rules and governance structures, such as: fan clubs, guild in a game, small company, city, organised interplanetary coalitions etc.

2. The whitepaper employs the terms "tokens," "crypto tokens," and "currencies" interchangeably.

Abstract

hybridhive is a novel token platform/protocol that aims to solve the dilemma of choosing between multi-currency systems that drain value from the real economy, and single currency systems that lead to loss of sovereignty. It combines the advantages of single and multi-currency systems, providing local control, increasing liquidity, reducing risk and most importantly a severe decrease in transaction costs. It enables the creation of unlimited sub-communities with their own currencies, linked through "hives".

Powered by smart contracts, hybridhive empowers communities to create their own tokens and define their own rules within the community, while also enabling seamless connections with other tokens and community currencies.

In this whitepaper, we will provide a technical overview of hybridhive, explaining how our platform works, its key features, and the benefits it offers to the community. We will also discuss potential use cases, with a focus on the gaming sector as one of the many industries that can benefit from our platform. We are excited to share our vision of a decentralized, community-driven token economy.

Motivation

The invention of cryptocurrency was initially done to address some issues that traditional currencies have, such as centralised control and the potential for fraud or counterfeiting. As a result crypto simplified the process of custom money creation, but the crypto currencies inherited financial concepts from the traditional finance world and are becoming more and more co-opted over time.

As a complex network of interconnected subnetworks that operate with various currencies, the financial system poses challenges for both crypto tokens and currencies. It is a mix of multi and single currency systems on different layers. For example, while multiple currencies are used in international trading, the trading operations inside the countries are usually kept in one currency.

A single currency system has many advantages, including lower transaction costs and decreased risk. Using someone else's currency means sacrificing sovereignty. Different parties, including the currency issuer, have distinct interests, making it impossible to perfectly fulfil one's own interests. Consequently, this creates disadvantages and frequent conflicts between different currency systems and issuers. This can incentivize agents in the global trading system to develop their own currencies. The challenge for the solution described in the paper addresses the basic function of money, and the proposed solution attempts to overcome existing forms of money in terms of Medium of Exchange, Store of Value and Redistribution function.

Introduction

Overview of the current system and goals of the project

Traditionally the functions of money can generally be categorised into three main aspects:

• Store of Value

• Unit of Account (as a measurement tool)

• Medium of Exchange

Currency is one of the possible and most popular forms of money, it is typically issued and regulated by governments or central banks. In addition to the functions of money, currencies usually have an important extra function of value or wealth redistribution. This means that governments and central banks can use monetary policies, such as taxation, government deficit spending, interest rate adjustments, and other measures, to influence the distribution of wealth and income in an economy. Currency, in this context, can be used as a tool for implementing these redistribution policies to achieve specific economic and social objectives as determined by the issuing authority[1]. On the more abstract layer any token or currency empowers an entity which controls it’s emission and distribution.

The advent of cryptocurrencies represents a significant advancement over traditional currencies, as their technical framework offers numerous benefits, such as: decentralisation, transparency, high accessibility etc. However, crypto assets inherit much of the architecture of existing financial systems and face similar issues.

In multi-currency systems, different currencies and tokens can coexist, tailored to specific use cases or markets. That said, the multicurrency financial system, especially in the context of cryptocurrencies, may face several issues, including: exchange fees, lack of liquidity.

Exchange fees are common in both traditional and cryptocurrency markets. In traditional financial systems, fees are usually charged during currency conversion. High exchange fees can impact the cost-effectiveness of transactions and reduce liquidity. Liquidity also can be an issue in both traditional and cryptocurrency markets. In traditional financial systems, certain currencies or currency pairs may have lower liquidity, resulting in increased volatility, price slippage, and reduced trading opportunities. This can impact transaction costs and market efficiency.

While in single currency systems some of the issues to exchange fees and lack of liquidity may not be applicable. Similarly, liquidity issues related to currency pairs would not be relevant in single currency systems, as there would be only one currency in use.

