What is be­hind the term ‘To­ke­nomics’?

The Malta Independent on Sunday - - INFORMATION TECHNOLOGY -

Since Malta has be­come the first ju­ris­dic­tion to pro­vide a set of pos­i­tive reg­u­la­tions on Dis­trib­uted Ledger Tech­nol­ogy (DLT), cryp­tocur­rency ex­changes, and Ini­tial Coin Of­fer­ing (ICO) many com­pa­nies have seized the op­por­tu­nity to base in Malta. Among them there are three whale com­pa­nies with rep­utable names in the blockchain and crypto ex­change world - Bi­nance, BitBay and OKEx.

With the laws passed in par­lia­ment on the 3rd of July, Malta be­came the first coun­try able to as­sist the de­vel­op­ment of the new in­dus­try which can ben­e­fit the is­land in the fu­ture. These laws are ex­pected to come to force some of these days.

Malta is be­com­ing a very ICO friendly is­land. One of the top pri­or­i­ties that ev­ery ICO faces is to raise sub­stan­tial rev­enue for the project re­al­i­sa­tion through its to­ken sales by reach­ing the soft and hard caps re­spec­tively. When the crowd­fund­ing goal achieved, ICOs can start to im­ple­ment the project fol­low­ing the roadmap writ­ten on the whitepa­per.

The first wave of con­sol­i­da­tion has al­ready started in the cryp­tocur­rency world. In­vestors are be­com­ing more se­lec­tive in terms of ICO projects. Ac­cord­ing to ICS Statis Group 80% of ICOs were scams in 2017 and there­fore the trust as­pect is cru­cial. A project trust­wor­thi­ness should be sup­ported by solid to­ke­nomics and proper ex­per­tise in the field cho­sen for the ICO project.

I sat down with one of E&S Group di­rec­tors, Karl Schranz, who ad­vises in to­ke­nomics and cryp­tocur­rency, to dis­cuss the mean­ing and im­por­tance of the to­ke­nomics for the ICO sec­tor. He gave me a clear in­sight of the new topic in­trigu­ing many jour­nal­ists around the world and mo­ti­vat­ing them to in­ves­ti­gate the dig­i­tal econ­omy.

What is be­hind the term “To­ke­nomics”

To­ke­nomics is the de­sign of the to­ken ecosys­tem. Cor­rect to­ke­nomics can quite sim­ply make the dif­fer­ence be­tween a suc­cess­ful ICO and one that fails to raise the amount re­quired. To­ke­nomics is a new art, not older than in a cou­ple of years, and re­quires the mix of fi­nan­cial, ac­count­ing and busi­ness skills in com­bi­na­tion with ex­pe­ri­ence in the Crypto Econ­omy.

Many so called ad­vi­sors de­clare them­selves as To­ke­nomics ex­perts, how­ever few are able to de­scribe what are the main pil­lars of to­ke­nomics. There are the main ar­eas of con­sid­er­a­tion when it comes to to­ken de­sign such as soft and hard caps, to­ken type, to­ken price, to­ken quan­tity, to­ken distri­bu­tion, fund al­lo­ca­tion and lockup op­tions.

Soft and Hard Caps

They are ba­si­cally fundrais­ing goals of the ICO. A hard cap is the ab­so­lute up­per limit a team will take and a soft cap is typ­i­cally a lower limit re­quired for the project re­al­i­sa­tion. If re­ceived do­na­tions ex­ceed the hard cap, the funds are im­me­di­ately re­turned to in­vestors. If a soft cap isn't reached, funds are some­times re­turned as well. Ei­ther you try col­lect­ing too much, or sim­ply, too lit­tle and in both cases your project with suf­fer, pos­si­ble fail.

Type of the To­ken

There are ba­si­cally 3 types of the crypto to­kens - eq­uity, se­cu­rity and util­ity.

One of the most promis­ing ap­pli­ca­tions of smart con­tracts is the po­ten­tial for star­tups to is­sue eq­uity (or stock) to­kens. It will make stock trad­ing more ac­ces­si­ble to the av­er­age in­vestor and al­low share­hold­ers to take a more ac­tive role in cor­po­rate gov­er­nance, but due to the cur­rent lack of reg­u­la­tory guid­ance, few star­tups have at­tempted to con­duct eq­uity to­ken sales.

