In the world of digital assets, there is a wide variety of different token models, many with unique mechanisms and features. Despite this variation, almost all token models generally fall into one of two categories — inflationary and deflationary models.
Inflationary Token Models
An inflationary token model is one where new tokens are added to the market over time, often through some regularly-timed model. This is best demonstrated from a cryptocurrency like Bitcoin which issues 12.5 new Bitcoin every 10 minutes as a reward for mining the next block. Sometimes new tokens aren’t issued via mining, but by the company which created the tokens selling them off in order to fund operations. This can be seen from a company like Ripple (XRP) which has sold off around $1 billion worth of tokens over the past year alone. Outside of cryptocurrencies, almost all traditional fiat currencies operate on inflationary models, with the United States inflating its currency by ~2% per year for the past several years. In the worst cases, this inflation can increase uncontrollably as the governing bodies of the currencies run themselves into massive debt and print more and more money to pay off their debts. Examples of this can be seen from the recent hyperinflation disasters in Venezuela and Zimbabwe where citizens have been carrying wheelbarrows of cash to grocery stores to pay for their food. These countries provide a stark warning about the dangers that inflation can present.
Despite these dangers, the gradual inflation of currencies can have some benefits. For example, many economists agree that the 2% inflation of the U.S. Dollar allows the reduction of people’s debt, the increase of their wages, and an increase in general spending. Generally speaking, however, most of these benefits don’t apply within the world of cryptocurrencies. Even for the most liquid and popular digital asset, Bitcoin, prices have seen massive rises in the face of it’s “Halvening”, suggesting that the lower the inflation of a cryptocurrency, the higher its intrinsic value may be as seen by the general public.
Deflationary Token Models
A deflationary token model, as one may expect, is one where tokens are removed from the market over time. Tokens can be removed from the market via a variety of methods including token buy-backs and token burns from the token creators. The main benefit to models like these is that they prevent the market from being flooded with excess tokens as more are mined, created, or sold off by the creators. While some may argue that decreasing the supply will decrease the actual availability of the token, this is fortunately not the case with cryptocurrencies, as they are divisible up to the 100 millionth, essentially eliminating this problem. The main issue that deflationary tokens present is that they will often be seen as a security in the eyes of regulators. This is because the deflationary mechanisms used to buy the tokens back from the market are generally dependent on the success of the company. If the company performs well, more tokens can be bought from the market which will often improve the health of the ecosystem, and if the company does poorly, they will not have the resources to buy as much off the market leading to an excess supply and often times, and unhealthy ecosystem. Because of this direct relationship between the success of the company and the health of the token ecosystem, these deflationary tokens will almost always be classified as a security. Fortunately, however, if the creators of the token are careful and follow all necessary guidelines around the distribution and sale of the token, there will be no effect on the health of the ecosystem from its classification as a security.
Current’s $CRNC Token
As the fog surrounding the regulatory standing of cryptocurrencies cleared over the last year, we were able to gain an enormous amount of insight into which kinds of token economic models were working, which ones weren’t, and what was viewed to be acceptable by the United States regulators. In the end, two of the overarching themes we noticed were:
- Many of the “utility tokens” that were created in 2017/2018 are considered to be securities in the eyes of the United States Securities Exchange Commission (SEC). As such, in order to safely do business in the future, token economic models must accommodate the rules and regulations surrounding the commerce of securities. In our case, this meant partnering with Coinbase-backed Securitize to serve as a transfer agent, a practice common in the traditional equity markets; building relationships with exchanges with the proper licenses to allow the trade of digital securities; and ensuring our token model was fully compliant, as discussed further in the next point.
- Token models that involve the constant release of additional tokens on the market tend not to succeed past the initial hype of the project. As we watched some of the most hyped projects in the space fizzle and die off over the last year, we realized it was extremely important that we did something different to ensure the long term success of our ecosystem. As we prepare for our token unlock in Q4 2019, we wanted to ensure that the success of our token was directly tied to our success as a business and the revenues generated from the app. This was the inspiration for our token model.
The Deflationary Model Behind $CRNC
To fully understand our model, you must first understand why Current chose to not directly integrate $CRNC into our ecosystem, and instead, settled on an in-app currency, simply referred to as ‘Points.’
While developing our model, we required a stable medium of exchange which was easily adopted by global consumers. We could have satisfied these early requirements with real-time variable pricing and properly designed user experience. However, that model also ran into hurdles when considering the variety of regulatory and compliance requirements from different jurisdictions around the world.
