IOTA: an Update on Token Distribution and Exchange Launch
This is an update to my older post on IOTA distribution.
IOTA is a third generation blockchain that is actually working without blocks and without a chain. It uses the concept of a tangle instead. This allows to solve three crucial issues that severely limit current blockchain solutions. The IOTA protocol
- is highly scalable,
- has zero transaction costs, and
- allows offline transactions.
This makes IOTA the perfect fit for a Machine Based Economy, that is, the Internet of Things as I laid out before in in a series of blog posts.
IOTA is different compared to other blockchain innovations. Instead of building hype and become listed on an exchange as fast as possible to the current wave of enthusiasm that many already consider a bubble, IOTA was developed for years with the sole purpose of getting things done before anything else. This includes a lot of collaborations with heavyweights from various industries for real world use cases rendering IOTA a technology solving actual problems instead of a technology searching for problems it can solve. Recently the IOTA mainnet was upgraded and the network is now fast and stable clearing the way to the first exchange listing on Bitfinex on the 13th of June 2017.
As a guest author of Altcoinspekulant I take this as an opportunity to reflect on the updated distribution of IOTA tokens that can be analyzed by the latest snapshot from 09thJune 2017 and compare it to the distribution after the last two snapshots. This will give us insights into how IOTA has grown and spread across the community in the past months.
Since no mining process is involved in IOTA, all 2,779,530,283,277,761 Iota or roughly 2,800,000 Gigaiota (Gi) exist since the very beginning. All of these tokens were sold to investors in an ICO that ran from 25th November to 21st December 2015. That is, no tokens were kept by the developers. Instead the developers used the collected Bitcoin to finance themselves and the technology. In addition, the IOTA community built its reputation as being generous donators and financed various projects in the meantime while the developers have set up a foundation (“Stiftung”) in Berlin to further foster the non-profit character of IOTA.
On November 27th around 48% of all Iota was claimed by their owners. Until the 4th of February, additional 12% of Iota was claimed for a total of 60%. The number of addresses with a positive balance increased from 472 to 657 (+39%) and the number of addresses with more than 1 Gi increased from 334 to 494 (+48%). The time to claim IOTA ran out before the recent snapshot so that now all tokens are issued — with all unclaimed tokens now being in the sphere of the developers. It is not known how much remained unclaimed, but a good guess could be to add the top two addresses, which are known to belong to the foundation/the devs. This would be 406,834Gi or around 14.6% of total supply.
Over the past months the OTC (“over the counter”) trading of IOTA intensified with the help of YDX exchange ran on a slack channel (it is closed by now in anticipation of the trading launch at Bitfinex). Before the snapshot there were still 1,151 traders with a positive IOTA balance at YDX exchange — these are more positive balances than addresses with positive balances existed at the snapshot on 04th February 2017. Adding the balances from YDX exchange to the addresses at the snapshot (and taking out the IOTA address of the exchange) yields 5,229 IOTA addresses with a positive balance on the 9th June 2017. That is +696% than on the 04th February and +1,008% more than in the 27thNovember and it shows that IOTA got much more widespread recently.
Given that all claimed IOTA are in circulation, it is no wonder that the number of addresses increased for all sizes of holdings. At the same time, addresses with smaller balances increased much stronger than high value addresses: for example addresses with more than 1Gi increased from 494 to 2,851 (+477%) since the last snapshot while those with more than 10,000Gi increased from 48 to 55 (+15%). This suggests that new addresses are less often whales compared to old addresses and that tokens are distributed from the old investors to new investors.
This drain of tokens from the large addresses to the new addresses can also be seen by the % holdings of the top ten addresses: it decreased from 35% in November to 29% in February to 22% in June. (The Foundation funds were taken out of consideration here, since they were not included in the earlier snapshots. Also, the balance of YDX exchange was excluded, since it represents many smaller investors.)
While the concentration among the top group has decreased, the GINI coefficient as a general measure of wealth has actually increased from 82% to 91%. Since the wealth of the top holders has decreased, this can only be due to the sharp increase in lower value addresses.
For comparison: the GINI coefficient of global wealth was 91.5% in 2015 and for Bitcoin, the GINI coefficient lies at 99% suggesting a much higher concentration of wealth. With the launch of exchange trading it is to expected that IOTAs will change hands from early investors to new investors. This will distribute the tokens across a larger user base and further reduce the risk of a token being hijacked by a small group of investors making the token their play ball to, for example, manipulate prices.
For investors in the crypto space the big question in whether IOTA is a good investment. The short answer is a big YES. IOTA is the only technology in the blockchain space with scalable real world applications. It is still young and needs development. But it has a huge potential to become the one protocol of the Internet of Things and the backbone of a Machine Based Economy. This makes IOTA a must for everyone looking for a long-term investment in the crypto space.
The question is when to invest: before the exchange launch or afterwards? On the OTC market the price increased from 0.068BTC/GI (or 0.000068BTC/Mi) to 0.2BTC/Gi (or 0.0002BTC/Mi) in anticipation of the trading launch. Some people raise the voice that whales will use the opportunity to load off some of their investment leading to a decrease in price. Both points are valid: (1) it is perfectly sensibly for early investors to reduce risk by rebalance their portfolio by taking some profits, some selling pressure is indeed to be expected and (2) Exchange listing will expose IOTA to many new traders and others. Since IOTA was trading OTC for such a long time already, it can be expected that many early investors already sold off parts of their investment. At the same time, not all potential investors have trusted the current escrow system in slack channels and are waiting for a regular exchange to launch trading. A further increase in price is thus not unlikely — but might be priced in already.
Of course, there is no way of predicting the actual price action due to an exchange launch. And this is why potential investors should focus on the long term. Investors looking to buy IOTA might want to use one part of their funds to buy OTC before the exchange launch, another part at exchange launch and a third part in 2–4 weeks, when most of the price action has settled. The acquired IOTA should then be locked away for the long term or, even better, used for the development of new applications on this fabulous technology.