A se­cu­rity is a broad clas­si­fi­ca­tion that refers to any kind of trad­able as­set. Most to­kens are se­cu­ri­ties by their na­ture since the ma­jor­ity of ICO par­tic­i­pants view crowd­sales as in­vest­ment op­por­tu­ni­ties. How­ever, a to­ken may fall un­der the clas­si­fi­ca­tion of a “util­ity to­ken”, which pro­vides users with ac­cess to a prod­uct or ser­vice.

To­ken Price

The main con­cept of to­ke­nomics is to iden­tify the to­ken price. Through this process of ver­i­fi­ca­tion, fi­nan­cial ad­vi­sors will then iden­tify the fol­low­ing op­tions to make sure that the to­ken sale is done cor­rectly. Most ICOs cre­ate their own to­kens to raise money, hence en­abling them to es­tab­lish the to­ken price. Solid to­ke­nomics oblig­a­tory re­quired.

To­ken Sup­ply and De­mand

One of the ma­jor things to con­sider when de­sign­ing your to­kens is the to­ken sup­ply and de­mand. Cre­at­ing a to­ken with too much sup­ply will ac­tu­ally back­fire. Too much sup­ply, in terms of fiat value, will put off pur­chasers as de­mand would be enough to fill the sup­ply. We all know what hap­pens when sup­ply is higher than de­mand. The value drops. Yet many ICOs seem not to con­sider this vi­tal part of their to­ke­nomics. The main fo­cus would be on de­ter­min­ing the value of the ecosys­tem as a whole in or­der to con­firm the ad­e­quacy of the Soft and Hard caps set and con­se­quently, the price and quan­tity equi­lib­rium is shaped. It is com­pared with the value of the ecosys­tem by eval­u­at­ing the planned To­ken Distri­bu­tion and Fund al­lo­ca­tion. This will es­sen­tially pave the way for fu­ture lockup op­tions to be iden­ti­fied. Ad­di­tion­ally, mar­ket com­par­isons are made in or­der to ap­prove the vi­a­bil­ity of the whole project.

To­ken Distri­bu­tion

De­sign­ing the to­ken distri­bu­tion is vi­tal to achieve your ob­jec­tives. To­ken distri­bu­tion model must as­sure that you cre­ate value for your project, con­trib­u­tors, com­mu­nity and founders in bal­ance. Trans­par­ent to­ken distri­bu­tion an­swers the ques­tion of how many to­kens will be dis­trib­uted in the sale, be kept by the team and go for ad­vi­sors, com­mu­nity, spon­sors, etc.

Fund Al­lo­ca­tion

Funds al­lo­ca­tion or the al­lo­ca­tion of pro­ceeds shows how the re­ceived funds will be used in per­cent­age distri­bu­tion on de­vel­op­ment, mar­ket­ing, le­gal, busi­ness de­vel­op­ment, etc. As for the to­ken Al­lo­ca­tion and vest­ing, it ex­plains what are the cri­te­ria for a team to be able to ac­cess the to­kens they re­tain in the sale and any vest­ing or cliff pe­ri­ods to keep in­cen­tives aligned.

Life Af­ter To­ke­nomics

Be­fore launch­ing an ICO, founders are to en­gage in­vestors in sup­port­ing the project by start­ing off a crowd sale. To en­cour­age peo­ple to buy and use to­kens, one has to put a value to these to­kens be­ing is­sued on the plat­form. To­kens need to have clear set util­ity as to what they will be ex­changed and used for. Be­fore is­su­ing a to­ken on the plat­form, ICO founders need to iden­tify the to­ken price, the to­ken qual­ity (or type), the to­ken distri­bu­tion, how the funds will be al­lo­cated, the lockup op­tions and the soft/hard cap to be reached.

To­ke­nomics is cru­cially im­por­tant since it will iden­tify the num­ber of to­kens that will be is­sued dur­ing the two stages of to­ken sale and ex­change into the ser­vices or be­ing traded on the crypto ex­changes. Itis a crit­i­cal func­tion un­der­taken by fi­nan­cial ex­perts with ex­pe­ri­ence in the field and it will def­i­nitely pave the way to a suc­cess­ful and fruit­ful project.

E&S Group has suc­cess­fully ad­vised 80+ ICOs from their con­cept stage up to their ini­tial coin of­fer­ing

Newspapers in English

Newspapers from Malta

© PressReader. All rights reserved.