Does My Business Ecosystem Need a Token? Find Out…
Practical use-cases in which a token model could work. With a few practical catches, obviously, and some nonsense about Stablecoins. Plus a comparison.
I would like to begin by saying my next rant actually took place in the Alliance of Blockchain Professionals telegram community. In short, ABP. You can learn more about them here. The reason being the topic of ERC-20 tokens, failed ICOs, and why so many business models crumbled if stripped of their token structure — launched by Tony Simonovsky, co-founder at Value.to (Value.tokenized). My responses to him on the topic can be found in this article. I’d like to extend my thanks to Tony for making me speak up. Enjoy!
Is It a Bad Idea to Have a Token?
Not necessarily. You will be able to particularly answer this question by the time you finish reading this article. So don’t leave yet.
Is It a Bad Idea to Have a Token Sale?
Mostly, yes. I am expressing my own personal opinion on this. However, given the experiences in this space, there are several things to keep in mind:
- Your token can be perceived as a security
- The costs of a Token Sale (ICO, STO, DSO, IEO) can be quite high
- Regulations haven’t reached global consensus yet
- Fragmentation of regulatory space is high (and mighty)
- It will cost you three times more just because it has “blockchain” in it…
- And 3 times extra if it has AI in the product design…
- And let’s be honest, anyone who buys your token expects 5x return, and is not interested in your product’s or company’s future. Fast Entry. Faster Exit.
Are All Tokens Securities?
I’ll say something bold: Tokens are not always securities. And I’ll give you a clear example from our very own business roadmap, in this case a global health-tech platform, an existing business that decided to launch a token, and eventually build its own blockchain protocol. Now, on the business side, let’s look at the regulations.
FINMA (relevant because we registered the ICO in Switzerland) classified our token as an utility and payment token. What does that mean?
It can be used as payment in the ecosystem
It means I can pay for a consultation with the token which we valued at 0.15$. This makes it similar to a stablecoin. I will explain later why an ecosystem can have its own stablecoin, and the conditions.
- While it cannot be used for full payment (we still have to send % to our partners and doctors in the ecosystem), it can be used to cover % of the cost of a consultation, service, or prescription. The % that gives the discount value is obviously linked to the % we take for the platform fees, which we can give up on, considering we want the user to test and continue using the ecosystem.
- A token can be used like a loyalty point card (card being replaced with a user wallet), in an action similar to how I would go to the gym and get a discount every month because I’m part of that network gym. You, as a user, being part of our network, are eligible to that discount.
- You, as a user who basically bought a “future member package” of tokens, are eligible to use them in every single purchase on the platform, in the ecosystem, to the token’s discount power.
It can be used as an access key to features of said ecosystem
A utility token has access-key features in an ecosystem. It gives members certain benefits as in:
- Access to an e-learning platform (often referred to as resource page, workshop e-room, online university). Doctors teaching doctors. Patients teaching patients about life with a certain medical condition. Health coaches and fitness trainers offering their courses. Content creators of any kind offering their content. And so on — in our case.
- Focus groups and meetups (online and offline). Community activities and members co-participating in a community can help create, strengthen, and grow a space that becomes “home” for many.
- Voting rights to different governance elements in the community (where decisions involve the community as a whole).
- Social validation systems in which each member validates the existence of another member or community voice. Highly important when addressing group dynamics and community “KYC” elements.
What’s the Catch?
The catch here is the whole stablecoin idea. That means you have to transform your token into some sort of stablecoin in order to minimize the speculative power. It also means it should ideally not be listed on exchanges and not have trading value outside of the ecosystem.
What if people want to buy it or convert it?
Well, there is a way, potentially. Though not tested yet.
a) I can add incremental value to the token in time (adding more weight to the “discount” value).
b) It’s an internal token, and has no value outside the system. However, nothing stops me from adding exchange functions to the user wallet (esentially a dApp), which would allow the users to acquire:
- more of the same tokens (that have a discount role into the payment process, or access key role into the user experience), or
- convert the tokens into the top cryptocurrencies allowed as payment alternatives inside the ecosystem (BTC, LTC, ETH, 1–2 privacy coins), or
- convert into a token of a partner (if your ecosystem has partnerships with other ecosystems, or if your ecosystem has a marketplace function, where external products can be showcased).
Reality Check Time
Any business could create their own token economies if they were platforms, and not just dApps. A platform allows you the ability to build an entire ecosystem, with its own governance, decentralized applications, gamified UX, and deals between partner companies. Think of how Paypal is using your data across partners, and that doesn’t affect the business model.
The reality check is that most ICOs (2017–2018) actually created a security token (not a utility token) with no ties to the equity part. But acting as if there was one. Simply put: a company tokenized valuation model.
We are too early for that to be a regulated approach, and there are too many legal implications in tokenizing your company valuation. You could do an actual STO, though you would require an army of lawyers and accountants.
