Why the Ferrum Network Utility Token
Recently many people have been asking us, why have a utility token? Why not do a security token instead? These are legitimate questions, so I thought I would take to Medium to explain why for Ferrum Network — whose token is akin to Ethereum “gas”, has numerous token use cases, and a clear plan for user acquisition — that a utility token is the only logical approach.
Look, I get it. The negative sentiment surrounding utility tokens is understandable. Too many ICOs overpromised and underdelivered. Fundamentally, the value of a utility token is predicated on people actually using the token and the network, and most projects did nothing to attract real users. Moreover, many ICO did not actually need their own token and could have used Ethereum, but they created one anyway, often claiming it was a means of rewarding users, but in reality it was purely a means of raising funds.
Absurd and unjustified valuations did not help matters. If a project raised 30 million dollars in an ICO selling 50% of their tokens, their implied valuation, before launching any products or acquiring any users, would be 60 million dollars! For a tech start-up with no users and no revenue this was totally outrageous and not sustainable. This is why Ferrum Network is approaching its ICO like a real start-up — with a low raise, low valuation, products that satisfy market needs, and a clear and achievable strategy for acquiring users.
Ferrum Network Token: The Basics
But first, what exactly is the Ferrum Network token? Fundamentally, the Ferrum Network token is the gas of the network. The network was built from the ground up as a fast, decentralized interoperability network enabling the decentralized exchange and transaction any digital asset in milliseconds for near-zero costs. This new network literally cannot not run on Ethereum tokens, or any other token for that matter. A unique network requires its own unique token to power it.
You may have noticed I wrote “near-zero costs” when describing the network transaction fees. These fees are “near-zero” rather than zero because in order to attach a transaction to the network, every transactions must spend (and burn) a certain amount of Ferrum Network tokens. Presently, the cost to run a simple transaction on the Ferrum Network is one token, which at the ICO price, is valued at $.016 cents. This is pretty inexpensive considering that with Ferrum Network, users can send bitcoins around the world, instantly, peer-to-peer, for $.016 cents!
Spending and burning tokens is fundamentally an anti-spamming and security measure necessary for Ferrum Network’s underlying DAG (directed acyclic graph). However, the amount of fees required for each transaction is co-related to the size of the transactions, CPU, and network requirements to validate transactions. For a full recitation of the technology underlying the network and its relation to the token, please refer to Ferrum Network’s whitepaper, as well as the forthcoming technical whitepaper, which will be published in the near future.
Before moving onto the token use cases and how they relate to the growth of the network, it is important to highlight one more fact regarding the Ferrum token: whenever a token is spent, it is burned. This is due to the Proof of Burn mechanism and co-related technologies, but has the ancillary benefit of limiting the token supply as the network grows.
For our savvy readers who are wondering how constant burning will impact the price of a transaction, we have quants and mathematician PhDs on the team who could answer this question in detail, but simply put, Ferrum Network is committed to keep the price of a transaction around one cent. Meaning, if the price of the token increases to one dollar, a user would simply be required to spend less Ferrum Network tokens to execute a transaction.
Ferrum Network Token: The Use Cases
- The most fundamental use of the token is as explained above: it is the gas of the network. In addition, it is necessary as an anti-spamming and security measure. In other words, because each transaction costs money, a malicious actor is deterred from spamming the network because to do so would cost exorbitant sums of money.
- The second and related use case is that tokens are needed to execute transactions on the Ferrum Network’s decentralized wallet. Please check out our demos to see the wallet in action, but essentially, nearly every action on the wallet, from depositing assets, executing a market trade, sending assets peer-to-peer, to trading OTC, to withdrawing assets, all costs a certain amount of Ferrum tokens (the amount varies based on the compute power needed to perform the respective transaction).
- The third use case is to execute trades on Ferrum Network’s decentralized exchange. At present, executing a trade requires users to spend as little as one Ferrum Network token. But since we are building technology to enable advanced features like high-frequency trading, it is not difficult to envision a time when millions of tokens will be spent to run transactions on the Ferrum DEX.
- The fourth use case is that a certain amount of tokens will be necessary to unlock the power of the Ferrum Network Sub-Zero Wallet — the most secure yet mobile means of managing your digital assets. The Sub Zero Wallet is an app downloaded on a mobile device that is completely disconnected from the Internet, and which can interact with the Ferrum Network decentralized wallet through a series of QR codes. To unlock the Sub Zero Wallet, a user will be required to use a small amount of Ferrum tokens.
- The final use case for the token involves the Kudi Exchange, a fiat gateway in West Africa powered by the Ferrum Network. Since all transactions through the Kudi Exchange will run on the Ferrum Network, users will be required to spend tokens while exchanging their bitcoin and local currency on the Kudi Exchange.
The Ferrum Token: How to Drive Adoption
It is accurate to state that a utility token with no users has zero value. So what are we doing to drive adoption and acquire users?
The first strategy is to launch the Kudi Exchange within the next 2–3 months. The Kudi Exchange is a fiat gateway based in Nigeria, a country with one of the highest usages of bitcoin in the world, but no local incumbent fiat gateway competition. Ferrum Network and our partners at the Kudi Exchange (who are also one of our early strategic investors) are planning a pilot launch of the Kudi Exchange in the end of December 2018. In advance of the pilot launch, the Ferrum Network founders, along with our investors at TLG Ventures, will be promoting the Kudi Exchange during the Nigeria stop of Ian Balina’s crypto world tour. Following this live promotion, the team at Kudi Exchange will be launching an aggressive marketing campaign targeting the residents of Lagos, Nigeria, which has a population of nearly 20 million people, along with the other major cities. As a country with approximately 170 million people, and no local incumbent competition, it is not unrealistic to be able to bring on many many users of the Kudi Exchange in the near future. The successful execution of this strategy will mean that users will be spending and burning Ferrum tokens in the very near future. Therefore, even before the launch of the DEX, the tokens will be in use and the supply will be decreasing.
Next, a portion of the $6 million dollars raised during the ICO is dedicated to marketing the Ferrum DEX. To our knowledge, there is no other cross-chain DEX on the market that can be used to exchange any digital asset, instantly, for near-zero fees. Our team, which is comprised of seasoned professionals with experience at some of the biggest tech companies such as Amazon, Microsoft, and Bloomberg, is dedicated to building the best DEX on the market, with top of the line UX, and advanced features that exist no where in the DEX space. With the support of the community and aggressive strategic marketing campaigns, there is no reason why the Ferrum DEX cannot acquire many users who are dissatisfied with ERC-20 DEXs, DEXs that rely on slow and costly atomic swaps, or users of centralized exchanges who were initially intimidated by DEXs because of complexity and poor UX.
Finally, the Ferrum Wallet is a powerful tool for bringing new users into the decentralized ecosystem. It is simple to use, and has all the functions of the Coinbase wallet (and more), but never takes custody of users assets. Marketed properly, we believe the Ferrum Wallet will be a wonderful introduction to the Ferrum Network, and to the overall benefits of a decentralized ecosystem. We will market to users who understand the risks of holding their assets on a centralized exchange, but who want to do simple things like send BTC to friends, execute market trades, and enter into-risk free OTC trades, but previously had no easy way to do so.
Conclusion
We at Ferrum Network believe there still is a place in the market for utility tokens, but only if they are done right, with real use cases and a clear and achievable strategy for user acquisition. If done this way, a utility token can be extraordinarily powerful and provide great benefits to the community.
So please stay tuned for more developments, and join us as we bring decentralized financial applications to the masses.
Very truly yours,
Ian
