Tokenomics: Who holds bookmakers hostage and how they are rescued by blockchain
Scams are one of the main reasons Bitcoin has been losing its value lately, as they undermine trust in blockchain-based and tokenized projects and the field of crypto in general. It’s not that hard to guess why companies, that otherwise wouldn’t be able to finance its business or simply wouldn’t exist, choose ICO to raise money. But why would a profitable and well-established company jump into this? What tokens can do that alternatives can’t? Is it just hype or are there some real benefits of tokenization for already flourishing enterprises?
It turns out, tokenization is not just about raising investment through ICO, it can be a great solution to company’s problems, and — guess what — a long-term one. According to Reuben Bramanathan, Coinbase Asset Management expert, there is no perfect token sale structure, and when it comes to long-term success, token usage mechanics and whether they strengthen an existing business model are far more important than a properly launched ICO. This is exactly what tokenomics is made for.
Tokenomics is concerned with economic relationships that exist within a project-specific ecosystem built around token.
There is a fundamental tendency that tokenomists notice. Token is not just a means of payment anymore. ‘On the contrary, projects that limit their token usage to this function only, are becoming less and less successful,’ says Vasily Sumanov in the exclusive interview with PORT.
As an expert in tokenomics he helps teams design the specifics and orchestrate the mechanics of token distribution. His most recent project is an online platform for sports betting. For a company with significant market presence and seemingly thriving business model. With hundreds of sports games happening worldwide every day, guaranteeing a steady cash flow, and an exponentially growing amount of loyal customers — simply because most of them don’t have trust in or access to any offline alternative. Why would such a business need blockchain in the first place?
Here are some problems bookmakers have been suffering from:
1. Lack of trust
Gangster bookies from the movies and TV shows (who watched ‘Peaky Blinders?’) are not that far from reality, given that money can buy anything, from a match outcome to a sports club to a whole league. Bookmaker houses are forbidden by law in many states, while ardour still remains a national trait (maybe these two things are actually connected), so the population just can’t help it. In order to serve their people, bookmakers, for example, in China or Hong Kong, have no choice other than to go underground and even criminal. This completes the vicious circle of mistrust. Being left unpaid is probably the best thing that can happen to a problematic customer under the circumstances.
Even in countries where betting is absolutely legal, players can get screwed, as well. If a bookmaker notices that you are winning too often, he will simply ban you from further bids.
2. Cash is the King (of Trouble)
Fiat money is a pain in the accounts of both a bookmaker and a client. It might not be necessarily illegal to have proceeds from betting, the money can be ‘grey’ and still bring trouble.
Let’s say you were crazy enough to bet $1,000 against Germany in their game with Korea in the recent FIFA World Cup and unexpectedly won (when favourites lose, which very seldom but happens, bets against them can make up to 15x-20x in profit). To actually get paid will become the least of your problems. You will need a few installments to receive the whole amount of $20,000. Since payments above $5,000 fall under the regulation of currency control, you will probably need five transactions to be able to theoretically withdraw your winnings. Theoretically, because shall a central bank of a developed country suspect the source of your income is connected to gambling, your account will be frozen with all the money you were so happy to win.
Regulatory pressure forces bookies to seek illicit solutions: they bribe, open offshore banks or buy out existing ones in third world countries. Otherwise, to be in good terms with the currency control they would need a license, which can be even harder and more expensive to get, especially in London, comparing to, for example, Malta or Curaçao (country, not liquor).
3. ‘Fool me once…’
The third issue logically arises from the first one, that of general distrust. The whole business model of betting seems to be built to take advantage of players, similarly to a casino that always wins. To dispel this not-really-myth, bookmaker companies spend millions on marketing and promotion.
What seems to be a company’s problem turns into the problem of the players — to offset the growing expenses on advertising and fiat infrastructure bookies increase commissions on betting and withdrawals.
Some of these issues, like limited or zero access to local betting platforms due to regulations, are solved with shifting from ‘physical’ bookmaker houses to online solutions. However, there has been no trustworthy way to make transparent transactions nor to avoid millions in spending (and, consequently, high commissions) just until recently.
Bookmakers that stick to traditional business models are the hostages of these very models. But will tokenization really solve their problems? And if not, what will?
So if you’ve been reading the article to find out who holds bookies hostage — finally, you got your answer. But stay tuned to find out how they are rescued by blockchain.
Any ideas, by the way? — — — — — — — — — — — — — — — →Read Part II
Vanessa Emrith