Dividends and Buybacks, Part 2

In yesterday's article, I highlighted why I dislike the use of buybacks as a substitute for dividends. Today, I'd like to talk about dividends, which are probably more correctly called rewards in many crypto applications, as they require action on the holder of a token and are not automatic like my quarterly stock payouts are.

As the old saying goes, Cash is King. People buy assets for cash flow or appreciation, but cash flow is in many ways superior. Most of us do not have passive income that can sustain us, allowing us to patiently wait for asset appreciation. Finding opportunities to buy up crypto assets that pay a reward for holding them is one of the best ways to increase our passive income (or reinvest, if we so choose) and avoid the crazy swings of this market.

Like this, but with tokens

Let's do a thought experiment. Let's say that after this spring, you made a nice little sum of money in the markets, and want to do some travel. You decide to move to another country for a few years, and you'd like to live off of your cryptocurrency. However, you are concerned that the volatile nature of the markets could put you in a bad spot, having to sell at the bottom unexpectedly. This is when an asset that pays a regular reward would be a very good investment.

(I should differentiate for a minute between a rewards paying token, like DGD, and using Proof of Stake to earn more of the same coin, like DASH. In the first instance, you are paid in a different token than what you hold. For DGD, you are paid in DGX, which represents one gram of gold on the blockchain. The price of gold is relatively independent of the movements of cryptocurrencies. In the second case, owning a DASH masternode and "mining" tokens will earn you more DASH, so you're not so much in a "dividend" position as the first example.)

Again, the biggest plus I see to dividend style rewards is being paid in a different token than what is being held. Specifically, I think tokens that are likely to be more stable will be the most attractive for a reward, as it will incentivize people to 1, hold the asset token, and 2, sell the reward token. The reward token provides a sort of cash flow to holders of the asset token, which should help stabilize and put a floor on price as well.

I think this is going to be the model that a good deal of cryptocurrencies (or crypto assets) will use. The rewards model helps stabilize price, as mentioned above, and allows hodlers to hodl forever, and yet still receive an income. As early adopters make their fortunes in the crypto spaces, many will want to remain in crypto and avoid fiat. Opening a position in a token that pays a regular reward is a great way to stop worrying about price movements and only needing to log in from time to time to vote or claim a reward.

Some Random Thoughts

-I expect tokens to offer yields similar to higher risk bonds and stocks while crypto is still in the wild west phase it is now. Pricing for risk will reduce over a decade or two as the market becomes more mature. We may even see a traditional company offer some yield producing assets on the blockchain.

-While dividends are currently paid quarterly by traditional companies, and investments like CDs pay monthly, there's no reason that future startups in crypto wouldn't do daily or weekly rewards, especially if we start seeing bonds issued on the blockchain.

-Currently the term "dividends" is avoided by most startups as the income isn't completely passive (you're being paid to vote and help lead a DAO; it's more like being on a huge board of directors).

-Dividends will be fairly scarce in these early days as paying out cash as a startup is generally not wise. VCs don't invest in startups to earn dividends; they hope to earn 100x or 1000x on their investment. Hopefully, not everything that ends up on the blockchain is a startup. A public company could issue a token representing a share of stock on the blockchain and issue dividends at some point, but we'll need to have some sort of USD coin equivalent first.

Do you know any good reward paying tokens? Let us know in the comments below! Disclaimer: I own DGD, but I don't own DASH. And this is informational in nature-not advice! Do your research!