Category: Cryptoeconomics

Posted on

$1 Trillion of VC investments to become liquid through tokenisation

Categories Cryptocurrency, ICOs, Tokenomics, Tokens, Investment, Cryptoeconomics, Venture Capital

$1 Trillion of VC investments to become liquid through tokenisation

Institutional and large capital investors are increasingly looking at the crypto market as a way of finding new investment opportunities, as well as solving issues they are facing in traditional markets.

Take venture funds for example; investors have to commit their investments to sit in a startup for between 3-7 years, and an estimated $1 trillion is currently held in such a manner, with no room for movement. This results in a situation where profitability is reduced as well as the overall efficiency of their holding. Of course, if the project is successful, the investor is set to receive excess profit but there is never a guarantee of the project meeting the yield expectations, let alone getting back the funds that were invested in it.

Venture capitalists are always treading a fine line because if the project fails they lose everything they invested, but just the fact that they are investing for long periods of time means that they miss out on other opportunities to generate revenue.

A study was conducted by Cambridge Associates that looked at the performance of 27,000 venture startups over the last 20 years. It was found that the amount of venture projects that returned less or the actual amount of invested capital never exceeded 60%. So let us consider that out of the $1 trillion of investments, 60% will return the amount invested in seven years, this could take $600 billion away from the global economy.

The tokenisation of venture projects could offer a solution to issues surrounding liquidity, as well as reducing the risk of investors and making VC assets more attractive. Security tokens can offer investors a range of financial right such as dividends, equity, a share in profits, voting rights, and buy-back rights. These transactions can be completed over the blockchain and crypto investors would be able to gain access via depositories or wallets that are registered in a decentralised ledger.

This development of tokenised venture assets is already well under way and one company, VNX Exchange in collaboration with ADDCAPITAL are planning to issue tokens for $20 to finance venture products. They will also be used to create high yield projects, allow early venture capital withdrawal, and greatly expand the range of qualified venture investors that have the possibility of investing.

It is believed that such new dynamics would have an extremely positive impact on the development of startups, change the culture of investing and fundraising for entrepreneurs, and significantly boost the global economy.

If you have any questions in relation to ICOs, please contact us on [email protected]

Read More
Posted on

Why our world needs tokenomics?

Categories Economy, Blockchain, Cryptocurrency, Regulatory, ICOs, Technology, Trading, Tokenomics, Tokens, Market, Market Cap, Cryptoeconomics

Why our world needs tokenomics?

There is no doubt that blockchain technology is going to pay a pretty big part in our future. Blockchain has the capacity to unlock a previously untapped economy of trust and it also has the potential to completely revolutionise many sectors from finance to healthcare and everything in between. But before it can reach its full potential, there is one extremely important thing missing: an established and well thought out theory of tokenomics.

Moving forward with blockchain technology and its implementation will require a significant increase in the advancement of tokenomics analysis. We are currently in the midst of a truly unchartered territory – governments and regulatory authorities don’t have a clue what is happening and even those involved directly in the industry are lacking clarity and certainty. Whilst the concept of tokenomics has been around for centuries, there is not much knowledge on artificial economies such as the of crypto world. One way that token economies can be analysed more closely is through the use of agent-based modelling, but there is still a lot of work to do.

Why study token economics?

Firstly, because tokenomics is extremely important. With the advent of blockchain technology, we are seeing more and more startups move towards using market business models. These models facilitate the incentivisation of users to make them more proactive in their day to day life. For example, a government could incentivise users to pay their taxes over the blockchain network. A retail company could offer discounts if clients use the blockchain to make their payments. Knowing and understanding how best to create and promote rewards through a particular economy requires a proper understanding of tokenomics models.

Also, token economies can also fall foul of all the problems that traditional economies have. For example, inflation, volatility, and crashes are all issues that can affect the long-term viability of a blockchain based business. Token economies do make it possible, however, to automatically collect data on transactions which can then be used to calculate metrics such as the total traded volume or the velocity. The tokenomics research community has a lot of work to do when it comes to being able to utilize the unique opportunities that are offered by the blockchain. By doing this they will be able to better understand how to solve some of the presented challenges.

The issue of token pricing

Some of the other issues that are at the forefront of the challenges faced by the sector include understanding token pricing. There is no definitive answer on how tokens should be priced, or how many should be issued. There is also much work needed when it comes to the equation of exchange that is used to help derive valuations for cryptocurrencies, some of which can be used to provide a better understanding of token pricing for ICOs. The problem is that at the moment, there is no proper model around this topic and until there is, the sector will struggle to find its feet.

