Does the chart above look familiar? There are many reasons why many utility token charts look this way, but a prevailing one is the premature listing of tokens without a ready to use product, to actually give utility to the token.
Listing a token without working product
Yes, markets can be unforgiving. Yes, there is always a drop at one point or another. Yes, bears and bulls are equally unpredictable. However, all these excuses pale, when we look at the real decisions many ICO make, which damage the token price. As decision makers we need to start looking at the bad decisions that are being made, and avoid them to start changing the market.
One of the ways we will combat this issue is holding off on listing our token. Our token, the Jarvis Reward Token (JRT) will not be listed on exchanges before we have a working product with a good user base. This might lead us to holding off on receiving money from some supporters, but that’s less important than seeing the value of all contributors’ JRT vanish because of a useless token. Naturally, this move cannot prevent a potential drop of the token price forever, but it will remove several factors that makes a token fall.
Listing a token before to having a working product is possibly one of the greatest failures of many ICO powered by utility tokens. By doing this, ICO have filled the pocket of greedy exchanges and helped speculators who bought the token at a discounted price to get a quick exit, and lead their investors and contributors to losing over 90% of their investment.
It’s very obvious but if you don’t list your token, it can’t be traded and can’t drop in value. When you list your token alongside with a successful launch of your product, which gives a use or a value to the token, you are doing your best to preserve your contributors portfolio.
The utility token price, is after all, directly correlated to the token’s utility; the more it is used, the more it is expected to be bought, and the more it grows. If you make an ICO and list your token without a product, the token is useless to the community and only good for speculation. While speculators might have already sold the token when it hits an exchange, your community, on the other hand, who want to use the product, and believe in your token, are holding on to the token and seeing the price go down.
The near impossible recovery
The scary part is that many ICO will launch a product, in which the token is not necessarily needed at all in the end… They will attempt to change their token economics to give some utility to their token. And even if the token starts to have some utility, its velocity will most likely not allow their price to rise. Think about this: you are selling a service that is paid in your token. But you need to pay salaries, taxes, partners, so companies would need to sell most of the tokens they are receiving as payment in order to keep evolving. In the end, while the company is making money, investors are not.
Worse, even if a product is launched, it does not mean the token will recover from its losses. At the stage of 90% loss, you need your tokens to gain 900%… and at 95% loss, you need a 1900% bullrun...
To tackle this, some ICO started to contemplate switching form utility to security — possibly the only way out, as it’s super hard to give a new utility to the token. But for their business, this is a dangerous affair, with regulations tightening around security tokens and crypto enterprises. When you sold an asset as a utility and then transform it into a security, this is borderline breaching legislation and you could end up in big trouble.
We’re not looking to scaremonger the community. Of course, many solutions are possible for many ICO with utility or security tokens. What we are trying to exemplify is that your project and token hold a responsibility to investors and early supporters. When you’re consciously leading your token to devaluation, you are doing wrong by them and it will devalue your name business and token even more. Token economics are a very complex issue and must be carefully thought out before the launch of an ICO. Bad practices like listing your token before having a working product has devalued all ICO projects and this speculative greed has taken the idea of Satoshi and of an ICO and has made people distrust Crypto.
Having a product does not mean that fall will not happen; we have seen in stocks market some shares losing 50 to 90%.
Karina.
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