Maintaining token liquidity: what are the benefits and which mechanisms to choose
One main thing should be understood. Tokens are not shares. They are more like paid API keys. Nevertheless, they can give a 1000-fold reduction in time to liquidity and a 100-fold increase in the customer base. It is compared to traditional means of financing technology in the US (such as Kickstarter on the most successful projects). This, in turn, will allow financing projects of a new type that previously have remained outside the field of venture capital opportunities, including open source protocols and projects with the potential for a rapid two-fold return.
Tokens are a new technological model, not just startups
The tokens have a price, so they can be mass produced and sold at the stage of the birth of a new protocol. The aim is to finance its development, just as start-ups used Kickstarter to fund product development.
Usually, money, in this case, is in the form of a digital currency. It goes to the organization that produces tokens, which can be both a traditional company and an open source project fully funded through a blockchain.
The same as increasing sales is an alternative to raising funds, launching tokens can also be an alternative to traditional equity-based financing. Moreover, tokens allow financing a distributed infrastructure, which previously could not be financed. The example for that is an open source infrastructure. However, you should proceed with caution: before you start tokens, read enough of information and consult a good lawyer!
Tokens have an advantage in liquidity
The main benefit of tokens is more than a 1000-fold decrease in time to access liquidity.
The token gets the price right after the sale, and this price is freely formed on the international market without days off and lunch breaks. It cannot be said about the promotions. Until the liquidity comes out, stocks may take up to 10 years, and a token can theoretically be sold within 10 minutes. Although the creators of the token can and should cryptographically block tokens to prevent short-term speculation.
Regardless of whether tokens are being traded or used, the difference between 10 years and 10 minutes before the release of liquidity is a 500,000-time advantage. Of course, any valuation of the value will be higher and more stable within a 10-year period.
This huge liquidity advantage will in itself be the reason that tokens will dominate whenever they are legally and technically feasible since the indicator of the degree of the aggregate rate of average annual growth includes the inverse time to liquidity. Rapid achievement of liquidity allows you to reinvest in new tokens, which accelerates growth.
Tokens with a useful function
Tokens with a useful function are bought for use in the application. An example for this is Filecoin. This includes tokens with purely speculative value as well. An example is Bitcoin. The so-called UTXO (unutilized amounts that can be used in further operations) allow you to make notes on the block. At the same time, they do not give the right to go to court and demand that some company fulfills its obligations.
When you use Bitcoin, you do not enter into legal relations with anyone. You have only the right to write to the database and the hope that your money will stay in place and retain value when you return for them.
It can be said that in the case of Bitcoin, the asset is closely connected with the blockchain. It has value only because people agree to buy it, and it does not give the owner any right to demand anything from the others. In this situation, Balaji’s thesis on liquidity remains in force.
Why are “tokens with a useful function” more liquid and much more profitable than traditional types of assets now?
1. They are sold in uncontrolled markets to not very selective investors.
2. This is one of the few areas where banks can praise technologies in analytical reports for institutional clients. At the same time, they decently earn, by providing exchanges and other major players with a mechanism for short-term support of dollar liquidity. (Non-standard monetary policy + revenue mechanism for providing liquidity = decent and tempting profits).
What is ICO?
Against the background of new price records of Bitcoin and Ethereum, a new way of entering cryptocurrencies to market appeared. It is ICO, or “primary coin issue”. It appeared and received recognition. Not everyone, however, understands what it is and whether it is worth investing in ICO. In addition, in the US to regulate the ICO until it turns out not very good. Those who are going to invest in cryptocurrency, it will be useful to know why.
EiraCube will explain the most difficult moments.
Recently, bitcoin has seemed an immature, ridiculous and insignificant means of payment. But everything has changed.
As if confirming its importance, bitcoin has recently updated the record for value, when the price of one coin exceeded the $ 2500 mark for the first time. What can be said for sure is that since the appearance of the currency in 2009, the ecosystem of cryptocurrency has radically changed.
The market of cryptocurrency is no longer the same as it was at the time when bitcoin had to share media attention with light-tinted and not serious by nature dogecoin. At that time the rules of the Mt. Gox., Kapeki kiosks became favorites of the press when they began to accept cryptocurrencies. One of the most important metrics for assessing bitcoin was pizza.
Today the rate of dozens of cryptocurrencies is kept at the level of eight-figure sums, and the frequency of appearance of new players is increasing.
As new and new cryptocurrencies appear, it is reasonable to understand the point of the one already well-known type of transaction called the “primary coin issue”, or ICO. ICO is like an IPO, but in a sense, it’s the opposite of it. Despite the external complexity, this process has become a popular way to launch new cryptocurrencies.
However, as often it happens with new cryptocurrencies, the sphere lacks legal issues and dishonest players. Therefore, it is better to consider in more detail what ICO is in the current market of cryptocurrencies.
Fundamentals of ICO
ICO is a mechanism for raising funds, under the terms of which future cryptocurrency is sold for current, liquid virtual money. You list ICO bitcoins or ethereums and receive a New-Super-Duper-Coin-from-Billy or infamous CrunchCoin.
The Financial Times newspaper calls ICO “an unregulated release of cryptocurrencies, investors in which can earn bitcoins and other cryptocurrencies.” That is a fairly accurate description, especially if you pay attention to the word “unregulated”. We will return to this later.
Speaking of other solid financial media, the Economist magazine also paid attention to this mechanism. Here’s how the subject of purchase in ICO is described.
As the “coins” on the ICO, digital coupons are used, tokens issued on an indelible distributed register or a block on which the work of bitcoins is based. Thus, these coupons can be easily traded, however, unlike shares, they do not store information about the owner. […] Investors hope that thanks to the successful operation of the currency, the value of the tokens will increase.
This increase in value is an extremely important point in understanding what ICO is so attractive for. These transactions are not made from love for a particular currency. They are committed to a quick and big win.
It is noteworthy that not all ICOs are held for cryptocurrencies with their own blockchain. According to the Smith + Crown research team, some ICOs “launch “meta-tokens” based on Ethereum, Bitcoin, NXT, and others.”
Why not?
Thus, ICOs can be cryptocurrencies over other cryptocurrencies financed by third parties in the hope of a great future. This may seem insane, but in the world of cryptocurrencies, this idea is now flourishing.
This hype helps the ICO bubble not burst. In the same Economist article published last April, the figure cited by Smith + Crown is mentioned: “About $ 250 million has already been invested in ICO, with $ 107 million just for this year.”
This is a very large amount of money if we consider the absolute volume of transactions. Therefore, it is not difficult to understand why traditional business publications pay such importance. Following the money is their job.
Summing up, ICO is a new financial tool that helps young cryptocurrencies to start correctly.
