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Later, JR proposed adding deflationary mechanics to Mastercoins, penning a blog post called "Mastercoin is for Burning"
blog.omni.foundation/2014/06…
You probably recognize this from MKR, which relies on a similar dynamic. In theory, the protocol generates revenue and uses that to buy up and burn part of the remaining stock of tokens, enriching all holders
Unfortunately, the proposed decentralized exchange was a failure. A primitive version launched but didn't see adoption due to its very cumbersome nature and requirement of multiple on-chain transactions for an exchange to occur
In 2016, Bitcoin also adopted some changes which were hostile to Mastercoin (rebranded as Omni by then). In particular: making multisig for Omni (and Counterparty) nonstandard. Building on Bitcoin is hard.
For this and other reasons, the ecosystem of financial instruments built on top of Mastercoin that JR envisioned in the white paper never came to exist. It was used to solve an obvious pain point and nothing more: create wrapped assets and move them around permissionlessly
Today, the Omni team considers the native token a 'utility token', although it's not required for use in the core functionalities of the wallet - asset creation or sending wrapped assets
teddit.net/r/omni/comments/7…
The Mastercoin _protocol_ ended up being widely used (for assets like Maidsafe and Tether), but the value extraction failed, since there wasn't any 'protocol revenue' to speak of, and the Mastercoin "ecosystem" failed to materialize
Tether, and by extension Omni, did generate significant value for one entity, however: Bitfinex. By creating tokenized 'eurodollars' based on deposits in banks in Puerto Rico/the Caymans, Finex gave traders the ability to take USD-denominated risk on the exchange and on chain
Tether became a rails between traders & exchanges that weren't integrated into the US banking system, allowing funds to flow freely. Despite the drama & reputational overhead incurred by Tether, finex kept it going, since it granted them liquidity which wasn't otherwise available
Mastercoin was a runaway success and mediates hundreds of millions of $ worth of transactional value each day, seven years on from inception. It likely created 8–9 figures worth of value for Bitfinex. Yet the token is abandoned and essentially worthless.
Mar 31, 2019 · 10:26 PM UTC
What else should we take from this story? Your token's bold new value capture mechanic has probably been tried before, and it probably failed in that context. Why is this time different?
It's all well and good to try to value a cash flow that your protocol spits off, but how sustainable is that cash flow? How defensible? Will the system actually persist and be able to collect rent?
Most new protocols won't ever achieve Mastercoin levels of success (100s of B of $ transmitted, multi B $ worth of assets created), and will fail for that reason. But as a cautionary tale, it should be terrifying to popular projects: it did well but its token is still worthless.
This is why it's common to say that blockchains are margin destroyers. By dis-intermediating, they obviate the need for traditional business models. Of course, they also expand the design space and enable new business models (like that of Bitfinex)
But on balance, new open source protocols which make financial transactions less frictional don't pair well with value extraction. This is what every ICO is slowly learning, that building value capture into the token is punishingly difficult
Mastercoin introduced the notion of asset issuance using arbitrary data insertion in Bitcoin transactions - that concept caught on (and was part of the inspiration for ERC20s). The innovation was welcomed and the token was discarded. This will be the fate for most innovative ICOs
Other reasons for its failure include treasury mismanagement, leadership getting distracted with other token launches, and significant churn in top leadership. All related to the poor alignment that tokens grant you (founders can just sell and exit)
This is a very incomplete history, and all mistakes are my own. Please add corrections if you spot them. There are many other stories and subplots. I haven't even delved into the leadership change and governance crises which deserve a fuller look
