Token Redenomination|| Crypto Academy S4W3- Homework post for Prof @wahyunahrul
1). Explain what is Token Redenomination in your personal opinion? What distinguishes it from currency or other assets redenominations?
2). Mention the advantages and disadvantages of Token Redenomination
3). Do all cryptocurrency projects need to do Token Redenomination? Explain in your personal opinion
4). Choose a project that has or is currently doing Token Redenomination and show how to convert old tokens into new tokens. (Screenshot Required)
5). Analyze whether the token from the project you chose in question number 4 is worth investing in. (Screenshot Required)
6). Conclusion.
1). Explain what is Token Redenomination in your personal opinion? What distinguishes it from currency or other assets redenominations?
Ordinarily, Redeeming means calibration of currency usually because of inflation leading to decrease in purchasing power. Countries tend to redenominate its currency when the currency is taken out of circulation and new currencies are issued without reducing the value of the old one. This they do through a process called Redenomination.
In addition to this, there is such thing as Token Redenomination. It occurs when the price of a cryptocurrency increases mostly because of a higher demand. The implication of this is that the particular token can only attract big big investors who are willing to put in huge amount of money into the project hoping to have benefitting returns in the future; retailers or buyers with little capital tend to desist from such investment owing to the fact that those projects comes with drastic change in price after the process of Redenomination. For example, when the huge pump occurred in Bitcoin, investors who don't have up to $40 and more looked out for minut token to put their money and only people with huge capital saw future and as well invested in the said project.
Just as Redenominating a currency can only be done central Banks, Redenominating a token can be done through developers of that particular token. And the effect of Redenominating a token is that the token can be accessed by all and sundry at a cheaper rate without its value being affected so as to increase the liquidity of such token.
MY PERSONAL OPINION
Personally, I am of the opinion that token Redenomination is a welcomed development in the cryptocurrency world relying on the fact that such modifications does not take the token out of the market... As a matter of fact, it tends to carry out a kind of reshuffling thereby bringing more investors into the market by making adjustments for small investors to be part of such projects.
I believe no such thing increases the value of a token as liquidity. By this, I mean that the rate at which a given token circulate per time after Redenomination can be attributed to its success and what it holds for the future to come; this is one of the impacts of Redenomination.
Redenomination is similar to share split in the sense that when a token is redenominated, it increases the circulating supply of such token and still leaves the market capitalisation unchanged.
One of the token that have undergone Redenomination is Polkadot (DOT) . The initial price before Redenomination was $2.88 and after Redenomination, it hits $4.48 and as at the time of writing, the token trades at $31.56. After the token Redenomination, it was recorded that investors who had 10 polkadot tokens, were given 1000 Polkadot (new).
What distinguishes token Redenomination from currency or other assets Redenomination?
A token Redenomination can be distinguished From other assets or currency Redenomination in that as currency Redenomination is being carried out by central Banks as earlier stated, token Redenomination is manipulated and carried out by project developers.
Countries may redenominate a currency just to join a currency Union but the essence of Redenominating a token is basically to reduce the purchasing power of that token.
Sometimes, when countries redenominate a currency, the old currency still circulates at a given value against the new currency but this is not so in token Redenomination I guess and its essence is so that there won't be conflict in the minds of investors in the proper kind of investment to make... I stand to be corrected.
2). Mention the advantages and disadvantages of Token Redenomination
ADVANTAGES
One advantage of token Redenomination is that sometimes it is automatic and does not require any gas fee depending on the project.
Remember I said earlier that when a token is redenominated it accommodate variety of investors into the project and this tends to grow the project ecosystem.
When much investors see reason to invest in a project, it goes a long way to increase the circulating supply of that token and as such fastens the velocity at which investors get their returns.
Inflation is reduced to the barest minimum.
DISADVANTAGES
Personally, I think and suggest that one of the Disadvantages of Redenominating a token could be psychological due to the fact that myopic investors may conclude that such project will lose value after incorporating such change and this mindset can defeat the aim of getting more investors into the project.
Oftentimes, after Redenomination, the market cap still remain unchanged. By this, the future of the time will be at the mercy of the old token market cap prior to Redenomination.
Transaction for tokens undergoing Redenomination are usually suspended prior to the date of Redenomination.
