ICO TOKEN APPRECIATION

Advantagously swap your risk and create value.

ICO TOKEN APPRECIATION

THE ECONOMIC REASON WHY ICOS WORK

Written by: Oren Bahari

Imagine Tesla wants to invent the Tesla Roadsters and they will only produce 10 in the world. The car will be used as a ‘vehicle’ to facilitate joy rides across the world. Tesla sells the prospect of a Roadster in the future at $100 M, discounted by 50% from $200M. The money from the sale will be used to finance the production of the cars, and the signing of the deal signals to the market that the investor trusts the process.

Seemingly, both Tesla and the investor are mad. Tesla, a centralised company, could raise the capital through a loan and make a $100M dollar profit minus interest later. The investor could join an existing market and securitise his investment; not losing any demand based return for his risk appetite. Conditional on rational expectations of the legitimacy of the new company and investors full understanding of the benefits of the project, under all the rules of regular finance this deal should not happen. The variance of the returns possibility for a no-promise, crowdfunded project makes it traditionally unfeasible.

Foundationally, the formation of the ICO ensures the creation of the ICO, as the scarcity constructed through the hard cap and property rights guaranteed by Blockchain Tech cumulate to form a dwindling, dynamic, intermediate supply cap. An imaginary supply, between the soft and hard caps – a ‘liquid’ supply cap. Your original pre-formation (pre-ICO) investments, and even hopeful post-formation investment to a lesser extent, do not achieve economic profits due to volatile demand shifts, but rather the artificial, gradual retraction of the ‘liquid’ supply cap from a naturally enhancing attitude of investment attractiveness. If a portion of the total supply is hidden for hoarded investment, the remaining that are used, depreciate in utility through their action. For instance, if the Tesla Roadster materialises, the investor ‘promises’ to hoard his car in his garage and some the remaining nine cars facilitate joy rides, the wear and tear of cars through their usage creates an internal demand for the alleviation of supply pressure. The value of the garage locked, healthy car increases rapidly as a response. Remember, if the rights to the car changed or Tesla produces anymore, your increased, relative value is worthless, so the technology and culture underlying ICOs is pivotal.

Thus, the ICO establishes a new economy with the ‘equity’ holders with the rights to the movements of the supply instead of rights to the production of supply. Note, the heterogeneous investor base creates a zero-sum game that exhibit game theory characteristics, as investors do not act harmoniously, in corporation with the market nor to their mutual advantage. Overall, this grants organisations an alternative: through the power of technology you may now increase your business risk to reduce your financial risk to some extent. Coupled with the nature of globalisation, if the appropriateness of your venture model allows you to diversify your business risk across the span of a market network, the trade between risks can be advantageous, allowing for the decrease in your cost of capital. In essence, Blockchain and the ICO may allow you to advantageously swap your risk and create value.

LESSONS FROM THE ECONOMICS

ENTREPRENEUR

1. Remember that harmonious Lock-Ins contracts and collective, healthy movements from those designated as investors is paramount to reducing the variability (and from that value) of your tokenised asset.

2. The appropriateness of your idea to slowly, diversify business risk over a large, fluid network is pivotal. Often this implies decentralisation and large scalability as key factors.

3. Properly conveying your Long-Term Dream is crucial. Since the dynamism of your market, or even potential dynamism, is the driving force of economic profits, proof of widespread, continual potential usage is a defining factor. Envisage through roadmap and augment potential usage figures and market size. Any direction to a larger guarantee of future usage is the key to getting the support from major, distinguished investors.

INVESTORS

1. Understand the movement and actions of the biggest players. If you predict or know the nature of the agreements and decision making of key investors or the collective small investors, you will have a reactive stance to any investment game.

2. Search for the allure of an investment for when it reaches ordinary exchanges. Those comfortable on their exchanges will choose to invest in project only once their listed. If the product makes sense and seems attractive from several lines of understanding, the shortterm gains achievable are significant. Given the advance of the market, compound growth is important. As investors jump on board later exchanges, they may overvalue projects or overbid due to the lack of volume.

3. Advantageous situations can be negotiated by shortening your lock-in contract by more than the public. This is only for short-term gains once again.

GOVERNMENT & AUTHORITIES

1. The ability to differentiate the nature of the tokens should be based on their change in value. If it depreciates with usage it should not be classified as a security, but if it is pegged or appreciates, like an investment tool, it should be considered under full security regulation. Any promises of an increase in value should indicate securities as well.

2. Make a contract, law or body that allows for the enforcement of Hard Caps of ICOs. Require an investor licence be mandatory for investment in an ICO, before tokens list on exchanges.