Vitalik praises orb.land: A quick read on the innovative application and highlights of the Haberg tax

Author: Karen, Foresight News

This week, Vitalik Buterin praised "orb.land is really cool" on Warpcast, which undoubtedly brought significant exposure to orb.land. This article will introduce the core concepts and economic model of orb.land, as well as the application of Harberger tax within it.

What is orb.land?

orb.land constrains the holding and resale of commitment NFTs by introducing a Harberger tax system, encouraging high-quality interactions between creators and holders, and promoting the efficient allocation of resources.

In orb.land, there are key roles including Orbter (creator, issuer), Orb (NFT, representing the creator's commitment), and Keeper (NFT holder), in addition to the platform. Among these, the Orb is an NFT with repeatable use cases; an individual can only issue one Orb NFT, and different Orbs have different use cases, most of which are Q&A type Orbs. The Orb represents the Orbter's (issuer's) commitment to a set of terms, and transparency and immutability are guaranteed through on-chain records. Requirements from the commitment terms to responses to questions from NFT holders will be recorded on-chain for everyone to witness.

Owning an NFT from a creator allows one to ask questions to the creator at intervals and receive answers, which may later be used to access other services.

According to orb.land, creators need to cherish their reputation, cannot violate their commitments, and must not lie. If they fail to fulfill their commitments, such actions will be recorded on-chain, and creators may lose the ability to collect Harberger tax from the Orb and future sales royalties, as the value proposition of the Orb has been undermined. Here, the Orb is not just an NFT but a carrier of the creator's commitments, with each transaction embodying respect and maintenance of those commitments.

Technically, the Orb is an improvement on the ERC-721 standard on Ethereum, managing NFT ownership functions through auctions and the Harberger tax system. The application of Harberger tax is one of the key features of orb.land.

How does orb.land utilize the Harberger tax system?

The Harberger tax originated from economist Alan Harberger and was later promoted and deepened by Glen Weyl and Eric A. Posner in their book Radical Markets. The core essence is a uniform asset tax on assets, requiring asset owners to pay an annual fee equivalent to a small portion of the asset's value. If the owner is unwilling to pay this fee, the asset will be auctioned to the highest bidder willing to pay. The goal of this innovative strategy is to effectively curb the excessive concentration of wealth through continuous asset redistribution, thereby promoting a more efficient and equitable use of resources, ultimately achieving overall societal welfare.

Imagine that when the tax rate is zero, owners bear no costs and can freely set any price, thus establishing monopoly prices. In cases with higher tax rates, as asset owners demand higher prices, they must pay more tax, which discourages them from setting exorbitant prices, potentially prompting them to sell the asset at a more reasonable price to others. The Harberger tax can facilitate the efficient allocation of resources and reduce the occurrence of resource vacancy or inefficient use, contributing to a fairer and more efficient market.

In orb.land, a creator can only issue one Orb NFT, and currently, an application is required to issue an NFT. When NFT buyers purchase this NFT, they must set a willingness-to-sell price and a planned holding duration, and anyone can buy the NFT at this willingness-to-sell price at any time. Additionally, if NFT buyers wish to maintain ownership of the NFT, they must pay a Harberger tax based on the willingness-to-sell price. In most cases, creators set the Harberger tax exceptionally high (possibly several hundred percent), resulting in high holding costs for the NFT while the acquisition/purchase cost remains low.

For example, as of the time of writing, the current sale price of the Orb NFT from Ethereum Foundation core researcher Justin Drake is 0.3 ETH, with a Harberger tax of 400% and a royalty of 10%. If you want to purchase this NFT and set a willingness-to-sell price of 1 ETH, the acquisition cost of the Orb NFT is 0.3 ETH, while the holding cost for one year is 1 ETH ✖️ 400% = 4 ETH, or 4/12 = 0.3333 ETH per month. Of course, at any time, others can purchase the NFT for 1 ETH, allowing you to receive 0.9 ETH (1 ETH minus the royalty), earning a total of 0.6 ETH. If the set willingness-to-sell price is outrageous, such as 10,000 ETH, then the NFT holder must pay an extremely high holding cost, which would be 40,000 ETH per year or 1,666.67 ETH for two weeks.

orb.land Economic Model

Having understood the Harberger tax, let's look at the overall economic model of orb.land. In addition to orb.land charging a 5% platform fee, creators receive all initial sales fees and Harberger tax revenue, and they can also earn royalties from secondary market sales and auctions.

For Orb Keepers, they have ample freedom to resell or re-auction the NFTs in their possession, while also having the opportunity to collect potential tips through questioning.

The economic model design of orb.land is quite clever, greatly stimulating creators' enthusiasm for creation, encouraging them to continuously and steadily produce more high-quality content and services, while also ensuring that creators can directly obtain long-term and stable income from their works, further enhancing their motivation and quality of creation.

The introduction of the Harberger tax not only ensures the efficient use of Orbs and avoids resource waste but also prompts buyers to more rationally assess the value and cost of NFTs when purchasing and holding them, reducing meaningless hoarding and speculation. This initiative not only helps maintain market stability and fairness but also, to some extent, endows NFTs with more practical and lasting value, making future developments worthy of continued attention.