Long-term viability

Many ICOs that have been launched made use of a model where tokens are disposed of as they are used up. This means that as the number of tokens decreases, supply becomes limited and the price goes up. Whilst this is attractive to investors and speculators, it doesn’t give much information or hope for the long-term viability of the token.

Controlling speculation

Unfounded speculation has caused untold amounts of damage to the crypto-economy, but it can also be one of the driving force behind the popularity surge of cryptocurrencies. Speculating and trading are not bad things per se, rather it is when they get out of control and result in market crashes similar to the one that we saw in January. Control needs to be exerted so that speculation is allowed, but does not wield power that can see a market decimated in days.

The economics of the future

Blockchain is not going anywhere anytime soon and it is becoming clearer that it is set to become an integral part of our lives. ICOs have raised an astonishing $6.5bn to date, but without a proper tokenomics model, many are sadly destined to fail. As ICOs mature, the same is required by tokenomics and understanding topics such as the ones mentioned above is an integral part of blockchains long-term success.

 

Are you looking for ICO Legal Advice? Click this link to know more.

Read More
Posted on

Token design for Digital Crowdfunding Campaign

Categories Blockchain, Cryptocurrency, ICOs, Technology, Tokenomics, Tokens, Cryptoeconomics

Token design for Digital Crowdfunding Campaign

One of the key concepts behind an Initial Coin Offering (ICO) is to use the blockchain as a way of bringing together a decentralised and self-contained mini investment economy. The token that is created and “sold” as a part of the ICO is the key access point into this ecosystem and removes any need for a third-party middleman. When it comes to designing a functional token, it is the most important part of the new system as this alone will decide the flow of payments and rewards to anyone that uses the system.

Cryptoeconomics

When developing an ICO, first of all, the creator must determine the cryptoeconomics that is behind the token. This should include the maximum number of tokens that will be created, the value of each token (usually based on BTC or ETH), any discounts for purchasing it early, and how the token will be distributed to backers, founders, developers, and other users. Consideration and careful planning must also be given to marketing, legal, and security processes and strategies.

The key to determining the tokenomics behind an ICO should begin with estimating the size of the digital ecosystem as well as exactly how users and contributors will engage the system. One should also consider the number of transitions that are expected to be made and enough tokens should be issued to not only run the core system but to allow system growth over time.

Creating a digital ecosystem

The token can and should be optimised to the full for a range of different goals. For example, whilst most ICOs issue tokens that allow the building of the system and running it on a basic level, creators should take a much longer view and price the value to facilitate an increase in the usage of the platform. One could also price the token to encourage developers to create a digital ecosystem that exists around the ICO.

It can be difficult to develop a plan for the entire life of the blockchain system, as predicting the future has never been an easy task. Due to this fact, many developers consider issuing another type of token at a later date that can provide users with a higher level of access to the digital ecosystem as it matures past a certain point.

Developers also have the option to create different types of token for the ICO which can give unique benefits to users. As the system continues to grow, new applications and higher value benefits can become available.

 

To learn more about ICO Legal Services in Malta please follow this link.

Contact us directly on +356 20103020 or by email at [email protected] to find out more.

Read More
Posted on

A guide to token usage, utility, and value

Categories Blockchain, Cryptocurrency, ICOs, Malta, E&S Group, Technology, Tokenomics, Tokens, Utility Tokens, Security Tokens, Data, Cryptoeconomics

A guide to token usage, utility, and value

There is no shortage of information available about cryptocurrencies, but there is very little in the way of defining exactly the type of tokens. When it comes to technical details about blockchain, the concept of a cryptocurrency coin is well understood; a programmable currency until that is linked to a blockchain and relates to smart contract logic in the context of a certain software application. But when it comes to the non-technical details, what is a token?

A token is another way of naming a privately issued currency. When we consider sovereign governments that issue currency, they do so with set terms and governance, directing how the economy functions with fiat currency as the medium of value. Then, we have the blockchain with new types of organisations who issue their own currency in the form of digital assets, otherwise known as cryptocurrency. These issuers are setting their own rules and terms around their operations and essentially creating new, self-sustainable micro-economies.

In other words, what was once the sole preserve of governments, is now in the hands of anyone that has the capability to create their own tokens.

A few years ago, no one was talking about ICOs or STOs, or even token models, and with much confusion still present around these phenomena, this article is designed to make things a little clearer.

Tokenomics vs Cryptoeconomics

At E&S Group, we believe that there is a difference between tokenomics and cryptoeconomics. When we talk about cryptoeconomics we refer to the incentive structures that are designed to facilitate the creation and subsequent transaction validation of a particular cryptocurrency. For example, the cryptoeconomics of Bitcoin is designed to give Bitcoin miners a reason to mine new BTC. These miners validate each Bitcoin transaction and then receive newly minted BTC as a reward for their efforts.

