Blockchain needs more utility to justify its hype and drive adoption
By San Eng, Digital Alchemy
“The killer app for the blockchain is not tokens, but is the creation of private economies, new protocols or development ecosystems”
William Mougayar, author of Business of Blockchain and respected industry academic and influencer
With the continuing craze in ICOs — thousands of NewCos raising 8, 9 even 10 figures by issuing crypto-tokens with no real use cases and track records, traditional business people and investors are wondering if the world has gone mad, or if blockchain has changed the laws of economics.
No, it has not.
1+1=2, the earth is round and the intricate dance of supply and demand still drives asset values, including tokens.
We agree with Mr. Mougayar: “The only token that matters is the one being actually used.” No matter what is promised in the white papers, or how much capital raised, in the end, unless there is adoption and application, the token will be useless. In the long-run, this must hold true: utility value > usage > token appreciation.
What is the purpose of a token? Why do we need it, beyond ICO fundraising? Tokens can have utility, often (but not just) enabled by blockchain technology.
The truth is 99% to 99.9% of tokens won’t survive. ICOs are funding very early stage startups, inherently risky. In traditional seed investing as well only a small percent (1%? 10%?) are winners. So many traditionally funded startups failed too; the hype around ICOs driving up failure rates of blockchain projects, but the dust will settle. In end, any venture’s survival depends on quality of its team and value of its product.
Assume there are 5,000 tokens issued or in the works today, we see less than 5 to 50 (0.1% to 1%) with real use case. Admittedly we have not studied all tokens, but we have researched and invested in nearly 100 projects since 2013. We believe these five projects are good examples of ecosystem tokens with steadily growing usage:
- Ethereum (ETH): 1,700+ DAPPs (88% market share) are built on Ethereum. ETH price surged from $0.31 to $464 today (149,000%+)- far outpacing ETH transactions (7,500 same period), perhaps reflecting ETH’s dominance, market optimism for ETH’s future. Point is, investors rewarding ETH’s utility;
- Binance (BNB): BNB the token for the largest cryptoexchange has risen steadily with Binance’s incredible growth, both in users (9,000 to nearly 8m in one year) and utility (trading to virtual gifts to ecosystem); our previous article shares web search (proxy for usage)/price data;
- Brave (BAT): this leading blockchain-enabled browser token’s price has doubled since launch a year ago as it saw its registered users surged past 3m, and it adds more use cases; the tokens are used by advertisers and stakeholders in the digital ad/browsing ecosystem;
- SteemIT (STEEM/STEEM Dollars): the leading content sharing platform, using tokens to incentivize users and creators in its ecosystem, token has appreciated 3,600%, justified by its growth of users from 744 to one a million since 2016;
- “RefugeeCoin”: this is an unlisted, closed system token developed by the United Nations to help refugees. The Ethereum-based token is being used by over 100,000 refugees in Jordan, expanding to 500,000 people by year end. This token has displaced banks entirely for cross-border remittances, payments, saving millions of dollars in banking fees. The UN is expanding usage to digital IDs, credit histories and asset tracking; with 80m refugees, this token has potential for massive good.
Cynics will point out that ETH and BNB serve 99%+ of tokens that are useless. Skeptics may argue that BAT and STEEM have not yet developed the right decentralized governance models for their content creation, social media platforms. Purists will snicker that the UN does not need the blockchain for the refugee program. It is currently a centralized system governed by the UN.
All true.
Our view is these five projects would not, could not, exist without the blockchain, and their prosperity longer term still depends on good applications. The majority of current DAPPS being developed on Ethereum or tokens traded on Binance may go the way of the Dodo bird, but as more quality projects emerge, the good coins will displace the crapcoins. Much work is also being done on both platforms to make them more decentralized, to expand real world use cases. They are so big now, they are unlikely to fail. Using blockchain to offer secured content creation/storage and tokens to reward users and producers will also happen. We believe if not Brave or SteemIT other platforms will develop the right hybrid or decentralized models and tokenomics system to realize this future. According to the UN, the “RefugeeCoin” saved $150,000 per month in bank fees alone during its 10,000 people trial. They are expanding usage to blockchain-based IDs, personal data/credit histories and asset tracking. Is it smarter to be “perfect” from start (another new protocol, 100% decentralized, etc) or to make immediate impact and improve along the way, as the UN is doing?
For us, the latter.
Like many early investors in blockchain and ICO projects, dAlchemy remains excited about blockchain’s potential to “disrupt” or “revolutionalize” or “democratize” (LOL, the 3 most popular words in whitepapers?), but at same time, we are exhausted from the land grab and scams and even good-intentioned but pure tech/passion driven projects without clear applications or sound business models. The UN program may have started without need for blockchain at all, but innovating to deploy in real cases, in scale, real blockchain applications. If you find a major successful real-life use case, please let us know.
Thus, we are seeking to back ecosystem token projects with real utility. While many blockchain-enabled services may not even have been imagined yet, we are optimistic on three categories of use cases:
1) Decentralized identity & asset tracking;
2) Crypto, programmable currency & bankless financial services; and
3) Non-centralized, collective stakeholder governance
These are not new use cases; these sectors have seen fair share of ICOs. However, earlier projects have not seen much success for three reasons: 1) over-focus on technology, not value-add to end users; 2) weak teams, particularly execution ability; and 3) lack of powerful distribution partners to drive adoption. Ideas are easy, adoption is hard.
Moreover, we believe the top beneficiaries should be the hungry, poor, underprivileged, uneducated, unbanked — not only because they need/deserve the most help, but also that blockchain gives them the ability to leapfrog to the best technology, unemcumbered by legacy systems and less vulnerable to bad central actors.
dAlchemy is supporting a rare project that fits above criteria. Still in stealth mode, “FARM” is an ecosystem token aiming to improve the lives of the 2 billion people working in 500 million smallholder farms feeding 70%-80% of the world’s population. Both the UN and WorldBank have stated the smallholder farmers are the most pressing social issue facing the world today. None of the earlier projects have seen much adoption, thus impact. We believe FARM’s focused on the farmers needs (tech secondary) is critical; for example, the team has developed a simple but brilliant system to reduce FARM token volatility that would give farmers desire to earn, hold and use FARM. The team is truly world-class consisting of former product development executives and operations experts from PayPal, Facebook, GSMA as well as blockchain luminaries. Last but not least, they have enlisted powerful distribution partners including one of the world’s largest NGOs serving millions of smallholder farmers and two farmers groups with vast reach in India and China. FARM has a 3-prong product rollout plan that should develop a vibrant token-based ecosystem used by smallholder farmers. The benefits include secured digital identities and histories (personal, land, health, farm, crop) and access to crypto-based payments, remittance, insurance, loans and other financial services that traditional banks were unwilling or unable to provide to them.
If you are a blockchain entrepreneur with similarly well constructed projects, we would like to hear from you.
Thank you!