The idea of a single currency world may not be feasible due to several reasons. Firstly, currencies and tokens serve different purposes and are designed for different use cases. While a single global currency may offer simplicity and convenience, it may not adequately cater to the diverse needs and requirements of different regions, economies, and communities. Secondly, as it was previously mentioned, the single currency system significantly empowers an entity which controls it.

The objective of this project is to establish the Hybrid token platform, which aims to combine the advantages of both single and multi-currencies. This integration seeks to prevent the loss of sovereignty that occurs with single currencies while empowering communities across its network of different currencies. Additionally, the platform addresses challenges such as exchange fees, transaction costs, and the lack of liquidity in multi-currency systems.

Political agnosticism

There are numerous currencies with different architectures. From a monetary perspective, it is essential to understand how money is managed and which entities have privileged roles in the system in terms of redistributing units of accounts. Therefore, it makes sense to skip technical details such as the form of money (banknotes or a list of account balances in a specific centralized or decentralized database, etc.). Money acts as a gear oil for financial mechanisms and the economic system, and as such, it may imply certain political ideas and/or serve specific needs. The design of money can incentivize or disincentivize certain behaviors. For example, inflationary money incentivizes agents in the system to spend or invest it, whereas deflationary money or money with a limited supply incentivizes them to store as much as possible and minimize economic interactions.

There is an ongoing debate on what the best money architecture is, but the underlying idea of the hybridhive system is to allow for a wide range of money architectures to be implemented and co-exist. The only restriction is to match the same technical interface to ensure interchangeability while allowing for arbitrary logic in terms of value redistribution and governance.

The hybridhive platform operates on socio-economic evolution and remains politically neutral. It is designed to allow for the most efficient approach and governance design to thrive. For instance, while democratic values are commonly shared, a centralized currency system may be the most economically efficient, or conversely, a more distributed system could prove more efficient. Furthermore, the most efficient economic model may change over time and depend on various factors such as information sharing, technology level, and human evolution. The creators of the hybridhive platform hope to offer a diverse range of monetary systems and accommodate multiple economic models.

Limitations of cryptocurrencies

Cryptocurrencies, such as Bitcoin, have emerged as a response to the typical monetary system that relies on an empowered institution that is eligible for redistribution of money through monetary policies, budget spending, etc. From a monetary perspective, Bitcoin was a limited supply type of currency that rewards agents according to the amount of resources spent to support the system. Such a system is not flexible from a monetary perspective due to the inability of resource redistribution and supply limitations. From a monetary perspective, it resembles gold, but even gold is not typically traded directly but rather through banknotes and different forms of liabilities, which inevitably leads to a greater circulation of gold obligations than the amount of gold that backs them. It is not necessarily an inefficient system, but it does have a variety of known limitations and drawbacks.

The emergence of Ethereum and other decentralized systems with the ability to execute a Turing-complete set of commands was an important step. This is because the monetary ideas implied at the first level, such as the rules of new ETH redistributions, do not play such a huge role anymore. This is because anyone is able to create and design tons of different moneys with custom rules themselves. Ethereum significantly simplified the ability to create custom money in the form of crypto tokens.

The next generation blockchain systems were more focused on technical problems such as system transaction bandwidth, the cost of writing to storage, and the cost of transactions. However, the idea presented in this paper seeks to diverge from the trend of creating new types of tokens or currencies. Instead, it aims to challenge the conventional monetary architecture by shifting the focus from technical competition among different blockchains to the monetary issues that exist globally, even outside the realm of cryptocurrency.

Potential global economy impact

The complex financial system involves many countries with their own currencies, central banks, and regulatory bodies. Currencies are traded on exchanges and can be exchanged for other assets. The idea of exchange is the core concept which compounds this different money and makes them interchangeable. Exchange is recognized as an inevitable mechanism which emerges in multicurrency systems.

