Blockchain Editor's Choice

Exchanges on Shaky Ground with New Token Offerings

Comment by Pavel Kravchenko, co-founder at Distributed Lab

After examining the emerging global trend for initial exchange offerings (IEO), you realise that these new tokens are designed similarly to Forex. Some people think that this makes for a sound new business model but there’s more to the picture than meets the eye…

Pavel Kravchenko, Distributed Labs

Let’s consider a real example. Imagine that somebody has built a supermarket and then offered different shops to open department sales outlet on the condition: they have to accept only the currency invented by the supermarket’s owner. This currency is traded on some exchange, and the exchange belongs to the owner of the supermarket as well. An interesting thing is that the owner of the supermarket now says, “Oh, my currency will grow constantly”; then the owners of the shops will think like this: “Let’s not sell this currency immediately to get real cash. Let’s wait.” The whole idea will be based on the fact that people will be waiting and not spending the currency — and it will grow.

Another example. Imagine that the Nasdaq would require you to buy a Nasdaq coin which would be limited in existence in order to invest in Apple, Google, and / or other companies that are listed there. Or let’s imagine an even wider example. Imagine that Apple would provide you with 50% discount for an iPhone if you pay with Apple stocks. Basically, what would happen is that people would rush to buy Apple stocks in order to pay for iPhones; we’ll see the real appreciation in value of Apple market cap. The speed of growth of the market cap will be very likely to exceed the amount of capital needed to sponsor these discounts.

People might ask: ”Why isn’t everyone launching such schemes.“ The answer is that it’s prohibited to do such things with your securities in capital markets.

People might ask: ”Why isn’t everyone launching such schemes.“ The answer is that it’s prohibited to do such things with your securities in capital markets. So basically, when you see that these exchange tokens are growing in value, it doesn’t mean that the business is getting better. Maybe, just the amount of tokens traded openly on the exchange is smaller than yesterday — and then it will go up. It obviously depends on the amount of tokens that are frozen or not participating in any exchange. For example, the start-ups that have gathered money in this exchange token are not selling it for some reason. Maybe, an exchange tells them: “We will only perform IEO for you if you don’t sell these tokens immediately. So, there is a wide field for possible manipulations. Since there are no regulations and no clear rules, people just follow the prices as an indicator for them that something is successful.

The world needs transparent currencies, but it’s not about tokenisation, not about the growth formula: it’s about how transparent you are.


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