How to integrate blockchain into a business model?

An interview with an IcoBench Expert and Cointelegraph contributor Vasily Sumanov

A successful ICO is a combination of a good product, effective marketing strategy and proper market placement. Before building a business on blockchain Vasily advises to carefully consider how structural elements of a newly created enterprise would be working together being in sync enhancing and complementing one another.

Vasily, first of all, what brings you to the ICO and crypto industry? I mean you’ve graduated from the Chemistry Department of Moscow State University and seem to be barely related to tech and blockchain field?

Yes, but while studying chemistry, back in 2012 , I also started trading oil futures and RUR/USD pair at Moscow central stock exchange. I got really excited by the idea that the movement of assets is caused not mainly by fundamental changes in their value, but more often by financial movements of a larger scale, i.e. monetary policies of state financial authorities that are able to dramatically change the market. Upon scrutinizing fiat economy and principles it is operating on, I came to the conclusion that it’s not the most refined system at all. More so, it actually discriminates the rights of majority of people. And this concerns every its aspect: control over the markets, crises and wealth. In October 2013 at one of online forums I randomly learnt about Bitcoin and started digging into the matter. Shortly after, my brother and I started mining litecoins, and by December we already had first investors engaged and then created an industrial mining farm. As the time was passing by, we were studying new coins, attending crypto community events and following the development of the industry and trying to stay in the loop. And here my chemical background came in very handy, as i was particularly engaged in quantum chemistry and knew quite a lot about mathematical algorithms, data processing and statistics. Thanks to all of that I figured out how Bitcoin is operating and why it’s a whole new network payment tool that has huge potential.

Besides your scientific research activities at Moscow State University, you are also actively involved in blockchain advisory and ICO-consultancy. Tell us more about the specifics of ICO inner architecture.

I see myself more as an advisor, than a consultant. Over the summer — fall 2017 — when the ICO hype was surging — I advised quite a large number of projects. At the moment I’m more into advising on creating token economies for startups, writing White Paper chapters on token economy and general business architecture of the project — as I see that unfortunately many startup founders don’t completely understand how to market their product to the best advantage. More often they would just wrap up the existing product in a new cover and doing it rather clumsy.

The biggest concern of the project’s architecture is that ICO is a whole new system and investors are expecting an extremely high profit out of their contributions. Ideally they would want the funds to be augmented by hundred times, which is completely incomparable with the profits on traditional markets. Why so? Well, because ICO in essence is a fast-growing business that is being developed at high speed and scaled to new markets. It is preferably be international and have some sort of innovation that makes it unique. That said, all economic interactions — or at least some of them — are described by limited amount of tokens, i.e. the emission of tokens is limited. Therefore, when the business is being developed, the mass of commodities is growing and — as a consequence — the token is significantly rising in price bringing the profit to the investor. So the profit is generated not by the business or the product itself, but rather by the unit of the ICO project that we call ‘a token’ and that corresponds to the business processes.

In ICO projects architecture it’s really essential to design business processes and sell the token so that it was attractive for investment and had both potential of its value growth at the external market and potential for its inner value growth when scaling the project. The project itself should be working and bringing some utility to the community, specifically performing the tasks that it was made for. In other words, tokens are the first key element and the project with its inner mechanics is the second element. And all we need to do is to make these two work together so that they had a solid common goal. It’s a huge task, I have to say! Not so many startups are capable of handling it: more often than not the business itself and the token are on the opposite ends. And honestly, there are cases when in fact the business would be operating so much better without introducing a token at all.

How do you think we can identify that the developers are building a legit ICO-project?

It’s hard to say, really, as ICOs in reality is an fund-raising activity, not the actual realization of the project. It’s a marketing campaign and community management, etc. etc. Running an ICO is the task for PR and marketing people and the CEO who is actively drawing attention and investors to the project. The project itself is a product launched with the money raised at the ICO. An actual product development starts after the ICO, and that is the task for developers. I would distinguish between the success of fund-raising campaign and performance of the team on further project building — these are actually two different things. That is why to me the key to a successful ICO is, first of all, the maximum scale of PR-activities and community management. Second comes transparency and actually quality project .

Will you please share your view on what platforms are better to use when issuing tokens?

Token issuance is not only a technical, but also a political process, because many platforms are giving all sorts of help if you choose when developing your project. Stellar and NEO for instance, are providing support — also financial — from multiple foundations that are connected to their ecosystems. Why they do it? Well, by doing so they are securing more promotion and expansion for themselves. For example, there is this ‘Golos’ social network built on blockchain that has its own fund that is financing the projects participating in it. That’s why developers should really pay attention to this, since the base platform choice can really predetermine the project’s success at the market.

The most common framework for blockchain projects with basic functions is surely Ethereum. It’s a simple and convenient working tool. But of course, there are more options for more sophisticated tasks.

You have a separate master-class about ICO-economy. Will you please elaborate more on key principles of creating an ICO-economic model?

Again, ICO-economy and token-economy are two different things. The goal of ICO-economy is to prepare token for further sale. I’d like to stress that an ICO is purely a fund-raising activity, in fact the sale of a future product and economic tools that this product includes. I guess what I’m trying to say is that the token is important, but more important is the product, i.e. something that is created after the money raise. That’s why I prioritise token economy over ICO-economy that is rather simple: all you need to do is to decide on an ICO-auction model. But creating an economy-model for a future product and the business with token integration is a whole different story, which is rather complex.

Speaking of key principles of token economy, we first of all need to make sure that it is not a security by nature — otherwise there is a lot of tension with regulators. Second, a token should be organically integrated into the business not harming business processes, but giving some additional to both founders and users. It’s also important that the system to be closed circuit, so that the token could circulate within its framework: if people buy it only to resell after, it doesn’t make any sense. This circularity should be both inner and outer when the token goes to the exchange, so that it is transparent who would be buying and selling it. There are many cases of startups creating huge token supply, but the demand is really low, which again doesn’t make a lot of sense.