High exchange fees in multi-token, multi-currency systems are a prevalent issue in the cryptocurrency market. This problem directly results in increased transaction costs, which can significantly impact the efficiency and effectiveness of these systems. Centralised exchanges usually charge around 0.1%, and decentralised ones like UniSwap charge about 0.3% (besides transaction costs, state May 2023). On second May the cryptocurrency trading volume was around 34.7b USD in 24 hours[2], which resulted in 34,7 million USD as trading fees daily (excluding Gas fees).

The situation is even more dramatic with the fiat currencies. A decentralized global market where currencies are traded between various participants, including financial institutions, corporations, governments, and individual investors is called foreign exchange market (also known as forex or FX market). This market is made up of a distributed set of institutions and organizations that are responsible for facilitating currency trading. These institutions and organizations include banks, brokerages, exchanges, and other financial intermediaries.

The distribution of information in the foreign exchange market can be challenging to aggregate effectively. According to the Bank for International Settlements, the daily trading volume in the OTC FX markets reached $7.5 trillion in April 2022, with 88% of transactions executed at market prices[3]. While the bottom level spread in the FX market is typically 1 pip (0.01%) for most trading pairs, the actual spread is much wider due to the prevalence of low liquidity pairs. This is resulting in at least 660 million USD of exchange fees per day. However, most individuals do not have direct access to the FX market, and therefore must rely on the services of brokers or other intermediaries, which incurs additional costs. Moreover, the average bank client, whether a private individual or business, typically accesses currency conversion services based on the bank's internal currency conversion rates, which often have a spread of around 1% or higher (e.g. in US average bank currency conversion spread is 2.5% for businesses and 3.5% for individuals)[4]. As a result, the actual cost of trading in the FX market can be much higher than the apparent spread of 1 pip.

As it was previously shown, a huge amount of money is redistributed through the currency exchange operations on the global exchange market, this results in huge aggregated losses for the businesses.

A potential solution to address the issue of high transaction costs in multi-currency systems is to adopt a single currency. However, while this approach may offer benefits such as lower transaction costs, it may result in the loss of sovereignty for many market agents. Governments have been critical of the US dollar as a universal trading or reserve currency, not due to the benefits of having a single currency for trade, but because of the concentration of power held by the currency's controller. They fear that this concentration of power may lead to economic and political instability in the international financial system. Therefore, it is crucial to consider the potential drawbacks of adopting a single currency and strive to strike a balance between the benefits and the associated costs. This creates a seemingly unsolvable dilemma, where multicurrency systems drain value from the real economy, and a single currency leads to loss of sovereignty. In this paper, we aim to address this dilemma and propose a potential solution.

Protocol Design

Entities of the system

Agent - is an entity which may interact with the system. The agent has an ability to trigger or initiate such events:

• create community token,

• transfer community token inside the community,

• commit community token actions according to the logic of the operator:

  • join the community,

  • exit the community,

  • mint community tokens,

  • burn community tokens,

  • initiate accepting someone to community,

  • initiate removing someone from community.

• commit global transfer across the community network.

Community Token - is an entity that can be created by anyone to represent the value linked to a community's members. The token is associated with a specific operator who manages its issuance and distribution. Community tokens can only be transferred to members of the community, although the operator may be designed to automatically accept accounts that receive their first community tokens.

Operator - is the entity which defines the rules for accepting new members, redistributing value, and managing the overall operations of a community. It acts as a governance mechanism for the community and determines how the community token can be connected and interacted with other community tokens. The operator should match the designed interface but the underlying logic of the operator may be different.

Community token aggregator - is an entity that consolidates multiple community tokens or other token aggregators. It represents the combined value of several communities and can be linked with other aggregator tokens to create a hierarchical structure. This enables communities to connect and collectively own global token shares, based on the rules established by the Operator associated with the community token aggregator.

Global transfer - is an action of transferring value from one community to another which are both connected through the community token aggregator.

Underlying smart contract logic related to global transfer::

1. Calculate the global share of there tokens which should be transferred to another community

2. Burn the transferred amount from the sender

3. Burn iteratively the respective share from the parent community token aggregators up to the root community token aggregator.

4. Mint tokens iteratively according to the global share in all the parent community token aggregators down to the recipient community token.

