Motivation
Below are the root causes that led to this project creation.
Pain points
1 Destructive Monetary Policy
Money is divided into two main categories: circulating (spending) and reserved (saving) supply. Governments often focus on increasing circulating supply to stimulate growth and increase tax revenue. During downturns, people save more and spend less. To combat stagnation, governments may use Quantitative Easing (QE) to inject money into the market.
However, Milton Friedman's quantity theory of money suggests this approach devalues the wealth of average individuals, leading to compounding debt that eventually exceeds the government's ability to repay. This flawed system creates opportunities for exploitation, as exemplified in George Soros's Black Wednesday event with the Bank of England. When designing immutable monetary policies, it is crucial to ensure neutrality. Instead of focusing on quantity, strategies to boost economic activity should prioritize enhancing the value within each unit of store of value to prevent devaluation and negative sum effects.
We believe that the choice to save or spend should remain private and entirely personal. Forcing spending by devaluing savings infringes on financial rights. An economic system should encourage spending through incentives and favorable conditions, not coercion.
2 Budget Deficit Fiscal Policy
Fiscal policy involves using government spending and tax policies to influence the economy. A budget deficit occurs when government expenses exceed revenues, often prompting measures like Quantitative Easing (QE) and interest rate adjustments through government bonds. These actions link fiscal and monetary policy, addressing budget deficits but potentially devaluing the currency and increasing national debt.
The critical question is: why does the government need to spend more than it has? While there are various reasons, the Owy project highlights one key issue: the government's spending and investment strategy is often suboptimal. Ideally, tax revenues should be invested with a non-negative return on investment (ROI) to foster growth. However, achieving a 100% success rate is unrealistic, leading to two essential questions/tasks to be addressed:
Decentralizing Tax Spending Decisions: Since taxes come from all economic participants, could tax spending decisions be decentralized to involve all taxpayers instead of leaving them solely to the government? This could result in a more comprehensive and thoughtful investment.
Proportional Distribution of Investment Values: How can we guarantee that the returns from these investments are distributed fairly among all participants?
Budget Balanced Fiscal Policy: It is mandatory to spend within the balance, and not initiate any debt to prevent inability to repay.
3 Inefficient Incentivization
We have seen the US government force spending by inflating the supply. Bitcoin (BTC) is another example of incentivizing miners through subsidy (token emission). This approach resembles government monetary policy, as it creates a new money supply.
Additionally, since Bitcoin blocks vary in transaction volume, using a fixed amount of subsidy per block to reward miners is inefficient due to inconsistent workloads. BTC’s purchasing power can sometimes struggle against inflationary pressures, making the value of savings heavily reliant on speculation without support from a stable economic incentivization program.
In essence, we need to design an incentive algorithm that promotes economic activities without devaluing individuals' savings and focuses on increasing the value of reserve supply (savings).
The first three pain points above are solved by structing a new economic model, which we call Inverse Economics.
4 Unscalable Taxation system/Transaction Cost
Comparing the costs of transferring digital cash to physical gold reveals differences in transportation costs. Transaction costs were made cheaper when the internet came. Then, Bitcoin introduced a dynamic transaction cost structure for digital transfers. However, the scalability in terms of practical improvement of this dynamic structure remains debatable, as the transaction costs may not decrease proportionally with Bitcoin's price or supply increases.
In traditional economies, taxes are often a percentage of income or product prices, but rates of 20%-30% or more can hinder long-term economic growth. Paying taxes means giving up personal resources, and it’s difficult to gauge how much people are willing to sacrifice. This is why many are moving from high-tax regions like Europe and the U.S. to countries with lower or no taxes. Thus, it’s crucial to consider taxation based on value rather than fixed percentages.
Transaction costs can be categorized as a tax if we define "tax" as any portion of value deducted from the transaction amount by the sender that is not transferred to the recipient. This deducted value may be transferred to third parties or simply disappear, but it is ultimately an amount taken away from the transaction value.
As an economy matures, transaction costs or individual tax amounts should ideally decrease. As the value within circulation grows, the revenue becomes sufficient to sustain economic growth and support public services, similar to the economies of scale in large companies like AWS cloud services. If implemented effectively, reducing the tax burden can encourage spending, stimulate economic activity and potentially increase overall tax revenue.
However, ensuring a fair and practical tax calculation methodology can be challenging, as demonstrated by Bitcoin's transaction costs. Additionally, if certain groups benefit from higher taxation and would be disadvantaged by cost reduction, we must balance the value flow to maintain fairness for all participants.
These challenges and our proposed solutions will be addressed in the Scalability section.
5 Lack of Value Control
This enhancement, enabled by programmable money, focuses on addressing future potential rather than current issues. While it is an uncommon question yet, it is crucial: "How do we extract value from our current stores of value (e.g., money)?" The Owy project tackles this principle of value extraction.
To illustrate, imagine two people holding the same amount of OWY tokens. Even with identical quantities, one person's tokens hold more value than the other's. This concept is similar to USD bills: despite being made from the same material, their value varies based on their denominations—1, 5, 10, 20, 50, and 100 USD. The difference in value lies not in the paper or printing but in what the denominations represent.
Similarly, with OWY tokens, we aim to integrate a mechanism where tokens can carry varying levels of value. The challenge is that OWY is a fungible token, meaning there are no distinct denominations like USD bills. Our goal is to embed a value differential within each OWY token itself to enhance the value they represent beyond just their quantity.
Another improvement is to allow individuals full control over their values, enabling them to separate these values from their actual stores of value for personal purposes. This must be done while preserving the fungibility property of the ERC-20 token, ensuring seamless integration with existing decentralized markets and protocols.
We will explore how this in the Value Control section.
Goals
Our goals are centered around creating a new economic model that maximizes the value of each unit of capital. We develop an efficient taxation system and equitable value distribution that can evolve over time. Economic activities are accelerated through a sustainable incentivization system rather than inflation-driven methods. Additionally, we seek to empower each owner with full control over their values, independent of their stores.
We aim for this project to be a living experiment, producing outcomes distinct from existing economies and asset types. Its influence and impact will be driven entirely by its participants. By engaging with this dynamic economic model, participants will actively shape its evolution and showcase its potential for developing more equitable and efficient economic structures.
Lastly, to elevate the meme coin space from mere humor to something creative and functional, we present this development through Owy, a fat owl of freedom.
Can a meme coin be functional? We'll see :)
Last updated
