My Top 5 CryptoCurrency Token Economics Mistakes Projects Make.

Token Economics is Important in CryptoCurrency!


Too often in the world of cryptocurrencies we see projects who make giant blunders out the gate. The key is to try to get the token economics right from day one. One way you can improve your chances of getting it right is to study some Austrian Economics. Satoshi Nakamoto must have spent a good deal of time studying the writings of famed economists like Friedrich Hayek, Murray Rothbard.


During the Mania of the 2017 Bitcoin and Crypto Bull Market, Conservative Token Economics Were Forgotten.


What we saw in 2017 were projects that had massive amounts of inflation, huge supplies, and very little use cases. Recently a mathematician and ardent student of economics told me that investors and token holders would instinctively rather see higher values and lower supplies. I admit I also fell into the trap of ignoring economics in 2017 but thanks to massive losses I have returned to the principles that I learned in the Gold and Silver market.


Here Are My Top 5 Token Economics Mistakes Projects Make.


1. Huge Supply - What do you need all of those tokens for? You can accomplish the same with a minuscule supply thanks to the decimal places available in crypto. Did you know Ethereum has up to 18 decimal places? This also creates a sense of scarcity.


2. Perpetual Inflation - Why does a cryptocurrency need to have inflation? Sure Bitcoin, Epic Cash and Dash have inflation but their total supply is capped. The inflation early on in the life of these currencies is to reward the miners who secure the network. I believe Proof of Stake coins like Decred also follow sound token economics.


3. Airdrops - Projects think that airdrops are a great way to get tokens into the hands of new people. Let me tell you what really happens. The airdrop recipients dump their tokens as soon as they can, cratering the value of the token. A great example was when OBytes (formerly) Bytecoin airdropped coins to Steemit. The price immediately collapsed and has continued to drop. I feel bad for the Hodlers of OBytes. BTW, I still have my airdropped coins.


4. Token Burning - Unless it is part of a sound token economic plan, burning tokens is just a sign that the creators were overzealous in their token creation. If a utility token is burned after actions on the network then this is deflationary and is great for Hodlers. Have you ever seen a toy that was very popular for a short time and then you see it in the discount bin within a year? Yup, that is what it is like when you produce too many tokens early on. The damage will take time to overcome.


5. Listing Tokens on Exchanges that Employ Wash Trading- This trading behavior gives the economy of the token a false signal of volume. Sometimes the exchanges do it themselves and sometimes the projects hire third parties to wash trade for them. I think this practice is dishonest. It hurts the reputation of the token, the exchange, and the whole crypto market.


What CryptoCurrency Token Economics Have You Seen That Were Not Sound?


I for one want to see more projects step up and honor sound token economics!

COMMENT

25

Altcoin Buzz .io
27 Oct

This is a very interesting topic. Largely I do agree with you.

I think the biggest mistake projects do with their tokens is that they don't focus on building value. They don't focus on building cyclical sound economic business models but mostly linear, reward system token drop/earn systems.

Another issue I think is the sale of tokens in general. I think valuing tokens and selling them to individuals and VCs is wrong at many levels as these values should be built and user/market-determined. I think fund-raising is not the reason why any company should launch a coin.

I also feel that we don't have any best practices in determining the economics of the tokens and utility for various stakeholders. These factors will need time to start making more sense and opinions like yours will help drive the need to that.

I look forward to follow more of your analysis on this subject. Keep it up!

7 REPLY

24

Randy Hilarski
28 Oct

Finding a value for a utility token is always a challenge but creative minds can come up with something. Hey, the Uptrennd did it with 1UP. 

0 REPLY

23

preview not available Romana Grubesic
27 Oct

My biggest mistake was entering dentacoin when project started and sending  them to Uphold wallet that did not support holdin private keys. 

4 REPLY

24

Randy Hilarski
27 Oct

Oh No, that could have been a large sum of Bitcoin.

0 REPLY

20

Mohammad Imran
27 Oct

Good points you mentioned in your article.

I also had to face the same situation when i received tokens through airdropping and held them to sell in the future to gain more profit, and now they are almost worthless.

4 REPLY

25

preview not available Busola Akinlolu
27 Oct

I agree with your analysis Randy, especially those airdrops, they are mostly dumped anddumped at the long run.

4 REPLY

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