5. Mint recipient community tokens according to the global share.

When discussing money, we tend to think in terms of absolute values that do not represent the global share. However, the system proposed in this paper makes it easier to account for money by calculating the global shares of the community tokens network. This is because using percentages avoids redundant calculations at the system logic level, which can lead to a loss of precision during calculations. With this system, it is easier to think of asset representation as a share of some network value, such as "I own 0.3% of the value in this community".

In summary, the system involves different roles and elements such as Agents, Community Tokens, Operators, and Community Token Aggregators, which work together to enable token creation, redistribution, and interconnectedness among communities while following predefined rules and governance mechanisms.

Internal community logic

Any community on the platform can be represented by a list of members and their corresponding value shares, along with a set of rules and procedures defined by the Operator's logic for managing and redistributing these shares. The Operator's logic can take many forms, such as empowering a single user to redistribute shares at their discretion, implementing a voting procedure to ensure fair decision-making, or automatically redistributing shares according to predetermined rules over time.

Community aggregator

The communities might be connected with a community aggregator, the community aggregator might be created by anyone and has it’s own governance logic defined in the Aggregated Community Operator. Aggregated Community Operators define the rules on how to redistribute shares of included communities, accept, invite or remove other communities.

The example provided by the above scheme shows that both Community 1 and Community 2 do not have a direct impact on the global value shares. However, they can redistribute the shares among their respective members within each community. The only way to have a direct impact on the global shares from one of the aggregated communities is by transferring a value share to another aggregated community. These transfers are known as Global transfers.

Global transfer

The algorithm on how global transfer works may be non-intuitive. First we should remember that the global transfers are only possible among connected communities, also the schema misses some important entities, like community token operator and community token aggregator operator and only one member from each community was highlighted.

The following illustration depicts the mechanism of global transfers, which involve the movement of a global share from one community to another. Such transfers have an impact on the relative internal shares of both the recipient and sender communities, as the action of the transfer burns the share from the sender's community and mints it in the recipient's community. Consequently, the transaction leads to a redistribution of the community shares. When the economic interactions between communities are stable, the shares tend to stabilise at a particular level over time, regardless of the initial global shares of both communities. This reduces significant share fluctuations in the long run.

The prototype of the platform is implemented as a set of Solidity smart contracts for the Ethereum Virtual Machine (or compatible alternative). However the logic of the system may be implemented utilizing any Turing-complete language. The smart contract system is currently under development.

Use Cases and Applications

The proposed system has the potential to serve as a versatile platform with numerous applications. It could be implemented in gaming communities, online marketplaces, social networks, or any other context where different groups may want to connect and transfer value among themselves.

Previously, we focused on the potential of the idea within the context of current economic connections and interactions. However, this idea has the potential to be much more than just a solution for the existing economic landscape. Its versatility as a multipurpose platform means that it could pave the way for the creation of entirely new economies and products that were previously unimaginable.

Gaming

The concept of connecting different gaming communities through a shared token system is intriguing and has the potential to revolutionise the gaming industry. This approach could foster greater collaboration and interoperability among games, creating a unified ecosystem where players can exchange tokens and assets across different games. Particularly for indie games, which often face challenges in terms of visibility and monetization

The system offers flexibility and interoperability, allowing indie game developers to create unique tokens for their games and define rules for token redistribution within their gaming communities. This can incentivize fan engagement by rewarding players with tokens that can be used in-game or exchanged for other game-related assets, fostering a sense of community, loyalty, and ownership among players. Global transfers of tokens can also enable cross-game rewards, further incentivizing engagement across the network of games.

The system's community governance feature empowers the gaming community to collectively decide on token rules and redistributions. This participatory environment can lead to a more engaged and loyal player base, as players feel invested in the success of the network of games and have a voice in its operations.