3). Do all cryptocurrency projects need to do Token Redenomination? Explain in your personal opinion
Personally, in my humble opinion I reserve a No answer to this question and reasons are the following:
Let's not forget that the primary aim behind Redenominating a token is to reduce the purchasing power of a given token which has a higher demand to accommodate more interested investors in the project. That being said, Redenomination is of essence whenever there is a higher demand on a token. There won't be any need to redenominate a given cryptocurrency if 99% of investors are into that project.
There are few cryptocurrencies which I would suggest in my opinion that needs undergo Redenomination. In other words, only Token which have ascended a given rate should undergo Redenomination and the reason being that investors who are long-throating to acquire such token can key into such investments and as such, it won't be a limited investment specifically made for large investors.
If a particular cryptocurrency project is considered good and minimal there won't be any need Redenominating such token.
Also, newly launched cryptocurrencies do not need to undergo Redenomination reason being that it is a new project, such project need to establish a level of certainty in the minds of investors for a specified period of time to an extent. By this, I mean that newly launched cryptocurrencies can wait the process of Redenomination until a reasonable number of investors considers it a good project.
4). Choose a project that has or is currently doing Token Redenomination and show how to convert old tokens into new tokens. (Screenshot Required)
I choose to work on the DOT tokens project as one of the coins that has underwent Redenomination.
DOT is a project that was launched in the year 2017. It is a native Token of polkadot. Its Redenomination occurred exactly at block number 1,248,328 on the 21st of August. After its Redenomination, investors who had 10 polkadot tokens were given 1000 Polkadot new token.
Investors of the project prior to its Redenomination were the main instruments that voted for the token Redenomination.
There was no much protocol attached to the token transfer after its Redenomination. Specifically, users of imToken application were instructed to update the application's newest version and as soon as the update is complete, the DOT(old) will automatically to DOT(new) token.
After DOT was redenominated, its circulating supply was 100 times inflated. It Rose from 10 million tokens to 1 billion.
As of the day of carrying out this task, polkadot token is ranking 8 on coinmarketcap with the market cap of $30,944,915.10 and at the price of #31.33.
As earlier stated Redenominating a token only increases the token circulating supply; its market cap will remain unchanged. Hence, DOT(old) token investors who previously had 1 polkadot as seen in the image above, will have 100 DOT(new) token but even as there is an increment in the number of tokens, its total value is still the same.
5). Analyze whether the token from the project you chose in question number 4 is worth investing in. (Screenshot Required)
For the purpose of achieving clarity in this particular question, I will be reiterating some points about Polkadot which I may have made mention of earlier in this assignment.
The question as to whether Polkadot token is worth investing in is a YES answer from me. To start with, Polkadot is a volatile investment which pinpoints to the possibility of having high gains and losses as well but the chances of having higher gains predominates.
Polkadot is not just a good investment, is a good long term investment at that and this can be seen by taking a keen look at the polkadot chart and coupled with the fact that most experts who are knowledgeable in the cryptocurrency industry has voted the token as a very promising one and futuristic at that in terms of tackling issues of interoperability.
Currently, Polkadot is ranking 8 in coinmarketcap and at the price of $31 with a market cap of $30,944,915.10. This is a project that was just launched in 2017 that rose drastically within a limited period of time.
Relying on the history of Polkadot a coin that rose from $2.48 after its Redenomination to $31 and more even and more. Even the blind would not hesitate to give a yes answer as to whether Polkadot is a good investment... Indeed, Polkadot is a promising investment and has attained tremendous height.
Another reason why I believe Polkadot to be a good investment is prediction. Based on Polkadot predicted price for 2021, the token has obviously hot and exceeded the predicted price for December 2021 even though the year is still reading September.
From the image above, the predicted price for September 2021 is $26.14 but currently the token is worth $31. What more better investment can one expect than this?.
Conclusion
And today I was able to learn about token Redenomination. In the course of this learning I also got to find out that Redenomination exist in assets and currencies too. Again, I learnt how redenominated tokens can be swapped as well as what the whole concept of Redenomination entails in cryptocurrency. Still on it, I learnt the advantages and Disadvantage of token Redenomination as everything that has Advantage must have disadvantage.