The dopamine rush which likely hits the brains of intending founders of startups within the blockchain space at the thought of owning their own company solely powered by its utility token is ludicrous. We hear founders claim their tokens are utility tokens thereby saving them any future regulatory cross hairs with authorities such as the SEC and other regulatory agencies. Most times even with all the noise on the utility nature of these tokens, just a smidgen few of them consider the need to undertake the “Howey Test” which professionally investigates if a token is classified either as security or utility. This has led to many of them breaching the line of regulatory authorities put forward between utility tokens and securities offering. This discourse, however, is not to hold any brief for SEC especially which I personally consider being regulating a highly evolved global financial system with laws as old as a century. They simply need to reform or they will end up losing relevance as people get the perception they are just dabbling into cryptodom without any clear cut regulatory oversight in place.
Creating a platform whether a protocol or application running on blockchain tech often times afford project owners launching their unique platform token. Whether this token is deemed a security or utility token is not really the subject of this piece but for the sake of addressing the aim of this article, we will focus our binoculars on utility tokens which act as the gateway to most cryptocurrency based applications or protocols.
Earlier in this article, Launching a Viable Tech Startup in the Blockchain Industry, I spoke on the need for crypto-based tech startups enshrining a multi-token business ecosystem, let’s delve in deeper on the rationales behind my stance.
Let’s take an example of a hypothetical tech startup which has just launched into the wild west of blockchain economy, it has minted a total of 1 billion unit of XQQ Tokens and successfully held a token sale where it sold 55% of XQQ to its ICO contributors, reserved 25% and allocated 10% for marketing and partnership deals. This sums up to around 90% of the total supply. It further held 7% for Founders and Team, 3% for Advisors. This formula looks great showing the project team still controls around 45% of the token’s supply which was not put up for sale during the token sale whether it adopted ICO or IEO, all seems good until the monster called “liquidity” rears its ugly face forward. However, we won’t be focusing on token economy (tokenomics) but on the multi-token business ecosystem.
Still on the matter, with founders not minding much on the price speculative aspect of their native token such as XQQ and focusing majorly on building and making the platform fitting for use for their members, a peculiar situation seems to be a major problem, liquidity! Since most users of the platform can only access the platform using XQQ tokens, the ease of purchase and liquidity of this token is not to be taken lightly. At the moment, atomic swaps which allow token holders seamlessly swap their tokens anonymously and in a decentralized manner hasn’t been perfected yet. Even neo atomic swaps platforms such as Bancor X, Kyber and Airswap haven’t been able to garner much traction as it were. The only credible option users are left with is using cryptocurrency exchanges whether centralized or decentralized depending on their preference.
Let’s direct our focus on the most liquid digital asset bitcoin. It’s around 11 years old and it has achieved much within its time. It was the first of them all. We started seeing tokens flying about after the development of the first smart contracts platform Ethereum. The birth of Ethereum created the first wave of Decentralized Exchanges (DEX) crypto users could access their computers. However, the complexity associated with these DEXs gives a frightening presentation to newcomers and even some old-timers who would rather move to centralized exchanges irrespective of the damning manipulation and backdoor twists. With the cost it usually takes for projects to get listed in today’s centralized exchanges, it really would be a problem for Blockchain Startups who want to get listed considering their lean financial muscles.
Liquidity which is the lifeblood of any token based business is a major concern which any reasonable founder should consider as much as he/she as they set out to “BUIDL”. With untold numbers of digital currencies many of which have never even touched the “C” in Coinmarketcap, there is a great battle for liquidity and if traders perceive the instability in your token’s liquidity, it’s a step towards game over.
Considering the cost and battle to get listed and for liquidity as well as the ease of accessing the project’s token, founders have a lot of decisions to make which will either set the firm/project in an upward trajectory or a downward spiral. This is why it’s imperative for founders to consider the importance of Multi-token Business Ecosystem when building their businesses. A multi token business ensures businesses do not lose out of business and customers/users.
How Multi-Token Business Ecosystem works and Helps Startups
Multi-token business works by the incorporation of one or more highly liquid token or fiat currency to a business in addition to a project’s own token -the PNT (Platform/Project Native Token) which will serve or be used to access or pay for the project’s resources. A good example would be a Blockchain powered E-commerce business. Since the advent of other cryptocurrencies apart from bitcoin and ethereum and the slow pace of growth of others (ignoring the usual pumps here and there) it has been an undoing to restrict access to the resources of such a marketplace whose survival lies in the influx of users and merchants and the exchange of resources amongst them. By restricting or only using the PNT on this site, many users and merchants are turned away however interesting the offers on the site are due to the singular reason of not been able to get hold of the illiquid PNT. But by incorporating MTBE using currencies such as BTC, ETH, USD and PNT, users who couldn’t access the PNT could very well be having some BTC or ETH. Those who haven’t used cryptocurrency before could access your business using their local currencies via debit or credit cards.
Implementation of MTBE by a startup gives the business the ability to accommodate users/customers from a wide geographical, philosophical as well as political expanse. Users who would normally not be able to access fiats such as countries already facing sanctions or failing confidence in their fiat currency, these could very well be able to access your business offerings with the several alternatives the MTBE affords users. It’s obvious that to be able to access your business offerings, they would hold highly liquid assets which will stand in between the failing fiat and the volatility of cryptocurrency. However, it is, your business has customers. Also, by using MTBE, users who find the complexity of Crypto Exchanges, Wallet and Private Key management etc., difficult would very much want to access your marketplace using their Debit or Credit Cards. This means capturing a very large segment of users apart from the every day crypto enthusiast who dream to one day buy their Coffee with crypto.
Another way MTBE is of immense benefits to startups is the revenue generation. By being able to attract users and have them trade in your marketplace, this will generate more revenue which the PNT would not have been able to provide solely. Adding fiat as one of the means of payment in your business, you are exposed to a wide range of customers cutting across continents (depending on your marketing though). This is what any founder or business manager looks forward to, wide range of customers and increased revenue.
While there maybe objection to MTBE because it can be perceived to affect the liquidity of PNT, founders should understand that the exposure which MTBE gives to their business will also positively impact the PNT. Exposing the PNT to such wide user base, listing on exchanges with high volume would be relatively easier since the business has established itself to a considerable extent. Once listed, coupled with the user base and the perceived confidence in the liquidity of the PNT, that which most startups have ignorantly chased firstly which should be primary therefore comes back on a platter of gold. Wealth in form of their Project Reserved or/and Team tokens.
The benefits of MTBE cannot fully be exhausted just as we can’t fully exhaust the potentials of the Blockchain technology at the moment. But it remains a singular fact that implementing MTBE by crypto startups, will be a wise choice and it will greatly help in solving scaling challenges with steps to increasing revenue generation.
I write for and consult with Tech Startups especially in blockchain and cryptocurrencies. Connect with me on LinkedIn