6 ms·
The inherent issue with ICOs is pricing. Buying tokens, which can be exchanged for a service at an unknown ratio (price), amounts to financing a new fast food
by runeks 9y ago
The inherent issue with ICOs is pricing.
Buying tokens, which can be exchanged for a service at an unknown ratio (price), amounts to financing a new fast food chain by buying a million tokens for $1,000, where the tokens can be used to purchase hamburgers once the chain opens. The problem is that you have no idea if those million tokens — once the chain is up and running — will buy a thousand hamburgers or three.
So there’s a dichotomy here. Either your tokens remain low in value, and the end product of the business will be cheap (as it’s priced in these tokens) and you make no money as an investor, or the token price will increase and the end product will be expensive (but you’ll be able to sell your tokens for a profit).
In the end it’s a useless proposition: either token holders will be able to buy cheap hamburgers if the token price is low (thus causing a loss to the issuer/hamburger producer) or they will sell their expensive tokens for dollars and use dollars to buy their hamburgers elsewhere.
- saurik 9y ago> the end product of the business will be cheap (as it’s priced in these tokens) Essentially every one of these services creates a distributed market and almost none of them make the mistake of somehow deciding the price of the service in tokens in a way that wouldn't cause the market to adjust to reflect the value of the token (and ironically the only one I can come up with that makes this mistake was the WhopperCoin ;P). If the value of the token doubles then the cost in tokens of using the service should quickly drop by half. This is an annoying volatility but the service absolutely doesn't become more expensive or cheaper based on the value of the token. This isn't "one token buys one hamburger", this is simply "you can buy and sell hamburgers with tokens".
- PKop 9y agoBut as a consumer, why would I place my trust, and store my value in your shallow liquidity token when I prefer to just hold dollars? Certainly the company ICO'ing benefits from the infusion of money selling their token, but what is the value prop for all these different tokens for consumers? (read: not speculators or investors) Also, if the tokens trade for fiat on an exchange, then they certainly would be volatile as far as what value they can be exchanged for. How can you ensure the service doesn't become more expensive?
- wmf 9y agoMost ICOs don't have much value prop, but Telegram has a lot of network effect lock-in that they can use to force people to use their token for any services that ride on the Telegram network. And according to the leaked white paper, they're planning to offer every imaginable service similar to WeChat.
- aboodman 9y agoAs a consumer you likely wouldn't -- you'd buy the tokens as needed and liquidate them immediately. As an investor you might for the same reason you would invest in any other enterprise. If you believe that the application is likely to become popular, then more people will be needing the token that powers it, thus the price of that token (against other assets) will go up.
- prostoalex 9y agoIt’s launching an airline by pre-selling miles. Sure, you might have 1,000,000 miles and Platinum status on that new airline, the boarding passes are on the blockchain, but the airline gets to control the mile redemption rates and status privileges for that Platinum level.
- bhouston 9y agoAlso if people redeem these miles, wouldn't it bankrupt the airline or at least significantly affect its profitability?
- philipodonnell 9y agoIt you control the redemption rate then you can just force redemptions below some level that keeps you profitable. Airlines do this already, frequent flyer-eligible tickets are a small portion of the overall tickets available, blackout dates, etc...
- dullgiulio 9y agoExcept, of course, that the majority of ICOs today are not organized by airlines (as in, businesses with known market prospects), but by random groups of people with sketchy plans, many not even incorporated (as the saying goes "some even have a homepage".)
- runeks 9y ago> It’s launching an airline by pre-selling miles. If that’s the case, then where does Telegram state what and how much one token can be redeemed for? An airline “mile” is redeemable in something physical (being flown a mile), but I haven’t seen any information on what I can redeem a Telegram ICO token for (although I may have missed that). Unless Telegram explicitly allows people to redeem their tokens for some specific quantity of a service, then it does indeed amount to selling a service at an unspecified price.
- wellboy 9y ago> once the chain is up and running — will buy a thousand hamburgers or three Like almost all dichotomies, it's a false dichotomy. Most ICOs end up going up by 2x, but having the 1000x you described are very rare, plus ICOs going down in price are also not as frequent. Most ICOs stay in their price range.