The ICO hype is over. It’s time for real utility token economics.

Are you planning to launch an ICO post the 2017 ICO boom? Times have changed. You won’t get away with vague concepts. Instead, like any other startup you need to focus on user value, and design a token economy around that user value.

First of all, consider if you really want to launch an utility token. If the utility of your token doesn’t go beyond ‘voting’ on something, then I highly doubt it will be a successful utility token. Don’t be lazy and consider doing the paperwork and actually launching a security token, which is more similar to a traditional stock in your company. Where investors could benefit if your company increases in value. While it might seem attractive to just launch a quick utility token, you will have very upset investors in your community channels if they don’t see the token going anywhere.

Ok, so if you really believe an utility token is the best way to fund your company, then it’s time to design a proper utility token. Let’s have a look at some examples and what we can learn from them.

Low utility tokens & decreasing trading volumes

Many of the tokens out there spiked in value during December 2017 and January 2018 (related to the bitcoin and ICO hype back then), but since then most have basically flatlined. Most worrying to me is the total decrease in trading volume of these tokens. For an utility token that is meant to be used in your ecosystem, that doesn’t seem like an healthy token economy. There can be many reasons for this decrease in trading volume, but generally speaking I think it’s due to lack of a good token economy design. Let’s have a look at some examples.

In the case of Aventus (a ticketing solution), the launched product is only a protocol on which other companies could use to build a ticking product. Many technical protocol projects remain without active users, so a token economy is hard to get started.

Another example is BRD (mobile app wallet), this token can be used to unlock premium features in their wallet, but these features seem to be little used by users. Without a strong reason to use a token, this token economy doesn’t seem to get off the ground.

Looking at Status (a chat app and dApp browser ), there is a clear utility where the token enables private chats and is needed for many of the functionalities. Yet to use the core features of this product users must own this token. Making an utility token that restricts new entry and usage too much will hinder user adoption, and without user adoption an economy will be hard to start.

High utility tokens & increasing trading volumes

There are some projects who’s tokens seem to break this pattern, and have increasing transaction volume post the January 2018 spike. Let’s have a look at what these projects do and how they designed their token economy.

Utility tokens with increasing transaction volumes

GET is a token used in by the GUTS.tickets product (ticketing platform). Event organizers need to buy and stake this token to use the platform’s smart ticketing solution. GUTS has reported over 70.000 ticket sales via their platform, enough user activity to see an increase in trading volume. Also their stability fund aims to hold 14% of all tokens and buys them for €0,50, creating a somewhat stable bottom token value. While it is early stage as their startup grows, it seems good attention was spend on creating user value and designing a token economy.

The Steem token is mainly used by Steem.it. A reddit-like content platform that rewards popular content creators. With 0,5M user accounts they have a nice platform where some content creators are able to earn an income. To increase the popularity of your content, you can get more up-voting power by converting your Steem token into Steam Power and staking it. Their tokens are not capped at a fixed amount, instead they inflate 100% per year. This creates a very interesting token economy, but is too complex for mainstream users to fully understand. The platform definitely has user value and trading activity of their token continues to grow.

Sia.tech is a decentralized storage solution. Users that want to host their files in this decentralized cloud pay with Siacoin. To make sure storage providers don’t leave with your payment before delivering the service, the platform keeps the Siacoin in collateral until the end of the smart contract period. Sia also makes sure the storage provider provided enough uptime and transfer speeds during that period. Thus this token enables trust-less decentralized storage. One of the clearest and sharpest token economy designs I’ve seen.

Conclusion (tl;dr)

If you are planning an ICO in 2018, seriously consider if a security token isn’t a better fit for your project. Many utility tokens are barely traded since last year’s ICO hype. The tokens with increasing transaction volumes have one thing in common: a real usable product, a good number of active users, and they designed a proper token economy around the user value on their platform.

Note: At the time of writing I was not involved in any of the projects. That has changed now a few months later :)