Let’s get technical with INX tokenomics
Developed by finance, business, mathematics, trading and economics experts, and inspired and developed alongside David Atkinson of Holo we present a summary of how INX token value links to underlying business success, retains real-world purchasing power when the INX token price increases and our dynamic supply creates long-term stable but appreciating token value without reliance on crypto market sentiment.
First we need to define three terms — the Commitment, the Reserve and the Volume Weighted Average Price (VWAP) and understand that INX has a Dynamic Currency Supply.
The Commitment: This is the gross value calculated by Investx and expressed in fiat currency, of all INX holdings if Investx exchanged the entire supply of INX for fiat currency to be used as payment for shares through the Investx platform.
It follows that the initial value of the Commitment is the GBP equivalent of the total ICO raise, the target raise being £25M.
The Commitment divided by the total token supply we define as the Volume Weighted Average Price (VWAP), and this is the value used to calculate pricing of newly minted INX tokens to retain reserve-backing.
After the ICO raise, when new money is used to fund deals through the platform, an exchange rate spread we will charge above the VWAP is added to the Commitment, therefore increasing the Commitment value and the price of INX tokens with each platform deal.
The Investx Reserve: This is the Fiat currency held by Investx to fund its market making activities in relation to INX. The majority of the funds raised during our ICO is for the Reserve. When Investx acts as a market maker and exchanges INX to GBP, the equivalent amount in the Reserve will be paid over to funded companies through the platform. This market-making activity will provide liquidity for investments bought using INX tokens. When the Reserve reduces to a predetermined low level, new tokens will be sold to the market at a price set between the VWAP and the current market value INX token price.
Whenever INX tokens are invested in a deal on the platform the equivalent GBP currency (calculated using the VWAP) is taken from the Reserve to pay over to the funded business.
Whenever new INX tokens are sold through the Investx platform the proceeds are always stored in the Investx Reserve. The Commitment value will also increase because the overall value of INX within the ecosystem has increased.
If Investx allows investors to exchange INX tokens for other currency and withdraw that currency from the platform, then an exchange spread is charged and the equivalent GBP amount of the spread is added to the Reserve (but not the Commitment), and the INX tokens are burnt.
Initially the value of the Commitment starts off larger than the Reserve, because the ICO funds our development costs of course, as well as the Reserve, but as the platform success grows the Reserve value will overtake the Commitment.
Here’s an example of how a company fundraise on the Investx Platform affects the VWAP.
The above example uses the expected opening Commitment, Reserve and total INX token supply, and uses an example company fundraise amount of £5M and a platform value of 20%. It assumes 50% of investors use INX to invest in this deal versus 50% spending other currencies (eg BTC, ETH, USD, GBP).
Different transactions on the platform have different effects on the relationship between the Reserve and the Commitment.
The above table shows the different platform transactions and the value change in the Commitment and Investx Reserve each transaction type creates. An increase in the Reserve compared to the Commitment is the ultimate result. This corresponds with ever-increasing reserve-backing of INX.
New INX tokens are minted at a price based on the VWAP when investors spend currencies other than INX on the platform, or when Investx issues new fiat-backed INX for sale from time to time. When investors make returns on their investments. and they want to offer to exchange for other currencies, Investx will price the exchange rate transparently, taking into consideration the external market exchange rate and the VWAP. All of these events have additional positive impact on the value of INX tokens because they increase the Reserve and the Commitment.
This cycle is designed to create long-term appreciating reserve backing of INX, and one where holders look to the Commitment as the entire ecosystem value.
We don’t need the Reserve to increase above the Commitment, but it is beneficial in the longer term. As long as there are investors investing in deals on the platform we will be able sell new INX tokens, so the Reserve will not run out. Dividends and exit proceeds will increase the Reserve too.
The Investx Reserve will firstly be a GBP bank account, but as we grow to offer investments in countries outside the UK we will have the relevant currency banking in place (EUR reserve, USD reserve, etc.)
Investx will regularly publish third party verification of the balance of the Commitment and the Reserve to demonstrate the strength of the token reserve backing.
Price Floor: If, post ICO completion, the market price of INX falls to a pre-determined value below the VWAP, Investx has the option to buy up tokens from the market, using funds from the Investx Reserve, and burn them (to maintain reserve-backing). This essentially creates a price floor and reduces the total Commitment more than it reduces the Reserve. This decision will be based on the amount raised in the Reserve and if taken will be conducted transparently and only where we are satisfied it creates benefit to both INX holders and Investx.
Investx does not speculate on the value of other cryptocurrencies, so any Bitcoin/Ethereum/other used by investors to purchase INX tokens or invest through the platform will be sold for fiat currency, except where we have costs payable in cryptocurrencies and where we can hedge.
We are not ashamed of selling Ethereum or Bitcoin back to the market — it is necessary in our model to enable investments into businesses operating in Fiat.
Token value stability: While some speculators may enjoy the volatility of general cryptocurrency markets, most investors are wary of relying on a form of payment with large and drastic fluctuations in value. For a majority to engage with Investx and INX tokens the market value of its units should be optimized for a steady and stable trajectory, preferably growing in value over time. While this may sound to many like an impossible or naive design parameter — it is incorporated into the structure of the INX token.
The most critical component in the value stability of INX is the fact that it is backed not only by a liquidity reserve in fiat currency but the Commitment. Unlike most other cryptocurrencies, INX is not a divorced from specific, real-world value and quantified by expectation only — INX is backed by a real, tangible and appreciating reserve.
Value stable — not value static: Value-stable does not mean static, it means less volatile. As the Investx platform grows and transaction cost efficiencies and attractive deals grow over time, the value of using INX increases. Also, the value is dependent on real-world factors, if the cost for lawyers, tax accountants, regulatory bodies and corporate finance fees increase INX becomes even more attractive.
Our reserve-backed model will create an ongoing upwards pressure on the token price.
INX token value will increase continually as long as the following four items hold true:
So if the Investx platform is successful then the INX token will naturally keep increasing in value.
For further detail on how we plan to achieve platform usage growth please ensure you have read our White Paper.
Our pre-sale ICO launches on 1st November — download our Litepaper, Whitepaper and Currency paper.
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