Dividend Tokens — The Future of Dapps Or Unsustainable Fad?
At the time of this article, 14 of the top 20 DappRadar daily active users applications are gambling related. What gives? Why are these sites seeing traction during a bear market, and not getting washed out among the crowd despite having copycat products? Is gambling the killer app that crypto has been looking for, or is this a temporary fad? This article will explore the advantages and disadvantages of the funding model powering these new decentralized gambling platforms
What gives? Why are these sites seeing traction and not getting washed out among the crowd?
Current top gambling Dapps are all offering the same array of games. Dice, Roulette, Baccarat, Blackjack, Slots and other various card/casino games; all claiming to be provably fair via the block chain. As you can see by the image of Black Jack below, some teams have managed to roll out decent looking products similar to centralized gambling models.
Although a few sites do impress me, the sheer number of sites seeing a surge of users, volume, and transactions numbers struck me as odd. How could a site bring nothing new to the table, and see extended time in the top 20 of Dapp usage?
A Site That Pays You Forever? Sounds Too Good To Be True.
After doing some light exploring, it became pretty obvious what is driving this usage: Dividend Tokens.
HOW DO GAMBLING DIVIDEND TOKENS WORK?
The gambling platforms all follow a pretty similar and simple premise: by playing the site’s games, you earn dividend tokens. Staking that token produces airdrops that are automatically sourced and paid out from the house’s profit. In some cases, you can purchase the tokens on the respective network’s DEX without needing to play the games.
At first glance, this seems like a pretty good deal: users earn dividends on every transaction executed on that Dapp for it’s entire life. Since the Dapps do hold a slight house edge, in theory you will have passive revenue for as long as people want to gamble. Casinos have been around for hundreds of years, and there is already large centralized online gambling market.
Simply put, human beings gamble. Maybe it isn’t so crazy to think this is a sustainable model?
**SIDE NOTE**: SatoshiDice did create a model very much like these applications, but my hunch is the combination of smart contracts and the much higher TPS of TRX/EOS is allowing devs to the construct more complex on-chain games.
WHY WOULD SITE OPERATORS WANT TO USE THIS MODEL?
I can think of three big reasons why operators may be giving this model a try.
- Sustained Traction, Early On — Taking a nod from Bitcoin, many of these sites have “mining difficulty” adjustments, where earning the dividend token becomes more costly as time goes on. This encourages people to jump on early, giving them transaction and volume boosts. In exchange, users get dividends at a cheaper rate. This may be helping sites garner early buzz; think about what an early appearance on Dappradars top 10 could mean to a new Dapp.
- Fund Raising — Almost all of the sites I explored section off a piece of the dividend token supply for future development. Do some research, make sure they aren’t taking a ridiculous cut.
- Increased Customer Loyalty — If you knew a site pays you for life, would you be more active in it’s community? Only time will tell if turns out if this turns out to be a driver of loyalty, but I think dividend holders would be more likely to continue to play games on that site.
WILL IT LAST?
These sites are performing quite well considering Dapp traction hasn’t been stellar, and we are still firmly in a crypto bear market. Are there pitfalls awaiting this model, or will it sustain growth? Let’s look at some of the obvious questions that must be answered.
- What happens after the dividend tokens are “mined”?
I think you could argue that the numbers on these Dapps are juiced, and misleading to the number of active users. All though people may use gambling sites, there is no reason to believe so many sites will sustain meaningful dividends with the same exact product. Many users spam-play simple dice games with high win probabilities, but low payouts to mine dividend tokens. Once a dividend token’s supply is fully distributed, these strategies will no longer be viable and TX volume will fall. If a site didn’t do a good job growing “organic” users — which in this case are users playing just for fun and leisure— the amount of dividends will plummet and make the overall investment a waste.
2. Too easy to scam?
Releasing a dice smart contract, with the promise of taking earnings and developing flashy games that are only ideas is a low cost way to trick people. Just like the ICO phase, I expect growing pains as people invest in teams that won’t keep grow the product. But hey, at least there is a product this time.
3. Can this scale?
The topic doesn’t escape any corner of the crypto world these days. Some of these Dapps are producing 200–300k daily transactions with 2000–3000 active users. What if the number of daily active users is 100k? 1 million? The need for a sustainable scaling solution is still lingering.
4. Will on-boarding get easier?
To use most of these Dapps, an account with Scatter or TronLink is required. It isn’t horribly complicated for experienced crypto users, but still isn’t simple enough to on board complete crypto newbies.
WHAT DOES THE FUTURE HOLD?
Will these last? When looking at gambling Dapps specifically, I think the answer is a few will. After experiencing successful launches, many sites have already announced their plans to expand game selection and improve their sites. A common theme seems to be adding Texas Hold Em, which already has a robust online market. This is an interesting approach, and could pay off. Gamblers operate off of edge, so if you combine dividend sharing with lower house rakes, it is not unreasonable to believe they can peel off a piece of centralized online poker players.
Looking past gambling, I think there is a possibility we see this model pop up elsewhere. The eco-system within crypto may not be robust enough yet, but its not far fetched to imagine applications that issue tokens that pay dividends based on ad revenue, digital items sold within games, or other revenue producing content. I think the key here is the potential network effect. If product A and product B have no discernible difference in quality, and product A produced dividends while product B doesn’t, I would make the leap to predict product A gains a network effect much stronger then product B. This however, is just a thought experiment and we are still seeing the early stages of how this model plays out.
FINAL TAKE
So should you invest in any of these dividend tokens? Personally, I think these sites are worth exploring, but I am not ready to call any of them rock-solid investments. I see sites with potential, but it is hard to go on nothing but faith that developers will continue to roll out enough new content to produce meaningful dividends and not lose users elsewhere. If one or more establish a track-record, or a very reputable name steps into the space, then it may be time to reconsider. I am not an investment professional, but I think it is worth exploring to see if one site’s model gives you more confidence versus the field. Play some games, explore, and jump into the telegrams/discords to get to know the teams. Plus, the minimum bet is only a few cents given the current price of the base tokens (most of these are on EOS/TRX).
These dividend models really show off the power of crypto — dynamic dividend payment for the entire life-cycle of an application. Stocks pay out dividends once a quarter, this pays out daily into your wallet, making them available for reinvestment immediately. It does come with substantial risk however. My feeling is many of the teams have not been vetted, and there is no idea how tax authorities will treat these tokens.
Side Note: Be careful, and please get help if you have a gambling problem. Please don’t gamble away all your crypto, lose it to old fashion way like the rest of us…holding it ;).
