ICO has been a huge fever at the end of 2017, and until now, although the market has fallen, capital is still poured into this model. Most people think that the project owner is the one who creates all the tokens. This is totally a false thought.
The first is the token
The Blockchain Dapp starts with a token, the economic unit that allows the application to work and provides enough incentives for people to build and use a certain service.
Token will illustrate the dynamics of decentralized network effects. However, there is a problem of ‘chicken’ and ‘egg’: how do you get a token worth enough to operate, when your application is just beginning? Blockchain entrepreneurs have come up with solutions to the complex and crazy problem of the past three decades: the ICO.
The promise of network effects
By selling a dream project, a blank sheet of paper, a nice GitHub repository, a great team and some great advertising, the token is priced right away. Accordingly, people are shouting out for buying early, as it is a chance to own the economy of the project in the future. This is contrary to the stock, giving you the opportunity to own the company’s cash flow and future value. The ICO is open to launching network effects when there are not even any products to create this network.
All that looks great
In the current format, the ICO provides early tokens and allows the buyer to sell them immediately. That will transfer in a speculative market around the value of the token since there are no basic network effects metrics to support the value.
95% of the current token value is based on speculation.
The reason is not great, not because of speculation, but because the first buyer token is not the holder. Holder (or Holder as people call it) will be interested in keeping the token long enough until the network value passes the speculative value.
Imagine that you are advocating a Kickstarter project. The swimming pool has closed. The company is pretty good to go with the project. But for some reason at the moment: people start earning their money early or cancelling their product distribution even if the money does not move back on their pockets. Contributors are not interested in the project.
Token, when launched early to market without a real network value built in the medium term, is forced to create different sets of incentives for the buyer. These are early buyers and are only interested in quick deals. Then, the next object to keep an eye on is the holder, who really believes in the project and supports it all the way. Or rather, they will hold tokens for a long time until the project is completed and high value. Finally, the producers — the producers — are sure to keep their tokens. Simply because, if you make a lot of money in an ICO, but the value of money is very low, then they will go through a difficult time to encourage the network. Accordingly, in addition to developing the network, the token hold is also a way to increase the credibility.
The list of token owners
In fact, there are many different types of tokens:
Teams: They receive a share of the token in the ICO, but are locked for a period of time that matches the markers of the network effect. Typically, they will rarely set the token value at risk.
Organizations: Usually venture capital funds will buy early, such as pre-ICOs, or private sale. These funds will be locked just like group 1. For example, funds like Polychain, Pantera, DCG, Metastable or even hedge funds like Blocktower.
Public buyers: This is a risky place. A large number of people here are bounty hunters and some large enough (whales) to create pump and dump scenarios. This will help the token value reach high multiples in the first days of trading but will also cause it to crash rapidly.
User token: the rarest of people today. Those are the real users of the token in the token economy designed by the startup. They probably did not join the ICO at first, but would prefer to use the service. For this reason, they will have to make or buy tokens available in the market. For example, in the prediction market/numeracy hedge fund service, the token user is likely a science/math researcher who wants to apply his own model to market prediction and earn some NUMÉRAIRE. This is a project token rewarding scientists when they predict their stock accurately.
At the present time, the majority of buyers (tokens) and tokens (user) tokens are not the same. This will probably exist until the product is developed and started to apply. Some projects will manage to arrange both Buyer and User by not allowing the token to be traded immediately after the end of the ICO, and must wait for the protocol to work. One example is TEZOS, which has just appeared in the last few months. As noted, this project has not allowed transactions for more than a year.
Over time, network effects and the economy of the speculative value of the token will be significantly reduced. Then, the token buyer is the one who contributes more to the economy, namely the holder or user. An ideal user is a combination of buyer, holder and user.
In some cases, projects may already have a huge network at hand. They can take advantage of it and demonstrate the ‘speed’ of the token. However, this did not happen because they all wanted to open the ICO first, instead of developing it.
For example, one of the problems encountered with Kik ICO is because the token buyer is not a user. In Kik’s case, the network was set up and operational, so there was no reason why Kik would refuse to give the tokens to their users before following the ICO route. However, they did not. This has led to the disconnection between the owner and the token user, thereby creating problems in their economy. As proof, their token values are always low.
The main challenge of a blockchain project is, by all means, finding the right link between all types of owners.
With the ICO format designed today, it can only create a deflection. To solve this problem, they should delay the token transaction, unless they already own a network that demonstrates the value of the token before the ICO.
In fact, even today’s top coin still does not actually have a product or network that is temporarily acceptable. Most of the ICOs from last year was based on the terrible FOMO effect from the community, and inevitably, they all fell sharply lower than the ICO. In the near future, ICO’s funding model will change, and more focus will be placed on holders/users who will be able to help increase tokens. If you want the ICO model to be recognized and the electronic money industry is widely accepted, this is a right thing to do.
-According to Hackernoon -
-Editing — Interpreting by Twogap -
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