What is the Spark token

The Spark token airdrop helped XRP soar and then crater… but why?

SPARK is the native token of Flare Networks, an unlaunched blockchain that aims to let XRP compete with Ethereum

Last week, there was a lot of commotion in the XRP community—with those who own the third-largest cryptocurrency receiving a airdrop of a brand-new token called Spark.

These tokens are going to run on Flare Network, a blockchain that’s yet to launch, with the intention of delivering smart contract functionality to the XRP Ledger.

But what are these tokens meant to achieve, and what effect could they have on the value of XRP as we head into 2021?

A token gesture

The Flare Network is behind Spark (Photo: Flare Network)

As previously reported by Modern Consensus, the airdrop was completed by Dec. 12—with Flare Networks performing a snapshot of XRP balances and distributing Spark on a 1:1 basis. The event was supported by most major exchanges, and unfortunately, it had a calamitous effect on the altcoin’s price—with XRP tumbling from $0.58 to $0.44 before recovering a week later. Of course, it ran up 250% in the weeks before the airdrop.

Flare Networks is hoping to allow the XRP blockchain to challenge Ethereum’s dominance in the worlds of decentralized finance and DApps, but its smart contract functionality is set to deliver one key difference from Ethereum’s blockchain: safety is not linked to the value of the Spark token. If anything, this asset has merely been created to deter spam transactions.

A protocol has been created to enable the “trustless issuance, usage and redemption” of XRP on Flare Networks—enabling it to become FXRP. Spark’s role as a native token will be to provide collateral.

Over time, a series of “Spark Dependent Applications” are going to be created—meaning this token can also be used for alternative purposes such as governance, enabling owners to vote on certain issues.

New Spark tokens are also going to be created on a regular basis, and they will be distributed to those who commit this asset as collateral or submit accurate data to a price oracle.

The tokenomics

A total of 100 billion Spark tokens are being created, in keeping with the 100 billion XRP that exist. However, there are differences when it comes to how these assets are being distributed—meaning that while Ripple Labs owns approximately 45 billion of the XRP in circulation, it has not benefited from the airdrop.

Other existing XRP holders have received Spark on a 1:1 basis, sharing 45 billion of these tokens between them. A further 25 billion Spark has been allocated to Flare’s for-profit organization, while the remaining 30 billion has been devoted to the Flare Foundation.

As a blog post on the Flare Networks website explained: “Flare’s token, Spark, is created through what may be the first ever utility fork whereby the origin network, in this case the XRP Ledger, benefits through increased utility.”

The Flare Foundation is designed to execute upgrades that have been agreed through a governance vote, and the post added: “Importantly, written into the foundation’s constitution, will be a bylaw that the foundation must be wound down and all Spark tokens held by the foundation burned, if the Spark token holders agree that its existence is no longer beneficial to the network.”

In terms of the impact that Spark and Flare could have on XRP, it’s possible that we could see this altcoin’s value appreciate if the new platform ends up being embraced for smart contracts. After all, it’s highly likely that Ethereum’s dominance in DeFi—which exploded in popularity over the course of 2020—played a big role in ETH’s stunning 393% surge since the year began.

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Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.