This is not legal or financial advice; only a fool would argue otherwise.
Hello again, dear reader. When we last left off, we just created 20 URING tokens and listed 19 of them on Uniswap exchange. The exchange then gave us this warning.
The last sentence is key, as it highlights Uniswap’s dynamic pricing method. Basically if I buy a URING token at 0.1137 ETH, the next purchaser is going to have to pay 5.25% more (0.1197 ETH). If you think that’s bad, the person after him is going to have to pay 5.54% more. In fact, the rate will keep on increasing unless someone sells their URING token back, in exchange for ETH. This constant increase will mean that Uniswap will never sell out of a paired token. The closer you get to selling out, the higher the price goes, up into infinity.
I’ve noticed sometimes my readership drops off whenever I include too many numbers in a single paragraph. As such , I’m not going to include the actual math that makes this all work. However, if you’re interested, here is a good write up.
All you need to know right now is that the price of URING tokens will increase incrementally with each purchase.
“But why on Earth would someone pay that much for cheaply made plastic rings?”
Wow, rude. I put a lot of love into these rings.
Yes, of course you’re right that nobody will pay an exorbitant price for plastic rings (although if someone is kind enough to buy one to support our work, I will follow through and send one). For dynamic pricing to reach its potential it needs something rare and highly in demand, like Tickle Me Elmo circa 1996. From Wikipedia:
Tickle Me Elmo was released in July 1996, with a supply of 400,000 units. […] Promotion was helped by Rosie O’Donnell, who had shown the toy on her popular TV show in early October. O’Donnell’s “surprise plug” created unexpected demand for Elmo, resulting in shortages in the stores that sold it. The scarcity of the new toy provoked a “shopping frenzy.” Two women were arrested in Chicago for fighting over the doll, while in New York some people ran after delivery trucks hoping to get their hands on Elmo before it reached stores. Someone allegedly purchased a Tickle Me Elmo for $7,100 in Denver.
Imagine, if you will, a Tickle Me Elmo token. The seller could place 400,000 tokens on Uniswap with each token representing the right to purchase one Elmo doll. The price would increase automatically with each purchase, allowing the manufacturer of the rare item to capture most of the windfall profits.
Let’s say Bob purchased a Tickle Me Elmo token on Uniswap before all the hype at a price of $10 dollars. He plans on redeeming the doll around Christmas time for a friend’s son. However, he learns about the Elmo frenzy and decides to check again on the price: $100! Far more than he had planned to spend on a friend’s son. He quickly sells the token back to the exchange for a $90 profit, and the price for the Elmo token decreases automatically.
Meanwhile, the price increases are collected as a fee that goes back into the pool of paired tokens. In other words, the manufacturer — who first put the tokens on Uniswap — collects the increases in price as fees. If there’s a sudden sell off, the manufacturer collects the decrease in price (relative to the paired token) as fees.
Zoom out and you see a highly efficient market for a rare product operating autonomously. A price increase incentivizes token holders to sell, thereby decreasing the price, which opens the market back up to more buyers.
No waiting in lines. No bum rushing a black Friday crowd. No getting elbowed by a soccer mom for the last Elmo doll. Just an exchange with a genius algorithm that’s available right now for anyone to use, even me with my rings.
But you don’t even know if I’ll follow through and deliver on the rings, do you? Or what if I only tell you that I made 20 of them, but later decide to make more? That’s where creating seller liability comes in. I know I said I’d talk about OpenLaw in Part 2, but it really does deserve its own post. Thus, you’ll have to wait for Part 3, but I promise it’ll be worth the wait.