My understanding of the ADA token is it holds value because of 1) it’s staking/voting rights (i.e Governance) and 2) it’s ability to power the Cardano network via transaction fees (i.e Usage). By allowing transaction fees in any token, doesn’t this reduce the demand and therefore the overall value of the ADA token? And wouldn’t a diminished value in the token lead to reduced security in the network?
Transaction fees are ultimately still settled in ADA. This is giving the option for SPOs to accept the other native tokens in exchange for them to pay out the underlying fees. As a delegator, all rewards are still paid in ADA. On the contrary, allowing other tokens will encourage more transactions leading to more rewards as non-ADA users will still be able to use the underlying Cardano network to do their transactions. Imagine a digital currency by a government that is a native token, SPOs would most likely accept the swap as it is backed by a government and pay the underlying ADA but the normal citizens of said country won’t need to hold ADA and yet is generating a transaction paid in ADA.
Ah thank you for filling in my misunderstanding!
Following up, do you know how the SPO finances these transactions? That is, would it come from their pledge or a separate payments address?
Also, if I follow the implications of your explanation correctly, SPOs would have to have to go into the market to cover their position, hence the demand for ADA would remain constant. Is that correct?
From what I understand (Babel fees - denominating transaction costs in native tokens - IOHK Blog), the SPOs can provide their own liquidity or partner up with 3rd party organizations.
I mean, I can imagine a scenario where an exchange like Binance would have the means to integrate their own pools with their supply (though I don’t know what the benefit would be, better rate of exchange maybe?) but for other independent SPOs, it would make more sense to have liquidity provided for them.
What’s great though, is the SPOs get the first right to keep that transaction if they wish (and have the liquidity) before passing it on to the 3rd party provider. There’s all sorts of scenario that can be at play I suppose, SPOs could pool their own resources, delegators could provide liquidity into a pool that provides it to the SPOs, etc…