Emotiq is an upcoming “next-generation” blockchain project that is claiming to be capable of processing many transactions per second as well hosting smart contracts written in natural language. The team and technology are seemingly promising, but the economics behind the project are downright horrifying. Investor beware.
We are Piranhas
Next generation blockchains are all the rage in the Initial Coin Offering (ICO) space these days. Over use of technical buzzwords, promises of high transaction throughput, and proclamations of innovate, yet unproven, ways to accomplish unrealistically quick transactions dominate prime marketing space and the depths of many of today’s whitepapers. The endless supply of upcoming ICOs and the exuberance projected by their creators puts investors in a constant state of investment frenzy.
The mania created by projects, their community, and their influencers fosters fear of missing out (FOMO) on investing. Unfortunately, the excitement created by teams and the echo chambers that are their communities frequently cause prospective investors to prematurely contribute to an ICO without adequate due diligence and research. I often find myself reflecting on the similarities between the excitement, FOMO, and hysteria surrounding ICO investment and the piranha feeding frenzies seen on TV.
From a team’s perspective, the over abundant buzz and popularity around ICO investing creates a perfect scenario where greed is overlooked by investors. Teams are able to get away with murder (as discussed in Who is Killing The ICO?) by providing favorable terms to pre and private sale investors and less favorable terms to later round investors. Emotiq is one of the latest perpetrators of this ICO scheme.
It’s All Good Until… It’s Not
Emotiq checks many of the right boxes in terms of having a good team, a reasonable roadmap, a coherent whitepaper, and a increasingly vibrant community of potential users and investors. A prototype is in the works and it is clear that the team is writing code. These are all great things that I look for when investing. On the surface, Emotiq appears to be a solid investment.
We need to take a closer look at the token economics to truly understand the risk of investing in Emotiq. Things get scary when you dissect the tokenomics of this ICO. Investors must understand the risks presented by this ICO and the implications its unfavorable tokenomics may have once the tokens trade on exchanges.
The team will sell a total of 51% of the ecosystem’s total tokens. The hard cap will be $39,000,000. The team is keeping 35% of the total tokens. Regardless of the teams vesting structure, this is an incredibly high amount of tokens for a team to keep and it bothers the heck out of me.
Here is a breakdown of the various stages of the Emotiq ICO:
- Initial Seed Round: 15% of the total tokens will be sold for the price of $.0133.
- Private Round 1: 14% of the total token supply will be sold at a rate of $.07 per token.
- Private Round 2: 10% of the total token supply will be sold for $.10 during the second private sale round.
- Private Round 3: 7% percent of the total token supply will be sold and tokens will be sold at $.1286.
- Private Round 4: will offer only 5.25% percent of the project’s total token supply and the tokens will be sold at a cost of $.1524 each.
The Emotiq team has structured their sale such that seed investors will realize a huge return on their investment by simply gaining access to the exclusive seed round. A seed investor will realize a 1146% gain over the investors who bought tokens in the final round. This large gain is predetermined by the Emotiq team and not the market.
The token lockup periods established by the Emotiq team are…concerning. Seed round tokens will unlock at a rate of ten percent per month. This means that a total of one and a half percent of ecosystem’s total tokens can (and will) be dumped on exchanges at the earliest possible opportunity. It is important to note that fifty percent of the tokens from other ICO rounds will unlock immediately, with the other fifty percent unlocking at a rate of ten percent per month. Count on seed investors taking profits immediately and an sudden decrease in price for Emotiq tokens once they hit exchanges.
Emotiq has structured their ICO to guarantee huge profits for their seed round investors. Despite the project looking promising on many accounts, the Emotiq team has created a scheme where “private sale” rounds will pad the pockets of the seed round investors.
Exposure to Risk — Limit it!
As an investor, it should be your primary goal to reduce your exposure to risk. This is particularly relevant to cryptocurrency and ICO investors because these markets are exceptionally risky. An especially easy way to mitigate risk is simply not to invest in ICOs that are structured to guarantee early round investors unreasonably high gains at the expense of the rest of the community participating in the ICO. Do your own research, but it is evident that Emotiq may be a token that is better off acquired once it hits exchanges.
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