Populous – Who’s Next?
One by one, they are coming around. First out of the starting block was the infamous EtherDelta then Mercatox said they want to play. Only two exchanges! That was when the moaning and groaning began.
Why aren’t we listed on the major exchanges? Many projects which ICOed after PPT got listed, so why not us! – PPT Holders
Then one by one the exchanges succumbed to the lure of PPT!
PPT is unlike any other token currently on the market. You cannot buy invoices using PPT but instead you securitise your PPT to gain access to the Liquidity Pool. Your PPT will be held in escrow as collateral and the Pokens you received in return can be used to buy/fund invoices.
It is without a doubt that listing on exchanges help will help to increase the price of PPT because it helps to raise awareness by becoming more accessible. However, the main purpose of exchange listing is to obtain price discovery.
The collateral value of your PPT will be determined by the aggregated PPT/USD value on exchanges at the time of exchange for Pokens. To illustrate what this mean, simply look at the price quoted on CMC. It is an aggregated price based on price of PPT traded on the exchanges it is listed. The aggregate price will be a taken into consideration to determine the collateral value of your PPT.
Nevertheless, the listing of PPT on exchanges only means one thing that “WE ARE CLOSE!”
Just to Recap!
You may remember the anaylsis made in “Populous – Swimming in Dough!” and “Populous – Clash of the Titans!” how price of PPT is determined. Two components making up the price of PPT was identified and these reflect the demand/desirability and the funds available in the liquidity pool.
PPT is also backed by fiat and without fiat, loans cannot be made. This is why the integrity of the Liquidity Pool must be maintained and there are sufficient funds available to all invoice sellers who uses the platform.
The concept is very simple, fiat is required to fund invoices and if there are insufficient funds then invoice sellers will just go elsewhere. A shortage of invoices on the platform to sell mean invoice buyers find their funds idling and eventually removing funds altogether shrinking the Liquidity Pool. The cycle repeats if the Liquidity Pool is not managed with skill and care.
If you go to a lending institution and ask for a loan you will very often be asked “what collateral will you offer in return?” The value of the collateral offered will determine the loan amount you will receive and often times you will not receive 100% face value of the collateral you offered.
For example, you take out a loan using your house as collateral. Your house may be priced $100,000 on the market but the bank may value it at $80,000 instead. The bank takes into consideration fluctuations in the housing market to ensure that your house is always worth more than the amount of money loaned. If the house price goes up, then all is hunky-dory but if the house price falls but still above $80,000 then the bank is still happy. But if house falls below $80,000 the bank will be underwater if you should default on your loan.
This is no different to how the securitised PPT will work and is why a discounting factor is applied to the collateral. However, with Populous you will eventually get back your collateral with all just-in-case measures that Populous will have in place. See the post “Populous – Safety First!”.
A discount factor of 80% has been bandied-about and has been used for illustration purpose. This variable “varies” and will be determined by many factors which are out of Populous’ control. The discount value can be higher or lower but you will never receive 100% of the collateral value.
There are many things to consider and here are just a few that comes to mind:
- Aggregated price of PPT trading on exchanges.
- Number of PPT held in collateral.
- Number of PPT traded on exchanges.
- Number of PPT held in wallets external to the platform.
- Amount of Pokens on the platform not yet used to buy invoices.
- Forecast of interest to be received.
- Forecast fiat withdrawn from the platform.
- Forecast of number and size of possible defaults.
- And most importantly of all, the size of the Liquidity Pool.
The aim is to make the most efficient use of the funds available whilst ensuring adequate reserves have been allowed for rainy days. The formula to work all this out will be complex and the use of an excel spreadsheet is out of question. The “Price Volatility Oracle” will determine the discounting factor on a real-time basis.
The on-boarding of exchanges is certainly good news for many traders but the main purpose of the exchanges is to provide price discovery so PPT price can be aggregated to determine the collateral value.
The price of PPT may moon and beyond, but this does not mean liquidity will also follow suit. PPT is backed by fiat so the amount loaned is dictated by the size of the Liquidity Pool. If the market capitalisation is twice the size of the liquidity pool, it may be that the discounted value of your PPT collateral is valued possibly around 45%.
Nevertheless, that is not to say that a high PPT price is not good because you can still take profit by selling your PPT at a higher price. This will only benefit those still on the platform because a reduced number of securitised PPT on the platform very probably means more bang for your PPT collateral. The size of the Liquidity Pool is the determining factor at which the discount factor is to be assigned.
The guinea pigs selected for testing of the beta will allow Populous to refine the “Price Volatility Oracle” before the platform is formally launched. Populous have been thorough and Steve is “Planning for success”, with no stone left un-turned and “all” eventualities covered.
Populous will indeed perform a feat to behold, something not yet accomplished by anyone else. Everyone within the Blockchain and financial industry will be in awe, Steve and Populous will certainly cement their place in Blockchain folklore.
Other Populous Posts
My most recent Populous posts can be read by clicking the links below.
Populous – PXT, The Great Equaliser?
Populous – Safety First!
Populous – Through the Looking Glass!
Populous – Wow! Wow! Wow!
Populous – It’s War!
There are many more Populous post and they can be found here.
Should you have any questions concerning Populous you can ask Populous through Slack, Bitcointalk forum or Twitter Account for answers and clarifications.
However, do bear in mind that Populous are not financial advisers and cannot respond to questions that are of a financial nature. The onus is on you to make that determination and what it means for you as a PPT holder.
This is NOT Financial Advice
In my humble opinion, the risks to the downside are small compared to the potential upside rewards. The contents in this article are for educational purpose only and should not be construed as financial advice. As usual do not invest more than you can afford to lose as these investments can go to zero and always do your own due diligence. If you need financial advice then speak to a licensed financial advisor.
Feel free to comment as you see fit below.