Individuals, businesses, and users of BTC then pay a transaction fee to the miners so that their transaction is included in the mining of the next block. This means that even when all BTC has been mined (something that is estimated to happen in 2140), miners of Bitcoin will still be incentivised to keep mining and validating transactions.

This is what we refer to as cryptoeconomics. Whilst it is quite similar to tokenomics in terms of the incentivisation of stakeholders to ensure specific behaviour, there are some differences between the two.

Tokenomics focusses specifically on the application layer of a token so that the goal of it is to ensure that a crypto-token is used within the ecosystem as intended.

This means that tokenomics is not just about the supply and transaction validation of a token, but more about the things that happen afterwards. When we consider tokenomics, we have to consider what the token is used for and what behaviour we are trying to elicit.

Having explained that tokenomics is not the same as cryptoeconomics, we must define exactly what tokenomics entails as depending on who you speak to, it can have different meanings. For some, the tokenomics of an ICO refers to certain token metrics including supply and the amount that is reserved for founders and advisors to the project. Others believe that tokenomics is a four-layer model that comprises of token functionality, token distribution, token workflow, and token governance.

Token use

A token must have a purpose, and during the ICO boom this was mainly to raise funds to the project, but now things are changing. Even if the main goal is to raise funds, the token still needs to have an additional, secondary purpose. Eventually, the aim is for investors to use the token and not just to invest in it for later speculation.

Whether the token is used to start an online platform, or whether it is to incentivise another kind of behaviour, it is of the utmost importance that the purpose of the token is clear. To be able to set up a long-term sustainable token, it needs to be designed with the tokens utility clearly set out, because if not, it will hurt the business.

Token Utilisation

A second part of the tokenomics is the way that the token will be utilised. Once you have established your purpose, clarification needs to be given as to whether the token will be used, when it will be used, and how it will be used. Consideration also needs to be given to how often it will be used and by whom. Just because you have a clear purpose for the token, does not mean that people will use it effectively, therefore you need to do token research to understand how the token will be used.

Token utilisation is as important as token value. For example, what happens when the token increases in value due to speculation? In such cases, users of the platform will be less likely to use it for its intended purpose and more likely to hold it so that they can cash in at a later date.

Token functionality

Programmable money is a term that has been used to describe cryptocurrency tokens but you also need to have an idea of what sort of functions the token will have.

For example, in the case of a security token offering, a company can issue its shares as a token, therefore, providing a financing mechanism for the company whilst also providing value for the shareholders. To be able to provide such value, the token needs to be structured in such a way that allows people with no tokens to vote and receive dividend payments. Functions such as dividend payments of voting are clear examples of functionalities that could be programmed into the token.

Token Distribution

Another aspect of tokenomics is the way that it is distributed. Often, ICO projects make mistakes in their token distribution by making it fixed that is issued at just one time moment.

If we look at fiat currencies, their supply is never fixed, instead, the central bank is able to print more money or a local bank can provide a loan. These are both means of creating money where previously there was none. From this, we can ascertain that a fixed token distribution is likely to have negative effects on its value, inflation, and of course, usage. For these reasons, it is incredibly important that special attention is paid to how the token is distributed, for example:

  • When will the token go into circulation?
  • When will it leave circulation?
  • How much will be released at first?
  • How do current and projected utilisation and value coexist?

Token Value

The value of the token is another important aspect of tokenomics. When a token is issued as a share or security, the value of the token should be clear and straightforward. For example, if a company is valued at $50 million, and 10 million equity tokens are made available, each token/share should be worth $5.

If a token doesn’t have a clear value, things can get a lot more complicated. If an issuer thinks that a token is worth X, the market may put it at a different value. This can become even more complicated when you want to enable users to exchange tokens for specific services. If the value of a token falls in the market, the price should be adjusted by the issuer.

Tokens that work in the long-run

Tokenomics has a lot of complicated and very different facets that include token purpose, utility, functionality, distribution, and supply. But there are many others that can be taken into consideration such as mechanism design, stakeholder interviews, and token governance, meaning the good token design is not as easy as some would believe.

Even if all of these things have been given consideration, the task is still not completed because to properly set up a tokenised business due attention to other parts of the business such as the token market, the business technical infrastructure, and the token and revenue model. This is not an easy task and it is one that requires the help and guidance of a professional.

E&S Group has solid experience in designing tokenomics infrastructures, as well as advising companies on all of the other important aspects of creating a successful project. For further information please send us an email on [email protected]

Read More