A new paradigm for blockchain investments
Inbot did not have an ICO. After listing our coin on StellarX, we spent days on brainstorming a better financial instrument for a token community like Inbot.
There are many fundamental problems in raising equity investment to a token community. A VC investment in a token company would automatically create an expectation of maximizing the profits of the entity issuing the token, making the token holders essentially suckers to be preyed on by the investors.
That would be no different from building a centralized monopolistic corporation like Facebook or Google.
Equity investment into a token issuing company is fundamentally against the core idea of decentralization. The issuing entity should be a non-profit and any for-profit businesses should have an equal opportunity access to the token ecosystem. Otherwise the created market is not a level playing field.
Why do we need decentralization?
Chamath Palihapitiya, a controversial Silicon Valley VC and the founder of Social Capital, recently wrote in his annual letter to investors that the current model of VC-backed capitalism has turned into a “dangerous, high-stakes ponzi scheme” that mainly profits tech giants like Facebook and Google.
I agree. We need new, better models for capitalism and more equitable ways to share the value created with all stakeholders. Otherwise the humanity won’t be heading towards a technology-enabled abundance, but rather towards mass scale manipulation and control by corporations and oligarchies.
Inbot is not a fully decentralized community. To simplify the business between companies who want to grow, and the members who want to earn from their help, we only require a single agreement with the platform. In a fully decentralized world, every company would have to create a separate deal with every member, adding a lot of complexity and bureaucracy.
But we are working towards decentralizing the value created by the platform, and building new governance mechanisms that remove the ability of special interests to capture the direction of the community. We want all the parties, the investors, the businesses and the community members alike to benefit from the value created by the platform.
The new financial instrument we imagined is an attempt to create a high investor return potential that is directly connected to the value delivered to the members and businesses on the Inbot platform.
The new instrument: token collateralized loan
We are issuing a token collateralized loan (TCL) with InTokens as a collateral, with the value fixed at the moment of issue. The investor has an option to use the collateral freely to receive partial or full repayment for their loan, at the moment they desire.
TCL as an instrument has multiple benefits:
- The Investor can put the loan to their balance sheet and avoid the hassle with the early volatility of the token value. Because the loan is not a convertible note, the tokens are simply an alternative currency for the purposes of the payback.
- With the token collateral, the instrument has the same upside as a VC investment, but with continuous liquidity, initially from penny stock levels to increasing market depth as the business grows. This removes the need for the the receiving company to exit, and enables the return to be captured based on the available market liquidity.
- By converting the purchases of businesses on the Inbot Ambassador platform into blockchain-wide market buys of tokens on the Stellar blockchain, our business growth directly boosts the liquidity and the market value of InTokens. I don’t know of any token that has managed to implement this direct market mechanism yet. The nature of the Stellar blockchain makes it possible without any centralized entities required as the exchange mechanism, removing all middlemen from the process.
- This results in a transparent and instant feedback-loop from investment to revenue growth to token value. It is a paradigm shift from today’s opaque startup equity portfolios that return value to the investors via corporate profits rather than from revenue.
- The instrument does not create conflicting interests in the ecosystem, as the investor value does not depend on monetizing the community members. This is important, as the core innovation of the token communities is to empower the membership to be beneficiaries rather than fools to be ripped off by centralized corporations.
How continuous liquidity works?
Here’s a hypothetical example of an imaginary token company raising funding with the token collateralized loan.
A token project raises one million euros as a loan. That plus the expected interest worth of tokens are set aside as the collateral, at the current value. Let’s assume the total + interest to be 1.3M euros. Let’s assume the following token value development over 7 years.
The investment drives the growth and liquidity of the ecosystem, and the token value grows to 2x the original value during the first year. The market liquidity allows the investor to drop 1 million worth of tokens to the market without crashing it. The investor decides to draw the said €1M worth of the collateral pool, which is now worth €2.6M. The remaining pool after the draw is now €1.6M. The investor has now returned their initial capital.
During the second year, the token value drops 50% back to the original value, and the remaining collateral pool is now worth €800k. The investor waits.
On the third year, the token value climbs to 4x the original value, and the remaining collateral pool is now valued at €3.2M. The investor decides to draw another €1M, leaving €2.2M worth of tokens to the collateral pool. The investor has now doubled their investment.
On the seventh year, the token value climbs to 20x the original value, and the remaining collateral pool value is now worth €11M. The investor draws it all, and returns a total of €13M from the original investment of 1M.
What do you think? Could this be a new instrument for the blockchain companies to leverage? If you are interested in discussing this in more detail, contact me on LinkedIn, Telegram or send email to mikko at inbot dot io.
Berlin, 10.11.2018
Mikko Alasaarela
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I am founder and CEO of Inbot. Join the Inbot Ambassador community today, and earn long-term income from AI simply by making intros.
We have our own Stellar-based token named InToken. We offer you long term token income for your trusted referrals to businesses. Join us at InToken Telegram Group to discuss and receive free tokens.
If you liked this story, check out some of my previous stories:
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The Church of Currency
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The Rise of Emotionally Intelligent AI
The Human API
How Humans will merge with Machines
Tokens could give birth to AGI, Artificial General Intelligence
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