The Truth about Stablecoins
People look at stablecoins as a global solution. A 1:1 ratio response to Bitcoin volatility. The truth is… stablecoins do not work as a global solution. A stablecoin isn’t a tokenized dollar. Stablecoins have the architecture to serve a certain ecosystem. They are linked to that ecosystem. They should be.
They are the transition between fiat and crypto. The so called “grey” area.
The economic power of an ecosystem lies in its flexibility.
An ecosystem can accept payments in fiat, in their own stablecoin, or in top crypto. BTC, LTC, ETH, XMR, Dash — let’s say. That is sufficient for payment diversity to serve a global community of customers.
We see that PayPal, Payoneer, Revolut, Transferwise, banks, aside from data exploitation, they cannot serve the customer unless the customer is in a friendly jurisdiction. Due to political turmoil, certain payment gateways can be suspended in a country.
Adding your ecosystem stablecoin (the “token” that serves as a discount code and/or as access key), and a few crypto currencies can REALLY make your business go global and ready to serve everyone. Anyone. Unbanked. From a developing country. From a tax friendly jurisdiction. From developed countries. With good credit history or bad credit history. Independent of their purchase history. Anonymously or transparent and visible.
Giving your customers alternatives is what makes your company global and your product ready to answer the needs.
That is why every blockchain protocol can have its own coin or token, and every system can have its own token built on top of an existing blockchain infrastructure. Because the core understanding is that your business model doesn’t rely on a token or on a cryptocurrency.
However, your customer loyalty does. Your customer loyalty relies on alternative ways if you want to go where others haven’t, and “live” where your potential new customers live.
Another potential usage for an ecosystem token…
Let’s dive deeper into the potential usage of a token, and take a closer look at a practical use-case. I worked for six years as an ambassador for Elance and Upwork (3 years each). Marketplaces where both clients and freelancers/agencies are customers in the ecosystem. An ecosystem that works, and that brought Upwork to do an IPO last year.
Those six years (June 2012 to June 2018), going through the financial peak of a platform (Elance); building an international ambassador team (of 60 people), letting go of most of them; the merger of two platforms (Elance and oDesk); and the birth of a new marketplace (Upwork). This chains of ongoing events has taught me all I need to know about stages of business, growth, downfall, decisions, business mergers, going back to zero, dealing with angry users, rebuilding trust and user loyalty, and ultimately understanding when it is time to move forward.
Something I’ve learned that applies to any ecosystem are these three stages of community growth — linked to business growth:
1) user acquisition (getting new users)
2) user retention (keep users from leaving)
3) user re-ignition (reactivate dormant users)
Now, the users already active fall under loyalty, and the stage (4) here is to keep them using the ecosystem. For this stage, the platform should look at social recognition, storytelling, making active users with a certain platform age as positive examples in the community. This cannot be addressed by a token.
For a community program, besides materials to educate and support the users, in all these 3 stages (1-to 3, above), you also need a financial incentive. Nobody will pay users in cash:
- to learn,
- to be active,
- or to simply stay.
It is actually bad for business, and most startups or young ecosystems do not have the financial abilities to do so.
So what’s the catch?
You can however give your user perks. A code. A discount for certain services. Freemium model style. In many cases, I would be able to offer freelancers or agencies a 1-month/3-month/6-month free subscription for completing a course, attending a workshop, or participating in a conference. I could offer clients a $50 online credit to hire the first freelancer on the platform.
All of these “perks” can be replaced with a token.
Instead of giving the user a long URL, a QR code, or some letters & numbers password which can be stolen or replicated or counterfeited, you can use a token. Once the user signs up, the user automatically gets a wallet assigned to them. Upon participating at an event, the user tells the ambassador the ID cross-verified with an email address. The ambassador then tops up the user’s account.
The same way as a user sending the ambassador or community manager a token can mean they have self-checked into an event, or have evaluated the ambassador’s performance, workshop, or meetup.
Over. And out.
Again, I would like to remind you that this is not legal or business advice. If you do wish for legal advice, please hire a lawyer. Or I can recommend you one from our CryptoLaw Podcast or my Crypto Legal Group (which counts over 150 members). If you wish to get business advice, I am expensive and picky. You are better off reading my stuff for free. If you do insist on talking, shoot me an email at Roxana@serplified.com .
There are certain ways in which a token economy can take place and make sense, without the company having to deal with the heavy regulations that a token sale would imply. Don’t do a token sale of any kind if you have alternatives.
If you do wish to build a token model for your ecosystem, this implies a deeper understanding of ecosystem dynamics, blockchain architecture, psychology of users, customer journey mapping, customer persona, gamification principles, and limits. Nothing I said here is new, if you spend some time to really reflect on it, or spend a few years in certain environments.
This article is a mere take on my own experiences, concepts, the way I perceive the idea of an ecosystem and the dynamics of online communities. Luckily, I have always had the support to implement “big ideas” , for which I am grateful.
This article was kindly shared with ValueTokenized publication by Roxana Nasoi.
ValueTokenized is a tokenization educational resource.
Stay on top of things in tokenization and security tokens — subscribe to our channels:
If you enjoyed this article, please give it a few claps and follow our publication.