Token economics outside the blockchain bubble
Whether you love the ICO you invested in or not doesn’t really matter here. The only thing that matters is demand and offer in this world (unless it’s a humanitarian thing in which case you go, man! That’s fucking awesome). So what I’m going to do in this “Mini-Series” over the next 5 weeks may shock some of you.
I know there’s usually quite the emotional bond between you and your ICO (which is useful to some extent, more power to the disruptors), but somebody has to do the math here and eradicate the emotions. Sometimes we get caught up in our own vision and think everything we do is absolutely brilliant and without a doubt better anything outside our little crypto world.
Remember I will not be talking about Blockchains and their respective currencies, as their principle is pretty simple, if it’s used more and there is less of it, the price will increase. Furthermore, we need to mention, that not every application in real life needs to be on the Blockchain, but for sure the secondary market is pretty damn good with Tokens on the Blockchain.
I’m going to start our “Mini-Series” with a fictitious example of how an ICO/TGE might look like in the real world and what that would mean for a secondary market.
The initial price of the Tesla Roadster will be 250’000 USD or 250’000 Tokens when it’s released in 2020. To produce such a car you need some money up front, and you’re willing to reduce the margin on the end product for those who pay upfront. Every Token represents a reduced margin on the end product resulting in fewer earnings, but at the same time probably cheaper then borrowing money from a bank (if they’re actually going to give you some).
There are usually restrictions on the number of Tokens and number of investors in general. Tesla is looking to raise 25’000’000 USD (200 Tesla Roadster 2020) to get a head start on production.
The initial token price will be 50 Cent. And the right legal qualification for it would most probably be a payment token (don’t hold me to it I’m not a lawyer, even though I had to read through many articles since we started this exchange).
On the contrary to how most companies do pre-orders now, you have to buy the full car in the end which will not be the case with this Token it will actually work as payment for every service offered by Tesla. You can buy as many Tokens (for 50 Cent) as you want. Additionally to the discount, customers who pay with Tokens are being prioritized in delivery and receive a super limited hoody and cap from Tesla as a goody.
To make my example viable, we do need to work under the assumption that the car is high in demand and lots of people are willing to pay 250’000 USD for it on the regular market. Which is actually very accurate based on the numbers released by Tesla and hope you like me enough to indulge me on this journey so we can have some fun with it.
So getting back to business, Tesla raised 25’000’000 USD in 2018, and the Roadster 2020 Token is completely sold out. Since the Token is transferable at any time, a secondary market evolves. In this example, we would consider Crypto Exchanges trading it, and peer-to-peer transactions are being made on the Blockchain.
Time travel sequence incoming…..swooosh…..which is actually quite fitting since the Tesla Roadster could basically be a spaceship with its specs.
Fast forward to 2020 the car is finally ready to deliver within two months from now. At latest 30 days before delivery, you need to deposit 250’000 Tokens to receive the promised goods (namely a Tesla Roadster 2020). If you deposit 249’999, you are not eligible to receive one, and you cannot pay the rest in USD.
Let’s have a look at the two years that we skipped after the ICO/TGE.
Month 1: The demand is huge! Some people were not able to get into the ICO/TGE, but they want the car because it’s basically 50% off. The price quickly rises to 1.00 USD.
Conclusion: the Token is not overpriced yet but might still be a bit underpriced since you are getting some perks when paying with it.
Month 6: Bad news is coming Tesla’s way, but good news coming your way. The battery which was initially planned to be built into the car costs more. They have to increase the price of the vehicle for the retail market to 300’000 USD. Suddenly you’re Token got a lot more valuable to people who want a Tesla.
Conclusion. The Token price should go up to 1.25 USD, at least in the minds of people who want that exact car.
Month 18: There are only 6 months left until the car is finally ready to be delivered. A huge problem arises because somebody built the exact same specs into another car from China and they’re offering it for 125’000 USD. It looks fantastic too, and suddenly a lot of the interest is fading away from Tesla because they’re just too expensive. Pre-orders go down, and so does the Roadster 2020 Token’s price. From the shocking news, it lost a lot of its value in panic sells (just like the Ether recently) and dropped down to 0.40 USD heading straight below ICO/TGE price. But somehow you think the market is not correctly calculating the value of the Token, because you can still get the Tesla for 250'000 Tokens, which retails at 300’000 USD. Now if you’re a big fan of it and were going to order one anyway, something amazing just happened. You didn’t know about any of these Token things, suddenly it’s your big chance to buy in on the secondary market for only 0.40 USD per Token, which will bring you one of the first Tesla Roadster 2020 in the world and just for 100’000 USD.
Conclusion: I would say you made a pretty good deal there partner.
Month 24: It’s time to deposit the coins and get your super cool Tesla within a short period of time. But what just happened in the media, it turns out the Chinese car that was so hyped 6 months ago turned out to achieve not even close to the specs of what the Tesla is capable of. The demand on the market rises and all previous buyers return to Tesla for the Roadster 2020 but cannot get one because the first 3 Months until the Token holders get theirs
Conclusion: A bidding war is about to start and the early investors either walk away with a sweet car or a substantial profit, which resulted from them taking a chance on a product/company.
Everything you just read was an effort of mine to visualize a journey of an ICO/TGE in the traditional economy with Blockchain solely as a trusted ledger for secondary markets. Tesla did NOT make an ICO/TGE to fund it’s Roadster 2020. It was indeed a fictitious example. After clarifying this I hope this post was somewhat entertaining as well as educating for my dear readers. I will continue this “Mini-Series” with existing Tokens and Coins. Trust me, I found some interesting stuff whilst researching it. Stay tuned for next Thursday when we’ll talk about Golem.
Have a great day!
-Cyrill
