Holochain Forum

Question on Holofuel price stability

Hi all, I posted an introduction here… Welcome! Introduce Yourself - Start Here - Holochain Forum

I’ve been diving into HOLO this weekend (newbie alert!) and if you read my intro you’ll see I have no interest in price going up. So please don’t misunderstand where I’m coming from. I am however interested in Holofuel’s price stability, and not as some “stablecoin” tethered to some or other concept of fiat.

Is my understanding so far of HOLO hosting and Holofuel correct?

  • Not every hApp needs Holofuel, unless it wants to publicly expose itself via browser etc., where it would need to be hosted on the Holochain.

  • Hosts charge hApps in Holofuel for hosting (1% transaction fee)

  • Depending on the market price of Holofuel (e.g. HF:USD), this will mean more or less HF will need to be bought with USD to cover hosting

  • The greater the hosting demand from hApps, the higher the HF market price will go (ignoring speculative FOMO etc. for now)

  • However, the more hosts providing 24x7 computing power (CPU, bandwidth, memory), the lower the HF market price will go i.e. hosts will likely sell HF for USD to pay operating costs etc.

  • I understand the HOLO “mutual credit” model (from what I’ve read) to essentially be a simple long:short position.

  • So hosts that are KYC’d etc. can establish credit limits to go short HF i.e. they can sell HF for USD (have a -ve HF position), which is redeemed with +ve HF when hApps pay them. This is great for working capital etc. and I’m assuming is a free credit line i.e. no interest on the short loan from HOLO central?

  • In this way HOLO central can transfer its short position for all HF created to its hosts, which is then cancelled as the HF payments come in.

  • So the “monetary inflation / new HF creation” in this system is basically when new hosts come online to service demand?

  • So the market price remains relatively stable in the interim, because hosts are selling HF, whilst hApps are buying it? Speculative frenzy aside of course…

  • This provides a very neat “Proof of Hosting” model.

If my understanding above is correct, it is very close to my preferred “Proof of Production” model for monetary creation, which essentially eliminates inflation. I understand that Art Brock has already expressed a desire to limit Holofuel to its core purpose, which I fully respect and understand.

But I trust you will realise that this model can also be so much more useful if taken further, and can solve so many problems in our current crazed consumer, capitalist world. :sunglasses: I suspect you might already know that though…

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Great to see you managed to get past the error message blocking you from joining the forum! :blush:

According to what I know of Holofuel, every one of your bullet points is accurate.

I think the main thing that might be missing from your knowledge (and also mine) are the details in the design of Holofuel that might make it less than ideal for applying to ALL other situations, like using Holofuel to prove productive capacity to grow good, provide electricity, housing, transportation, etc.

The main thing that I’m benefiting from in engaging with you is reflecting a bit deeper on this idea of the floating exchange rate risk that becomes an issue when dealing with multiple currencies. The basic concept had kinda sorta occurred to me before, but I haven’t thought about it as deeply before.

(Context for other readers follows, copy-pasted from our conversation from before)

ruffashlar, [16.05.21 10:36]
[In reply to Brooks Community Volunteer]
The problem with multiple currencies is the floating exchange rate risk… So if I’m an investor in China and I want to invest in a regenerative farming community in the US, I can fund them with USD and receive holofuel (call it HOT for now) from the community in return (so short USD, long HOT), whilst the community is long USD, short HOT. Then they sell their products locally for HOT, thus bringing their short position back to zero. While the investor in China can meanwhile use her HOT to purchase goods and services, or hoard, or gift it etc. If we break all these transactions up into separate currencies, how do we ensure the floating price risk doesn’t wipe us out?

Brooks Community Volunteer, [16.05.21 10:41]
[In reply to ruffashlar]
Hmm, I don’t think I have the depth of understanding necessary to fully grasp this floating price risk issue.

Let’s just say for simplicity there are two Holochain currencies in existence instead of just Holofuel. In the example you describe, instead of HF (let’s say HF instead of HOT to avoid confusion with the ERC-20 token) the currency being used here would be a a food-backed currency. How does that increase floating price risk?

