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Token Dilemma

Crowdfunding Competition

The problem is rooted in fundraising ventures issuing tokens that initially have no function or value. These rewards tokens are created purely to take advantage of the advances in crowdfunding provided by the Ethereum network and ERC-20 smart contracts.

Medium of Exchange

One competitor decided to establish relationships with real estate companies and obtained agreements requiring the customers of those realtors to transact business exclusively with their rewards token. In their white paper they guarantee that the rewards token will appreciate in value because of this scheme. However, they would need to continually invest in expanding the number of goods and services that use their token as an intermediary instrument, without financing benefits that mining affords proof-of-work networks like the DASH network.

Conflicting Strategies

Rewards tokens have different economic fundamentals. When a token offers rewards, there is an incentive to hold on to the token. The larger the expected reward, the higher the incentive to hold becomes. When many holders of the token decide to hold, the result is an appreciation in the price of the token.

Photo Credits: Coin Telegraph


Keep token policies simple. Imagine a world where Amazon’s stock could be used as currency in the Amazon Marketplace. Moreover, imagine that it is also the only method of exchange permitted in the marketplace. Depending on expectations, a stockholder speculating on an increase in the value of the stock may not want to buy anything in the marketplace with their Amazon stock. On aggregate, transactions in the Amazon Marketplace would drastically decrease if all stockholders held similar expectations to that individual stockholder. This dilemma is exactly what is created when projects simultaneously use a rewards token as a unit of exchange. Avoid it.




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