The dopamine rush which likely hits the brains of intending founders of startups within the blockchain space at the thought of owning their own company solely powered by its utility token is ludicrous. We hear founders claim their tokens are utility tokens thereby saving them any future regulatory cross hairs with authorities such as the SEC and other regulatory agencies. Most times even with all the noise on the utility nature of these tokens, just a smidgen few of them consider the need to undertake the “Howey Test” which professionally investigates if a token is classified either as security or utility. This has led to many of them breaching the line of regulatory authorities put forward between utility tokens and securities offering. This discourse, however, is not to hold any brief for SEC especially which I personally consider being regulating a highly evolved global financial system with laws as old as a century. They simply need to reform or they will end up losing relevance as people get the perception they are just dabbling into cryptodom without any clear cut regulatory oversight in place.
Creating a platform whether a protocol or application running on blockchain tech often times afford project owners launching their unique platform token. Whether this token is deemed a security or utility token is not really the subject of this piece but for the sake of addressing the aim of this article, we will focus our binoculars on utility tokens which act as the gateway to most cryptocurrency based applications or protocols.
Earlier in this article, Launching a Viable Tech Startup in the Blockchain Industry, I spoke on the need for crypto-based tech startups enshrining a multi-token business ecosystem, let’s delve in deeper on the rationales behind my stance.
Let’s take an example of a hypothetical tech startup which has just launched into the wild west of blockchain economy, it has minted a total of 1 billion unit of XQQ Tokens and successfully held a token sale where it sold 55% of XQQ to its ICO contributors, reserved 25% and allocated 10% for marketing and partnership deals. This sums up to around 90% of the total supply. It further held 7% for Founders and Team, 3% for Advisors. This formula looks great showing the project team still controls around 45% of the token’s supply which was not put up for sale during the token sale whether it adopted ICO or IEO, all seems good until the monster called “liquidity” rears its ugly face forward. However, we won’t be focusing on token economy (tokenomics) but on the multi-token business ecosystem.
Still on the matter, with founders not minding much on the price speculative aspect of their native token such as XQQ and focusing majorly on building and making the platform fitting for use for their members, a peculiar situation seems to be a major problem, liquidity! Since most users of the platform can only access the platform using XQQ tokens, the ease of purchase and liquidity of this token is not to be taken lightly. At the moment, atomic swaps which allow token holders seamlessly swap their tokens anonymously and in a decentralized manner hasn’t been perfected yet. Even neo atomic swaps platforms such as Bancor X, Kyber and Airswap haven’t been able to garner much traction as it were. The only credible option users are left with is using cryptocurrency exchanges whether centralized or decentralized depending on their preference.
Let’s direct our focus on the most liquid digital asset bitcoin. It’s around 11 years old and it has achieved much within its time. It was the first of them all. We started seeing tokens flying about after the development of the first smart contracts platform Ethereum. The birth of Ethereum created the first wave of Decentralized Exchanges (DEX) crypto users could access their computers. However, the complexity associated with these DEXs gives a frightening presentation to newcomers and even some old-timers who would rather move to centralized exchanges irrespective of the damning manipulation and backdoor twists. With the cost it usually takes for projects to get listed in today’s centralized exchanges, it really would be a problem for Blockchain Startups who want to get listed considering their lean financial muscles.
Liquidity which is the lifeblood of any token based business is a major concern which any reasonable founder should consider as much as he/she as they set out to “BUIDL”. With untold numbers of digital currencies many of which have never even touched the “C” in Coinmarketcap, there is a great battle for liquidity and if traders perceive the instability in your token’s liquidity, it’s a step towards game over.
Considering the cost and battle to get listed and for liquidity as well as the ease of accessing the project’s token, founders have a lot of decisions to make which will either set the firm/project in an upward trajectory or a downward spiral. This is why it’s imperative for founders to consider the importance of Multi-token Business Ecosystem when building their businesses. A multi token business ensures businesses do not lose out of business and customers/users.