STEP: Evolving the Travel Industry Though Blockchain and Cryptoeconomics
The Blockchain Revolution
After spending the last two decades at the intersection of travel and technology, one thing is now clearer to me than ever: We’re facing a monumental shift in the forces that have traditionally shaped the travel component of the global economy. With travel representing more than 10% of global GDP, there’s no shortage of parties interested in learning how the ecosystem’s tectonic re-org will play out.
From Goldman Sachs to Google, all major information networks are built around centralized data systems; travel is no different. These centralized structures silo information and wealth, creating concentrated, rent-seeking markets at the expense of consumers. But the rise of blockchain technology—and the cryptoeconomic systems around it—is starting to upend the status quo.
Since the birth of bitcoin, blockchain protocols have multiplied and grown immensely. They have created decentralized value systems without a concentrated ownership. Blockchain’s distributed database capabilities enable the transparent distribution of information and the creation of efficient markets for greater competition on top of this shared data layer.
Bottom line: Blockchain technology is radically disrupting the way both information and business interact with the world. And now, protocols like STEP (Simple Travel Ecosystem Protocol) will bring these new business models and technological innovations to the travel industry.
The Online Travel Agency Distribution Dilemma
The enormous travel industry is controlled by a few concentrated players. Almost all OTAs (Online Travel Agencies) are owned by players like Expedia and Priceline—no other OTA controls more than a small percentage of the market. With limited competition, each OTA has the ability to manage distribution margins and manipulated listings to their advantage, letting OTAs charge larger distribution fees to hotels owners.
Key stakeholders in the travel ecosystem—from the traveling consumer to the hotel owner, for example—are currently being underserved by the oligopoly enjoyed by OTAs. STEP’s vision is to create a global decentralized protocol that provides a distribution alternative to OTAs and allows for the open development of a true community-centered travel economy. STEP sees an opportunity to evolve the existing centralized distribution model by tokenizing travel goods to the benefit of both the traveler and hotel owner.
The STEP System
STEP is a blockchain protocol designed to decentralize the coordination of travel goods and services, starting with hotel room nights. It relies on a two-stage decentralized market design for the exchange platform. The first stage is a STEPCoin stable currency; the second stage involves the non-fungible tokens that embed specific features in a smart contract, acting as a reservation mechanism. These are the building blocks of the STEP protocol:
- Smart Contracts: Non-fungible tokenization takes a real good or service (e.g., hotel room nights) and represents it as an electronic token. Hotels and other service providers can set pricing, volume discounts, and exchange restrictions all encoded on the public chain. This means any user can select goods through a transparent shared data layer, and small firms can compete in adding inventory to their marketplaces.
- Algorithmic Crypto-Economic system (ACE): A unique minting algorithm prices STEP Smart Room Contracts through a separate, STEP currency (STEPCoins) tied to the creation of travel related goods, initially room nights. While STEP currency is primarily a means of exchange, the non-fungible tokens (STEP Smart Contracts) are designed to store value – i.e., the value associated with a single or multiple room night reservation.
- Work-In value creation model: This monetizes users for a variety of tasks that improve the STEP system. Reviewing goods and verifying providers are simple ways to gain tokens and thus improve the “reputational” scores of service providers. Additional community building offers validation, curation, governance and loyalty-based bounties to users of the system.
- Decentralized secondary marketplace: A decentralized marketplace with non-fungible tokens will be built in open source to gain from a worldwide talent pool. STEP will design the premier associated user interface for this exchange. And the decentralized application layer will be community-developed so as to create a transparent market of travel goods and services.
The Key Players
- Hotel Owners: Hotel owners are central players in the STEP system. They are incentivized to stake rooms in the system through lower costs, flexible contracting and marketplace governance participation. Offers are created through a self-minting process of creating a non-fungible smart contract for the room night. So when hotel owners stake rooms, STEP Smart Room Contracts are minted on the blockchain.
- Travelers: Travelers stake STEPCoin for STEP Smart Room Contracts: They will have the opportunity to become Curators by adding value to the STEP system through validation, curation and governance activities of the system. They’ll be compensated with bounties in the form of STEPCoins.
- Master Travelers: Master Travelers are bulk buyers or super-users of the system. They include tour operators, event planners, travel club leaders and/or even large families that travel together. Unlike typical travelers, they’re more likely to demand larger numbers of room nights, earlier, with more flexible financing arrangements. Master Travelers will stake STEPCoins for STEP Smart Room Contracts.
- Travel Curators: Curators are typically travelers who add value to the STEP system via work-in activities such as validation, curation and governance. They are compensated with bounties in STEPCoin. Typical curation activities are reviewing hotels, taking pictures of rooms, and validating how the room matches the description. While Online Travel Agencies would never reward users for this valuable work, STEP is focused on rewarding the correct stakeholders.
STEP’s cryptoeconomic protocol will provide a decentralized blockchain-based travel goods-backed virtual economy to existing players like hotels and travelers. STEP is setting out to add a viable alternative to a historically concentrated market by allowing transparent value propagation over a tokenized information network via a travel focus stable coin design. This new travel protocol will create a set of open source applications and marketplace to enable hotel owners and travelers to participate in an innovative distribution and business model with the different participants in the STEP cryptoeconomic ecosystem.