I’m kind of trying to ELI5 to myself in my head here… so basically with different currencies, then you have exchange rates between them that fluctuate. So if the Chinese investor than wanted to use that food-currency to pay for hosting, for instance, then they would need to exchange for HF, which depending on the rate change between when they made the investment and then needed to pay for hosting, could end up leading to a loss for them simply due to changes in the exchange rate?

ruffashlar, [16.05.21 10:51]
[In reply to Brooks Community Volunteer]
So, the Chinese investor / consumer wants to own HF, because let’s assume they can buy stuff locally with it, pay for hosting etc. They can of course buy it from an exchange at the going rate but they may also agree to loan USD over the counter (OTC, or off-exchange) with a regenerative community in the USA. So Chinese investor is now long HF, short USD. The regenerative community is short HF, long USD - which they use to start their business. Now, if the farming community sells their produce in some food backed currency e.g. FOOD, they will run HF vs. FOOD price risk. if they sold their produce in HF then there’s no problem, because as the exchange rate value of HF rises, their ability to repay their short position (i.e. their loan) is not affected.

Brooks Community Volunteer, [16.05.21 10:53]
[In reply to ruffashlar]
Right so I think we’re basically saying the same thing except my ELI5 to myself was looking at the Chinese investor instead of the food community (seems to me the food community would by default be going short FOOD and long USD, since that’s the specific use-case of the FOOD currency)

I’m wondering if this is really the intended use-case for asset-backed mutual credit, in terms of how FOOD and HF might exist in the real world. Let’s say instead of a Chinese investor, are any investor, maybe the vision is for people to simply use the different currencies for the purposes for which they are designed, not so much to go “long/short” in the investment sense, but to offer what they have and request what they need.

So if you are offering hosting, you can go into negative HF to buy FOOD currency to feed yourself, and to buy SPARK to pay your electricity bill, etc. You don’t concern yourself too much about floating exchange rate risk, because you just want to be fed and keep the lights on, and you know that the floating exchange rate is just part of the reality of proof-of-productive-capacity currencies. What do you think?

One question comes into mind, if some hApp providers and hosts agree to accept payments in USD instead of HF for hosting, just to avoid 1% transaction fees, then how price stability will be maintained? If the host invoices for the service he provided so far, it will show negative though he already received the payment in USD by other means.

I’m not following you Premjeet. How can an hApp avoid transaction fees? Hosts are unlikely to provide free hosting, at least not long-term.

But yes, if a host receives payment in USD and has already sold HF short for USD i.e. host has a -ve HF balance, then to my mind the host must use their +ve USD balance to buy back their short HF balance. Thus, balance is restored. If the hosts chooses to bill in USD rather than HF then they are exposing themselves to USD:HF price risk, which is probably not the wisest thing to do with your primary income stream.

Indeed Brooks, there’s no problem with having multiple asset-backed currencies. The only reason to try and have less currencies is for simplicity sake. If you extrapolate multiple currencies to the very extreme edge you will end up with a form of barter e.g. you might have a CAR currency and a FOOD currency. So the FOOD:CAR exchange rate might fluctuate around 1000:1 etc. It does raise some interesting mental gymnastics. Imagine going even further and having a TESLA currency and a CARROT currency… Reductio ad absurdum :blush:

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To my understanding, it wouldn’t be possible to accept anything other than HoloFuel for hosting. Hosting of Holochain apps happens through the HoloFuel app. HoloFuel itself is a unit of account currency, not a token-based one. HF is measuring the CPU cycles, storage, and bandwidth required for hosting. Each HF transaction is cryptographically signed by both parties, and is linked to the entry in the source chain of the hosted user. If someone attempts to pay with anything other than HoloFuel, the transaction would fail validation when it is gossiped to other nodes using the HoloFuel app.

Every node in the HoloFuel app possesses the validation rules, and can flag an invalid entry when they receive it. The app’s code itself is hashed, and used as the address for the HoloFuel DHT. If a node modifies their code, they’re effectively in a different network entirely.

Also, consider this: many of the transactions happening over Holo are going to be tiny. A tweet, for example, might cost less than a cent. Visa (or other electronic transfer methods) transaction fees cost more than this. It doesn’t make sense to have a hosting service where the fee is greater than the amount being transferred itself. In addition, Visa doesn’t have a high enough transactions-per-second rate to facilitate distributed web hosting globally.

Of course, Holochain itself is free and open-source. Nothing is stopping someone from creating their own hosting infrastructure running Holochain apps that are paid for with national fiat currencies. But this would require replicating many of the centralized parts Holo is already building, such as domain name resolution, hosts’ performance gauging, and matching hosts with agents. Then apps and users would need to migrate to this new infrastructure, doing the same thing, only with a less-optimized currency.

1% is very reasonable for microtransactions. Note that half of this is used to maintain essential parts of the infrastructure like DNS and routing, and the other half will potentially be going to third-party development. However, 1% might be a sizable amount for very large transfers. For this, it would make more sense to use a different currency and transfer method.