Loyalty network

One reason why the proposed system could be reasonable for loyalty programs or loyalty networks is that it provides a flexible and customizable way for companies, stores to create their own tokens and define their own rules for token redistribution. This allows for a high level of customization and adaptability to the specific needs and preferences of different loyalty programs or networks. For example, different loyalty programs or networks may have different rules for earning and redeeming tokens, and this system can accommodate those varying requirements.

Furthermore, the ability to connect tokens of different groups and transfer tokens globally among connected communities allows for interoperability and exchangeability of tokens, which can enhance the value and utility of the loyalty tokens. This can enable users to earn tokens from one loyalty program or network and use them in another, creating a seamless and interconnected loyalty ecosystem.

Additionally, the system allows for the redistribution of global shares according to aggregated community rules, which can provide a fair and transparent mechanism for adjusting token ownership and value distribution among different groups. This can help foster trust and cooperation among participating communities, as well as incentivize active participation and engagement within the loyalty programs or networks.

Fan/social tokens

Fan tokens can incentivize fan engagement, create a sense of community, and foster fan loyalty. The system's interoperability and exchangeability features enable fans to earn and potentially use tokens across different fan communities, enhancing the overall fan experience. The representation of ownership through global shares of connected tokens can create a sense of value and ownership for fans, while the redistributions of global shares based on aggregated community rules can provide a fair mechanism for value distribution. Community governance allows creators and fans to collectively decide on token rules and redistributions, fostering a participatory environment.

Problems/issues

Precise losses

The current alpha version implementation faces some precision losses during the global transfers due to the calculation logic which involves multiple iterations of multiplying and divisioning operations of both small and big numbers. We are working to address this issue, and currently developing the necessary system of warnings on the frontend to make all incidents to be more expected for the early adopters. More detailed description is to be finalised and published after the research.

Gas expenses

The hybridhive project is facing high Gas costs especially during the global transfers, which makes it unsuitable as a final production and ready-made solution. However, it is being used as a demo to showcase the idea. The project is not concentrating on improving the existing EVM, its alternatives, or developing more efficient decentralized VMs. Instead, it is focused on creating a new platform for value management that can overcome the limitations of the current systems. The team is exploring various options and technologies to achieve this goal. It is also worth mentioning that we are working on the optimization on the smart contract level to minimise the Gas costs during the interactions with the system.

Roadmap

Smart contracts for EVM (Q2 2023)

After the MVP the first milestone is to finalise Solidity smart contracts for EVM chains and cover it with the unit tests, also focus on the Gas costs optimization. Define the appropriate blockchain to land the alpha version of the system in terms of the technical limitations and costs.

User interface (Q3 2023)

Develop a user interface which allows users to interact with the system. It includes both development of the custom web interface and a plugin for well known apps like wallets. The app for the plugin is to be selected later according to the addoptions and amount of users. Most probably it would be a popular crypto currency wallet which allows creation of the plugins.

Blockchain agnostic (Q4 2023)

After the early adoption it is planned to write smart contracts for popular non EVM blockchains to utilize some potential benefits such as cheap transactions and involve a broader community. Research the possibility of utilising bridge solutions for the proposed platform to enable reliable interchain communications.

Conclusion

The described HybridHive platform opens the space for future research, products and applications. The platform is developing as an opensource solution to the modern issues of the monetary multi-currency architecture. The successful implementation and wide usage of the system based on the proposed idea may enable new ways of creating and exchanging value, which can lead to increased innovation, collaboration, and prosperity.

References

[1] Matthias Doepke and Martin Schneider, Inflation and the Redistribution of Nominal Wealth, https://www.journals.uchicago.edu/doi/epdf/10.1086/508379, 2006.
[2] The total crypto market volume over the last 24 hours, https://coinmarketcap.com/, 03 May, 2023.
[3] Bank for International Settlements, OTC foreign exchange turnover in April 2022, https://www.bis.org/statistics/rpfx22_fx.htm, 2022.
[4] Darryl Hood and Andrew Howlett, Currency Conversion and the Hidden Costs of Global Trade, https://payments.corpay.com/resources/whitepapers/currency-conversion-and-the-hidden-costs-of-global-trade, 2023.

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