ICO's birth defect: how tokens threaten the future of projects financed by them
2017 was the year of the ICO boom - a method of crowdfunding projects based on the sale of start-ups of their own cryptocurrency, tokens, which, as a rule, represent a smart contract on the Ethereum blockchain. Unlike other forms of crowdfunding, ICO is focused on financing the launch of entire businesses, rather than specific goods or services, and is attracted by the opportunity to quickly run its idea in public and, in the event of a positive reaction, get funding for it to be benign, compared to practically any other sources of funds conditions.
Many metaphors have come to mind illustrating the “problems of the last token”. More precisely of them, most likely, game in the fool
But not having had time to rejoice at the emerging prospects, the projects immediately have to think about how to convince users to participate in their crowdfunding and buy tokens. As a rule, almost all ICOs solve this by laying in their tokens a mechanism for obtaining benefits from the launch / development of the project they financed. This, in the opinion of the financial regulators of many countries, brings tokens as close as possible to stocks, and the similarity of the abbreviations ICO and IPO is also clearly not accidental. As a result, each project on ICO has to go all out, proving that the token is not really a stock, but a product or product.
But the game of "cat and mouse" with the regulators does not change the essence: even if the ICOs themselves no longer promote their tokens as an investment tool, their buyers, let us be frank, see them in their mass, that is how they invest in the ICO for quick speculative earnings According to the scheme “I bought it at the start - I sold it on the hype”.
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However, crypto enthusiasts are not accustomed to misunderstanding by the law - in the end, the very idea of ​​cryptocurrency arose precisely as an alternative to the established relations between states, monetary mechanisms and citizens. Therefore, one should not expect from the authorities loyalty to an idea that rejects the need for the very functions on which their power rests.
The question is different: what next? Here passed another ICO, tokens purchased / sold. And we mean, of course, a real project, and not a scam for removing cream from a golden crypto-fever: how will the tokens work further? What effect will a financed business have on them? The answer is disappointing: the tokenization systems of many ICOs contain the conditions for the inevitable, increasing over time, conflict of interests of token holders and the project itself.
The mechanism is usually extremely simple: a token is somehow embedded in the mechanics of the project so that the owners of the tokens could later count on some profit from the project - and a corresponding increase in the cost of the token on the exchange. However, have you seen many ICOs that would explain in your plans how and when this will end? Nothing can grow endlessly, and the token requires not just constant growth - it requires constant growth.
Imagine, for example, a project that promised to send a share of each new paid user to buy tokens. The first time, thanks to the successful ICO, the project is great: every year they have more than one million paid users who pay, say, $ 10. And, let's say, 30% of this amount is sent to buy tokens, making their owners happy.
But no user base can grow to infinity: the growth of our hypothetical project also slows down. First up to 900 thousand paid users per year, then up to 600 thousand, then up to 200 thousand. This is still an increase - the project gets richer and more expensive. But every year less and less money goes to buying tokens, and tokens are falling. Because the mechanics inherent in them allowed them to go up only as the project’s infinitely accelerating growth rates. Otherwise, a simple slowdown in growth rates will bring the price of the token to collapse - and those who remain with the project tokens at the hands of the latter before changing the trend will inevitably lose.
However, the fate of the future owners of tokens going to the bottom is not particularly disturbed even by those who are now acquiring them at the ICO - especially those for whom this is simply the possibility of making quick money on resale. The main thing they themselves do not be the last.
Moreover, this is not only about scam projects - even quite serious projects turn out to be scammers reluctantly, without considering sufficiently the coexistence of tokens in real business conditions. It is extremely rare for tokenization mechanics and its interaction with the mechanisms of the business itself, are painted much further than the ICO itself - a maximum, a couple of years ahead. Perhaps this is because the ICO market is exceptionally young - and the experience “after ICO” has not yet been gained. And also because in the rush of the "gold rush" there is not enough time, or, apparently, the desire to seriously think for later.
But if “later” comes, poorly thought-out tokenization can become a serious risk factor - especially for those businesses that take their promises seriously.
At least two main models of suicide tokenization of projects that go to the ICO can be distinguished:
The situation when the factor that contributed to the launch of the project and its success at the beginning, became an obstacle to its development in the future, is absolutely typical for business. Companies that find the strength to change survive, the rest disappear into obscurity.
In the case when such a factor - the interests of token holders, both options for the development of the situation: the rejection of tokens, and the death of a business, the development of which was associated with an increase in their value - means the inevitability of tokens to zero. Thus, the success or failure of an investment in ICO comes down to catching the moment when tokens are as expensive as possible - before they finally stop costing anything.
Whatever one may say, but by malicious intent or an oversight, the tokens of the multitude are doomed to depreciate even in the case of not only the success of the ICO, but also the project itself for which the funds were raised. Often, the moment when the fate of the token and its role in the project are left to the mercy of fate can be tracked directly in the course of reading ICO Avenue.
