From ICOs to a Token Economy
A token economy as a mirror of the real one
Is a token nearly as exciting as it looked in white papers? Sadly, in most cases, it isn’t. Behind the seemingly “economical” background of many ICOs tokens is hidden a very primitive financial model of a token presale as a purely speculative investment. Speculators have huge benefits from the margin between the presale and the crowdsale prices, and then investors make do with the tokens that devalue dramatically after a crowdsale begin. By pumping and dumping, ICOs organizers destroy the foundations of their own token economic system, giving an underlying real business model (if they have one) zero chances of success. Having said that, don’t throw the baby out with the bathwater. The token known mainly as a new fundraising instrument has several unknown usability features to be put into action.
Nowadays there is no trust among parties of the ICO-driven token economy
Many ICO enthusiasts believe that a token is a transactional tool of value exchange, a source of the new economic experience, and even a generator of non-financial social values. In fact, many ICOs’ promises seem to be somewhat exaggerated, speculative, or worse than that. Analysing current blockchain real estate start-ups in the Medium article “10 Reasons ICOs Harm Blockchain Real Estate, And 2 Better Alternatives,” Ragnar Lifthrasir, the founder the International Blockchain Real Estate Association and velox.RE, unveiled false promises (BitRent), security breaches (a bunch of ICOs), dummy advisors (NextBlock Global), and ongoing dishonesty in the tokens’ issuing and distributing schemes. To put it another way, nowadays there is no trust among parties of the ICO-driven token economy.
Kick ICOs into Gear
Even though industry leaders and regulators criticize ICOs, the token can be an efficient transaction device, and crowdfunding can be a real engine of disruption … if the token is tied to a project’s product or service, and the crowdfunding campaign fits the RegTech system. A workable token economy model looks like some kind of a “gearbox” aligning the FinTech system with the real economy (for more detail see New PropTech Crowdfunding Platforms: Kick ICOs into Gear). Operating as a part of the real business model, the token can actually carry out the promised responsibilities:
- enabling end users to contribute to value-adding actions;
- stimulating low-cost internal transactions within the project’s network,
- creating new values based on data sharing and interconnection between users.
By adding an investor-protective scheme of the token issue and distribution, we can make the ICO system more trustworthy:
The goal of this paper is to open up the conversation about the token economy. Seeing the token’s utility and security roles only is an over-simplification of complicated reality. Distinguishing token’s comprehensive essence, we can improve the ICO system now, and contribute to the token economy in the long run.