Token Redenomination by @giftye
INTRODUCTION
Hello Steemians,it's my pleasure to participate in this community once again after being away for so long. It is obvious that the world of cryptocurrency is a vast one. So today I'm gonna be taken you on an adventure into token redenomination.
WHAT IS TOKEN REDENOMINATION ? WHAT DISTINGUISHES IT FROM CURRENCY OR OTHER ASSETS REDENOMINATION?
Redenomination can be explained as the face value change of coins and banknotes in circulation. This happens when inflation hits a country, making it's unit of currency so small that larger denominations of the currenc alone are left in circulation. When such things happen, the name of the currency may either be changed or just modified with qualifying prefix "new". Some other reasons that are responsible for redenomination are :
- When a country changes to a new currency,e.g Euro.
- Or during decimalisation
The act of redenominating cuts across all forms of currencies Including cryptocurrencies.
Token Redenomination
Token is how cryptocurrencies are denominated,they are special virtual assets and they represent tradable and fungible assets that are found on their own blockchains. Tokens can also be used by it's holder for economical and investment purposes.
In the case of tokens,redenomination occurs when there's an increase in the price of that particular cryptocurrency,so in other for the less privileged investor to also participate in holding that coin,developers tend to redo the token and make it less cost effective and accessible.
Using polkadot token as a case study. When it underwent it's redenomination,it's value actually increased in less than seven days. During such a period it rose in ranking as the fifth token with a circulating supply of 897,657,920 tokens. Dot token is used for bonding on the polkadot network, governance and staking. It's redenomination was scheduled to have taken place on the 21st of August 2020,it was added that
"the Dot is 100 times smaller than DOT(OLD).
What Distinguishes Token Redenomination From Currency Redenomination
1.
Tokens are redenominated so that more investors can participate in investments,which in turn , brings about an increase in the token market capitalization and it's liquidity. And all these things contributes to the general growth of the projects ecosystem. While that of fiat currency is done because of inflation which leads to a degradation of a currency's value or it's purchasing power. Here redenomination is done to curb these economic disasters and also to achieve decimalisation and integration into a currency union.
2.
Another distinguishing factor I see is the fact that ,when tokens are redenominated,lesser tokens are created and the value of the token is retained or increased. While that of fiat currency, value is already being lost before the process begins,and larger banknotes are created, except when decimalisation is being achieved.
ADVANTAGES AND DISADVANTAGES OF TOKEN REDENOMINATION
So far the advantages of redenomination has already been mentioned above. I can't really come up with more advantages other than the fact that:
- It attracts more investors,since it was introduced to accommodate small investors in the first place. By this,more funds will be realised for the development of ongoing projects.
- Over the years,it has been observed that tokens that underwent redenomination have experienced growth, owing to the fact that the added funds from fresh investors directly affects the token project's ecosystem.
- Redenomination has a way of assuring investors that the project has come to stay.
- Redenomination attracts more investors,which in turn increases the tokens liquidity and it's market capitalization.
Based on my understanding of the purpose of token redenomination and the research I've carried out,I could only find some disadvantages when it comes to fiat currency redenomination,which includes: "having to go through the stress of getting used to a new currency value and adapting to the change of units" which is also applicable for tokens,and also individual opinions are quite different on the matter: some see it as an avenue through which they incure losses,while others see it as a profitable venture.
Personally ,I don't see any disadvantage to the idea.
DO ALL CRYPTOCURRENCY PROJECTS NEED TO DO TOKEN REDENOMINATION?
Judging from the stand point of the reason why redenomination is carried out (
which is chiefly to adopt low capital investors)
,I don't think all cryptocurrencies should adopt redenomination,at least not until they get to a level of growth where it becomes difficult and expensive for low capital investors to purchase and hold them.Bitcoin ,Ethereum and the likes are eligible to do token redenomination because of their growth level,and how hard it is to invest in them,but if a Cryptocurrency like safemoon,babydoge and the likes,try to adopt it now,judging from the fact that these Cryptos are not expensive to purchase yet,then the aim of redenominating would be defeated.
CONCLUSION
So stay tuned for more and stay blessed.
!zen 30
Helloo, It is Alejandro. I just pass by to tell you that I have curated your post using Steemingcuration account. Keep up with the good work 😊
Notes: none.
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Thanks