However, if anything brings the ICO market to a halt, this is not exactly the news, because we are talking about deferred consequences far beyond the limits of the ICO itself. This doesn’t bother those who simply raise funding for their projects (not to mention the frank scam) to ICO, or those who want to earn extra money playing tokens. This is a problem of future losers left in the hands with depreciated tokens - and those who still consider ICO as a means, not a goal - and do not want to leave behind a trail of disappointed owners of tokens in the future.
In order not to turn out to be scammers, ICO just needs to start thinking about the “last tokenholder” in advance: if the token makes some profit, you need to think about its fate until the moment it dries out. If the token performs a function, then think about what happens when it becomes unusable for it. And to tell all potential ICO participants how it will be and what the project plans to do with it. Possible scenarios include, but are not limited to:
To be honest, without casuistry, the ICO market today is a speculation market. And his fate is probably decided right now. Not only the states that have been forming the united front of the struggle with the ICO. Correcting the rapidly darkening ICO reputation, increasingly referred to as the new “Ponzi scheme”, is within the power of the cryptocommunication community itself - becoming more transparent, more serious and responsible in relation both to those who supported them, and to themselves, their own plans and given promises. There is no reason to put an end to ICO as a convenient, efficient, and for some projects, an indispensable crowdfunding tool; ICO-projects are not obliged to become a scam, even if everyone around them considers them to be - on the contrary, this is a reason to raise the bar, to become more demanding of themselves.
In the end, Bitcoin managed to go from a muddy, from the point of view of a mass audience, idea connected with the black market and crime - to the leader of a powerful global trend for cryptocurrencies and blockchain technology. ICO in the future can count on more.
Many metaphors have come to mind illustrating the “problems of the last token”. More precisely of them, most likely, game in the fool
But not having had time to rejoice at the emerging prospects, the projects immediately have to think about how to convince users to participate in their crowdfunding and buy tokens. As a rule, almost all ICOs solve this by laying in their tokens a mechanism for obtaining benefits from the launch / development of the project they financed. This, in the opinion of the financial regulators of many countries, brings tokens as close as possible to stocks, and the similarity of the abbreviations ICO and IPO is also clearly not accidental. As a result, each project on ICO has to go all out, proving that the token is not really a stock, but a product or product.
But the game of "cat and mouse" with the regulators does not change the essence: even if the ICOs themselves no longer promote their tokens as an investment tool, their buyers, let us be frank, see them in their mass, that is how they invest in the ICO for quick speculative earnings According to the scheme “I bought it at the start - I sold it on the hype”.
')
However, crypto enthusiasts are not accustomed to misunderstanding by the law - in the end, the very idea of ​​cryptocurrency arose precisely as an alternative to the established relations between states, monetary mechanisms and citizens. Therefore, one should not expect from the authorities loyalty to an idea that rejects the need for the very functions on which their power rests.
The question is different: what next? Here passed another ICO, tokens purchased / sold. And we mean, of course, a real project, and not a scam for removing cream from a golden crypto-fever: how will the tokens work further? What effect will a financed business have on them? The answer is disappointing: the tokenization systems of many ICOs contain the conditions for the inevitable, increasing over time, conflict of interests of token holders and the project itself.
Programmed Conflict of Interest
The mechanism is usually extremely simple: a token is somehow embedded in the mechanics of the project so that the owners of the tokens could later count on some profit from the project - and a corresponding increase in the cost of the token on the exchange. However, have you seen many ICOs that would explain in your plans how and when this will end? Nothing can grow endlessly, and the token requires not just constant growth - it requires constant growth.
Imagine, for example, a project that promised to send a share of each new paid user to buy tokens. The first time, thanks to the successful ICO, the project is great: every year they have more than one million paid users who pay, say, $ 10. And, let's say, 30% of this amount is sent to buy tokens, making their owners happy.
But no user base can grow to infinity: the growth of our hypothetical project also slows down. First up to 900 thousand paid users per year, then up to 600 thousand, then up to 200 thousand. This is still an increase - the project gets richer and more expensive. But every year less and less money goes to buying tokens, and tokens are falling. Because the mechanics inherent in them allowed them to go up only as the project’s infinitely accelerating growth rates. Otherwise, a simple slowdown in growth rates will bring the price of the token to collapse - and those who remain with the project tokens at the hands of the latter before changing the trend will inevitably lose.
However, the fate of the future owners of tokens going to the bottom is not particularly disturbed even by those who are now acquiring them at the ICO - especially those for whom this is simply the possibility of making quick money on resale. The main thing they themselves do not be the last.
Moreover, this is not only about scam projects - even quite serious projects turn out to be scammers reluctantly, without considering sufficiently the coexistence of tokens in real business conditions. It is extremely rare for tokenization mechanics and its interaction with the mechanisms of the business itself, are painted much further than the ICO itself - a maximum, a couple of years ahead. Perhaps this is because the ICO market is exceptionally young - and the experience “after ICO” has not yet been gained. And also because in the rush of the "gold rush" there is not enough time, or, apparently, the desire to seriously think for later.
