From: 9.4. Risks → To: 10.3. A Liquidity-based Flywheel

9.4. Risks

VNET's value hinges on the success of Valis Stablecoins. If the stablecoins fail to generate sufficient revenue (due to low adoption or poor reserve management), if the Tockchain network experiences bugs or downtime, or if regulatory hurdles arise, the percentage of gross revenue backing could diminish returns, undermining VNET. To sum up, if the Valis ecosystem underperforms, VNET’s backing weakens.

10. Tockchain Tokenomics Rationale

The Tockchain Ecosystem prioritizes liquidity provision above all other contributions. This section explains the reasoning behind allocating a dominant share of each cycle reward (80%, or 8 VNET pre-halving) to liquidity providers, in order to drive strong capital participation.

10.1. Why Liquidity Matters

Liquidity determines how easily assets can be bought or sold without causing large price swings. More liquidity makes trading smoother and more appealing:

1. Lower Slippage: Slippage is the difference between the expected price and the actual execution price. With more buyers and sellers, large trades move the price less, reducing slippage and making trading cheaper and more predictable.
2. Tighter Bid-Ask Spreads: The bid-ask spread is the gap between the highest buying price and the lowest selling price. Liquidity narrows this gap, lowering trading costs and encouraging more frequent trades.
3. Better Market Depth: Market depth refers to how many orders are available at various price levels. A deeper market means larger trades can be executed without significant price impact.
4. Lower Volatility: Liquid markets absorb large trades more smoothly, reducing sudden price swings and making trading feel more stable.
5. Greater Trader Confidence: High liquidity makes markets harder to manipulate and signals reliability. Traders are more likely to participate when they trust the environment.

10.2. Maximizing Liquidity

The Valis Tockchain is purpose-built from the ground up to maximize network liquidity:

• Performance Design: Valis reduces infrastructure costs by minimizing node count and leveraging multi-core CPU capacity. Protocol communication is kept to a minimum, allowing the network to operate efficiently on average hardware. This lowers operational costs and increases the share of rewards allocated to liquidity providers.
• Consensus Design: Valis uses a quorum-based consensus mechanism that requires agreement from two-thirds of the nodes. This model consumes less energy than Proof of Work and delivers higher throughput than Proof of Stake. Reduced consensus overhead improves efficiency and enables greater reward allocation toward liquidity provision.
• Protocol Design: Tockchain implements fee-less trading at the protocol level, for both liquidity pools and orderbooks, via special Tockchain Transaction Types. Fee-less trading increases activity by removing the cost barrier. When users are not required to pay fees or hold the native token, they are more likely to trade frequently and in larger volumes, driving up overall trading activity.
• Tokenomics Design: Unlike most chains, Valis prioritizes liquidity provision over node operation. A dominant share of each cycle reward (80 percent, or 8 VNET before halving) is allocated to liquidity providers to drive strong capital participation. Higher Total Value Locked (TVL) in VUSD increases Stablecoins Yield.
• Liquidity Pools Design: The Valis ecosystem supports one Tockchain per stablecoin (e.g., Tockchain VUSD, Tockchain VEUR). Up to 32,767 assets can be created in each Tockchain, each one with every asset paired against the native stablecoin (e.g., VUSD) in a 50/50 liquidity pool. This makes the native stablecoin the core trading medium. In the VUSD Tockchain, for example, all trades must be routed through VUSD: to swap Token A for Token B, users first trade Token A for VUSD, then VUSD for Token B.
• Supply Chain Design: Valis achieves zero VUSD slippage through full vertical integration. Yield revenue from the application layer is redirected to offset trading costs at the protocol layer, where trading is executed natively within Tockchain. By controlling both layers, Valis is able to preserve the 1:1 VUSD peg without price impact, which increases trading volumes, and drives broader VUSD adoption.

10.3. A Liquidity-based Flywheel

This structure drives consistent demand for VUSD and powers a profitable flywheel:

1. Higher VNET value incentivizes more liquidity provision.
2. The combined effects of increased liquidity, fee-less trading, and pairing all assets with VUSD significantly enhance trading activity.
3. More trading and zero VUSD slippage drive greater VUSD issuance.
4. Greater VUSD issuance increases Valis Stablecoins yield, enabling Valis to offset more trading fees and VUSD slippage.
5. Valis distributes Stablecoins yield to the VNET liquidity pool, compounding rewards and increasing VNET’s redeemable value.
6. Higher Stablecoins yield and VUSD payouts to the liquidity pool reinforce VNET value, restarting the flywheel with increased momentum.