One of the main questions cryptoinvestors early stages, putting startups at a standstill, is: "how will you deal with the fall in the value of your token?" It is necessary to answer it both in business paper and in person if you collect the first money at face-to-face meetings.
This is the most difficult question on the economics of your project, because you have to be an expert in product, but not in cost management. But no, they are obliged. Because your token only at the sales stage is a product, and then it will become money and the project will face the challenge of managing inflation.
Let's deal with this in more detail.
And why “inflation” and not “token economy”, you ask? There is a small substitution of concepts. When they talk about "token economics," they ask about ways to generate income from your business model and no more. For example, the answer to such a question in the form "the economy of my token consists in a fee for using our platform (= license)" is about the business model and royalties as a type of income. Where is the token? Nope
With tokens you can earn exactly the same as with money. Replace "token" with "money" and see how they earn them now. There are only two ways:
- Seignorage (the difference between the nominal value and the cost of issuing money) and
- Brassage (payment for the production of money, usually - the mint).
At once parallels appear: brassage is a pay to miners (and you do not control it). Hence, the income from the control of the tokens lies in the liege. In fact, yes. Moreover, nothing new in terms of making money from money has yet been invented.
When money was still minted (the metal from which it was made was equivalent to the value by weight), the seigneur was the one who “protected” the mint in exchange for the income from the issue. No, so incomprehensible.
How to come up with making money
The business of issuing coins was invented by a genius, as they would say now, by a customer developer. It was like this.
In the markets (the real ones where the sellers are behind the counters) there was a demand for liquidity services - it was difficult for couples like “I want chicken in exchange for straw” to find each other, and with money it was easy to do. Hence, the demand was for money in itself, akk for a recognized means of universal exchange. Where to get them? At first, they used goods that were needed by everyone (food, clothes, tools), but precious metals turned out to be the most compact and valuable. True, with their output and turnover it was difficult to earn, because they themselves were a commodity and money at the same time.
Here the second half of the scheme was discovered - the rich man’s motive. Any prince, king, or other leader had a treasury. Her wealth had to be protected, these were costs and risks. And here our brilliant Kartdev comes to the prince and says: "there people need money, let's make coins. You will not only save on protection, you will also earn money, then I will tell you how."
The senor earned that he sold valuable metals in the form of coins much more expensive than the nominal, adding his power and status among the other princes as a price guarantee. This difference between the exchange value of the material (the standard gram of gold) and the coin made from it is the seignorage. The senor earned her.
Well, how to earn - tried. Almost immediately, this business saw through the rest and the minting function was compromised by not very clean signori. As a means of saving money per se, chasing was outsourced to mints. They took the commission for the issue of coins - "brassage", and then the senor then released the whole thing on the territory under control or tried to stick in international trade.
Now the state functions as a senor, the mint is the central bank, and the types of income from money remain exactly the same. The state exchanges its guarantees for cheaper to make (fiduciary or fiat) paper money, setting its nominal value, the central bank takes a fee for making (and a little for dividends itself, since it is usually private), and the difference in the case of exchanging such receipts for other goods, senor ... well, not appropriates, it is too arrogant, and shares with other market participants. True, it does not quite divide, but still as the most important - it takes a part, in the form of taxes :) This is if someone suddenly did not realize how the ancient seniors earned money on coins due to their power. Well, not the same sweep taxes, right? It is not stored for a long time ...
What is important to understand here: money alone does not cost anything, two things are valuable:
- Confidence in the status of the senor of those who use this money
- The sheer number of such entrusted (it removes the problem of "liquidity" in the markets of commodity assets - the more common the money, the easier it is to make the exchange).
Trust is connected with emotions, and therefore changeable. For example, inflation (or deflation) is linked to trust.
On inflation and who can manage it
The traditional term "inflation" means an increase in the value of a commodity asset in an exchange pair. By itself, "cost" is the quantitative result of the agreement of the parties in the process of exchanging a commodity asset for another asset. There is interest - they change. The exchange does not occur if the money offered in exchange for the commodity asset is not credible.
Your token at the time of issue is a commodity asset, which will then turn into money. At first, he does not cause confidence, because no one yet uses it. But you can promise to arrange inflation in the market, where you will release your tokens as a commodity. Here are the main ways:
- To organize a shortage of a commodity asset (or tokens) - during the launch phase, an idea is so-so ;
- Arrange the growth of "open interest" - a situation where more and more of those who sell an asset come to the market and want to buy it (we have the strongest PR team, look at their achievements) - yes, it looks great ;
- To concentrate in one’s own hands the functions of an asset holder and set the price for a monopoly (you have to write your own blockchain on the basis of a proof-of-stake mechanism) - this is already solid ;
- Increase the cost of production of a commodity asset (blockchains on proof-of-work to help you) - well, then why are you here, will we change Bitcoins right away ?
The problem is that startups that produce goods and tokenization are screwed to it - counted on fingers (spoiler: basically, these are cryptocurrency projects). The lion's share of ideas lies in the tokenization of existing markets, that is, the author of the token idea does not dispose of commodity assets themselves. And all these ways that are listed above, it simply does not fit.
So, in essence, projects want to print money and earn money from it. We have already figured out above that only one is earning money - seignorage (all the brassage is eaten by miners).
But do not deceive yourself - you are not so politically cool to get the right to seignorage income. You are not the main one, because the market is not yours, and the goods there are not yours. Here FAANG (Facebook, Apple, Amazon, Netflix, Google) - the main attention of buyers in the market, they are seniors and income arrogate to themselves by right the strong. It is not seignorage (because it’s not necessary to release your money, the usual ones are suitable), but it is very similar in essence.
The main value of tokenization
In fact, your business is to offer the market to pay a premium for improving the liquidity of transactions. That is, you came to the market, tokenized it (offered to pay with tokens where it was uncomfortable with money) and expect that this value ("premium for providing liquidity") will be in demand and will remain in time. Well, in principle, yes, probably, there is such a value and you can earn money on it. But not the fact that it will grow. Some share of market participants really needs cheaper and faster deals, here the costs of obtaining tokens justify themselves and have value. The rest must be persuaded ... to believe in this new advantage.
Then what to concentrate on, what to manage in your development? Tip: (1) parameters of a commodity asset (if you release it after all) and (2) public interest in it (for more, see Apple’s marketing strategy and copyrights - Samsung / Huawei. Or, if you like, the projects of Saint Elon Mask, there is a completely identical approach)
Then you have a chance to turn your tokens into real money and finally get to the only source of income from their popularity - seigniorage.