How a tokenization model could threaten the project itself.
But if “later” comes, poorly thought-out tokenization can become a serious risk factor - especially for those businesses that take their promises seriously.
At least two main models of suicide tokenization of projects that go to the ICO can be distinguished:
- Tokenization is built into the project itself, and the token is part of the mechanics of the future business. In this case, the growth of their price desired by many owners of tokens turns out to be a basin with cement on their feet: token is more expensive - services paid for them, for example, are more expensive. At some point, no matter how attractive the idea of ​​the project was, initially, following tokens, its high cost will become an invitation ticket to the business for competitors and even its full analogues, but not limited to tokenization.
- Token is a purely financial loan tool. Such conditions, despite the requirements of the same US SEC and financial regulators in other countries, are also found among the ICO. In this case, the concern for raising the value of the token lies on the burden of expenses, for example, on their redemption. There are other mechanics of pumping the cost of a token or returning an investment - in all cases the moment is inevitable when the additional load in the form of a buyout of tokens weakens the business against the background of competitors who did not have to take on "perpetual" obligations to token holders. Even if the project financed by ICO was based on a unique idea, being one of a kind - its success will generate competitors, in the struggle with which it will still have to “forget” about its promises to buyers of tokens in order to survive.
The situation when the factor that contributed to the launch of the project and its success at the beginning, became an obstacle to its development in the future, is absolutely typical for business. Companies that find the strength to change survive, the rest disappear into obscurity.
In the case when such a factor - the interests of token holders, both options for the development of the situation: the rejection of tokens, and the death of a business, the development of which was associated with an increase in their value - means the inevitability of tokens to zero. Thus, the success or failure of an investment in ICO comes down to catching the moment when tokens are as expensive as possible - before they finally stop costing anything.
Whatever one may say, but by malicious intent or an oversight, the tokens of the multitude are doomed to depreciate even in the case of not only the success of the ICO, but also the project itself for which the funds were raised. Often, the moment when the fate of the token and its role in the project are left to the mercy of fate can be tracked directly in the course of reading ICO Avenue.
However, if anything brings the ICO market to a halt, this is not exactly the news, because we are talking about deferred consequences far beyond the limits of the ICO itself. This doesn’t bother those who simply raise funding for their projects (not to mention the frank scam) to ICO, or those who want to earn extra money playing tokens. This is a problem of future losers left in the hands with depreciated tokens - and those who still consider ICO as a means, not a goal - and do not want to leave behind a trail of disappointed owners of tokens in the future.
How to think about your tokenization
In order not to turn out to be scammers, ICO just needs to start thinking about the “last tokenholder” in advance: if the token makes some profit, you need to think about its fate until the moment it dries out. If the token performs a function, then think about what happens when it becomes unusable for it. And to tell all potential ICO participants how it will be and what the project plans to do with it. Possible scenarios include, but are not limited to:
- Full redemption of tokens. This idea was offered to the market by us - the ICO marketplace for manufacturers of niche electronics and Hamster Marketplace gadgets . Our solution to the problem of the “last tokenholder” is to include in the project roadmap after ICO the possibility of a full redemption of tokens upon reaching a certain stage or indicators of business development. In the case of the Hamster, which is initially designed as a business for sale, the proceeds received for it can be sent back. This does not deprive fans of tokens to trade the ability to trade tokens - it just complements it with a universal exit strategy.
- Public limitations of token exchange support. Another option of transparent tokenization will be a predetermined limit on the return on investment relative to the purchase price of the token, provided for by the project. As soon as the amount of funds spent on the redemption of tokens or dividend payments on them, will exceed the amount originally collected for them on the ICO a certain number of times - no matter, with a multiplier of 10, 20 or 100 - the project officially stops supporting the rate of tokens. Who after this turned up with tokens in their hands - the project is not to blame. This differs from the current situation with the inevitable depreciation of tokens only in transparency - and by any guarantees of return, at least within the limits of the multiplier promised by the company that issued the tokens.
To be honest, without casuistry, the ICO market today is a speculation market. And his fate is probably decided right now. Not only the states that have been forming the united front of the struggle with the ICO. Correcting the rapidly darkening ICO reputation, increasingly referred to as the new “Ponzi scheme”, is within the power of the cryptocommunication community itself - becoming more transparent, more serious and responsible in relation both to those who supported them, and to themselves, their own plans and given promises. There is no reason to put an end to ICO as a convenient, efficient, and for some projects, an indispensable crowdfunding tool; ICO-projects are not obliged to become a scam, even if everyone around them considers them to be - on the contrary, this is a reason to raise the bar, to become more demanding of themselves.
In the end, Bitcoin managed to go from a muddy, from the point of view of a mass audience, idea connected with the black market and crime - to the leader of a powerful global trend for cryptocurrencies and blockchain technology. ICO in the future can count on more.
Source: https://habr.com/ru/post/339640/
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