In the end, we developed a model that satisfies all of our requirements, and does not require the further issuance of supply. Our Points system provides a stable method of exchange with zero volatility, no additional on-boarding for the user, no paradox of choice between $CRNC Tokens, other cryptocurrencies, or fiat, and finally, almost no computational tax on the user due to the expense of continually writing to the blockchain.
In order to directly correlate the value of the $CRNC token to the popularity and usage of the Current App, we intend to introduce a variety of deflationary mechanisms.
The first mechanism, Bonus Bucks, will help facilitate value transfer from our product’s users and their redemptions to $CRNC token holders and early participants of the Current ecosystem.
The mechanism by which we envision Bonus Bucks to work is as follows:
- A user earns Points in the Current App through whatever means they chose as they normally would.
- When redeeming these points, a portion of the value of a users points will go towards buying Bonus Bucks. For example, if a user were to redeem for a $4 gift card they would receive 1 Bonus Buck in addition to the $4 gift card.
- For every Bonus Buck purchased by a user, Current intends to spend at least $0.25 per redemption to buy $CRNC off the market of already distributed tokens through our market maker, exchange or OTC partners.
- The user can then spend their Bonus Buck to earn while streaming at an accelerated rate for a preset period of time. At the end of that time period, their Bonus Buck lapses and the user will have to redeem more Points for another reward in order to obtain more Bonus Bucks and continue to earn at an accelerated rate.
Direct ads sales
As the size of the Current Network increases with new users, we intend to allow advertisers to purchase ad impressions directly within the Current Network. Today, Current relies on programmatic ad networks to power the platform. Over time, our goal is to transition a significant portion of the system to a direct-sold inventory. Ideally, direct-purchased advertisers would uniformly buy ad impressions with the $CRNC Token and a percentage of these ad sales would go directly towards additional token buy-backs and token burns. However, we recognize the difficulties or resistance this presents to those with long-developed biases associated with a fiat-only economy. As such, we plan on offering two ways to purchase these ad impressions:
- First, ad impressions can be purchased directly with $CRNC Tokens. To encourage this particular option, we intend to offer companies a discounted rate or in the form of bonus impressions if they use $CRNC Tokens. As the use of $CRNC Tokens as a means to participate in the Current Network gains widespread adoption, these discount incentives would be phased out over time.
- Second, ad impressions can be purchased with fiat currency. To ensure that these fiat transactions are still providing overall value to the Current Ecosystem, we plan to use a set amount of this fiat to purchase $CRNC Tokens off the market to further stimulate the Current Ecosystem. Similarly, as the use of $CRNC Tokens as a means to participate in the Current Ecosystem gains widespread adoption, planned $CRNC Tokens purchases in connection with fiat ad purchases would be phased out over time.
$CRNC Token Burns
Current’s model is considered deflationary, in the sense that the total supply of tokens is limited to a finite number of $CRNC Tokens and is intended to decrease through a variety of pre-scheduled burns. At the time of our token sale, Current earmarked 1 billion $CRNC Tokens to be issued and/or set aside for typical participants in these projects: (i) investors; (ii) team members; (iii) bounty participants; and (iv) to operate the underlying project. Over time, we concluded that the Current Project may not need all 1 billion $CRNC Tokens in order to create an efficient ecosystem. Therefore, Current plans to cancel or burn a minimum of approximately 350M $CRNC Tokens; bringing down the total supply to a maximum of 650M $CRNC Tokens in order to create more optimal token economics for the Current Ecosystem.
At its core, the goal of our economic model is to provide value to all stakeholders in the Current ecosystem. We firmly believe that the unique deflationary model we have planned will provide a strong foundation for the growth of the $CRNC token and perhaps even set a precedent for other projects in the future.
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[PLEASE READ] Important legal disclaimer: No money or other consideration is being solicited by this communique, and if sent in response, will not be accepted. Our discussion may contain forward-looking statements that are based on our beliefs and assumptions and on information currently available to management. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “is designed to,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.
These statements involve risks, uncertainties, assumptions, and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each such forward-looking statement, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements include, but are not limited to, statements about: developing and designing the Current network, including the $CRNC token and its future utility; the anticipated development and growth of the Current Network; maintaining and expanding our base of users; our anticipated growth and growth strategies and our ability to effectively manage that growth and effect these strategies; our expectations regarding regulatory developments and their effect on the Current Network, including the ability of applications on our network to develop a user base and a successful business model; and potential future listings on an exchange or ATS. We cannot assure you that the forward-looking statements will prove to be accurate. Furthermore, if the forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to update any forward-looking statements publicly, whether as a result of new information, future events or otherwise, except as required by law.