Lastly, Holo will be setting up reserves for swapping national fiat currencies directly with HF.

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OK. But imagine that scenario, being a host I am billing in HF and you as hApp provider are paying it in USD through normal bank transfer. Then what will happen?

Just to clarify, sending and receiving of hosting payments must happen through the HoloFuel app. Holo is not building any other means of paying directly whatsoever. The app developer can only pay using the same app as hosts. All agents in the DHT must be running the same validation logic, or the invalid entry would be flagged and its author would be ejected.

Edit: basically, everyone agrees that HF is the only way to pay for hosting, and kicks out anyone who attempts to do otherwise.

This is ensured by the fact that entries are randomly gossiped and validated. Every entry is hashed, gossiped to, and validated by other nodes who have a public key that is alphanumerically close to it. A node is unable to predict who their transaction will be shared with and checked by. For more on this, take a look at ‘Section 4: DHT’ of the Core Concepts in the Developer section of the site.

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I think you are newbie and just started learning holo &holochain. However your reply doesn’t directly answer my question… I know all these things, how TX validated, how things done within holochain. I said that I am invoicing my service to a hApp provider in HF, nothing wrong here. It will be a TX to my source chain that I will be paid in future by a certain app owner. In that stage I negotiated with the app owner that he will pay in USD, so my state in holo would show that it is unpaid though I received it already in other means… Holo won’t allow this! But how? I am producing the bill for my service, it might be weekly or monthly or annual payment, am not getting anything instantly. And for HOLO status of the invoice is UNPAID/ still to pay, there will be no TX from app provider’s side. So nothing will be validated. No appcode is changed here.

The invoice and the receipt are one in the same. This is actually a single entry, committed to the source chains of both the creditor and debtor. The HoloFuel app validates that this entry contains all of the correct parameters, types, values, timestamps, etc. If a host attempts to invoice anything besides what the HoloFuel DNA requires, that would be an invalid entry. Holochain RSM implements elements, which consist of header(s) and entries. A single entry can have multiple headers pointing to it, creating multivalent realities. This is the case with HoloFuel, where the creditor and debtor each create signed headers pointing to the same entry. From the creditor’s perspective, the entry represents the invoice. From the debtor’s perspective, it represents the receipt. This helps reduce excessive network chatter.

Most of us aren’t internal Holo employees, and HoloFuel is undergoing continuous testing and iteration. So we can’t be sure exactly what it looks like right now.

I think you are newbie and just started learning holo &holochain.

And there’s no need for personal attacks here. I’ve been a member of the Holochain community for over 2 years, have participated in numerous courses, am a developer and HoloPort owner, and will be one of the facilitators of this upcoming DevCamp. Sign up if you’re interested in learning more! :wink:

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Thanks alexoceann, this is all quite enlightening. And I think premjeet may have been referring to me as the “newbie”. I’ve only been exploring HOLO for a few days now, but I have designed a currency model, exactly like HF, only for P2P investment and ESG ratings instead. I’d like to build this on top of HOLO hence my interest.

I’m trying to understand the math of circulating supply, long:short redemptions etc., and the price of HF from Reserve Accounts vs. exchange or bilateral OTC supply. Is there a detailed worked example (spreadsheet) somewhere, that I can see examples of all potential transactions e.g. new reserve creation, transfer of reserves to hosts, app purchases / settlement etc.?

As I understand it, HOLO central can create new reserves (negative balances) and issue the positive balances for purchase, on exchange or for direct purchase from reserves. But is there a rule that new reserves can only be issued when hosts require it i.e. when “Proof of Hosting” goes up?

I can’t think that you got my point. See, forget invoice,hosting for some moments, just think that you are in the middle of a transaction. In simple P2P transaction, some one initiates the Tx. If A requests some HF to B. B is currently offline, so the Tx is incomplete, but not invalid. Later B found that pending Tx and paid the amount in USD instead of HF. So the Tx in HOLO app is still pending, but not invalid, right? In that case, B only violates the terms here, but not technically. If these types of Tx are remained pending for longer period of time, then no body can appeal, as it is mutual between two parties,

In the most recent AMA they were talking about adjacent use cases quickly emerging for fuel in other apps besides indexing the cost of hosting. I am interested to know how it will reconcile those other use cases with the value stable proposition of fuel as hosting compensation.

hi @ruffashlar, did you ever find answers to your questions from this message & thread? I found your investigation very interesting and it popped to mind to check in on its status. I would be curious to learn more about the issues you raised (like floating exchange rate risk), how they apply to HoloFuel, and how they might be ameliorated.