At Nyctale, we are strongly working for a better blockchain future. We neither want to surf on the crypto-hype nor to deal with meaningless utility tokens. Our objective is rather to participate in the rationalization of this coming token-economy. It requires to better understand economic mechanisms behind the blockchain technology — on this grounds we will soon launch our first token monitoring tool. And it invites us to promote a healthier vision for the overall ecosystem — that’s what we are standing for.
First of all, we have to admit that current state of blockchain ecosystem is really disturbing. Without taking account of what a utility token should be, most of actors see their participation in an ICO as an investment opportunity. And most of blockchain entrepreneurs are using ICOs to conduct a fundraising, spreading confusion about the main objective of such an operation. They try to justify their “utility” token within their whitepaper, but actually — for most of them — there is no real need for such a token. At least, not in the way they propose it.
All the blockchain hype has been initiated by the Ethereum platform. Thanks to their promising smart contract solution, it has become really easy to conduct an ICO. In this way, the barrier to enter the blockchain world with a token generation event was overcome and Pandora’s box has ultimately been opened by Vitalik. Many companies conduct an ICO because of the lack of clear regulations. However, relatively large number of those tokens don’t make any sense and their utility functions are at best extremely weak.
Actually, the purpose of an ICO to introduce a utility token on the market as a lure to conduct a fundraising operation is really malicious. It looks always good at first sight because no one really understands the promise of utility token, and token holders are mostly able to make some gains, thanks to a performing secondary market.
Simon Dixon, CEO of BnkToTheFuture, made the following statement:
“The ICO boom proved that there is a huge appetite to allocate funds to Blockchain technology when a liquid secondary market exists. If they had the choice, I think most would have preferred to trade shares in the company rather than tokens with no shareholder rights.”
But Ethereum made it simple for startups to launch their own utility tokens.
At Nyctale, we are convinced that things could have been done differently. In our blockchain world, entrepreneurs would act in another way:
- They would build blockchain services before issuing any utility token.
- They would mostly interact with Ether coin as a mean of payment(when based on the Ethereum platform), or even with a stable coin to avoid the volatility issue.
- To fund their development, they would conduct classic funding rounds, or a Security Token Offering to benefit from the popular fervor and give the created value back to the crowd.
- And finally, once their prototype is ready, they would challenge the possibility to use a utility token to promote their service adoption, to introduce some interesting economic incentives, to promote virtuous behaviors, and to build a strong community, which would act as their best ambassador.
Introducing a utility token on the market neither requires to conduct an ICO nor to create a fix amount of token from nothing. Tokens could be generated by usage, similarly to loyalty points. They should encourage wise usage and not promote speculation. And above all, entrepreneurs should test their token model in many iterations before launching a commercial one.
For all current ICOs and tokens, even for the most promising projects, it will be impossible to change their token model only because they conducted an ICO. What if you understand a posteriori that a fix supply for your token is not the best way to create an efficient incentive mechanism? How could you change the rules of your token model, on its core functionalities, without leaving behind all your community? This seems almost impossible, and for that reason, most of serious projects are likely to fail just because their token isn’t suited to fulfill its original objective.
Blockchain will certainly reshape many processes and workflows in almost every sector and industry. In a lot of them, tokens will enable the introduction of promising economic incentives while building virtuous network effects within dedicated communities. But all of this requires time, many tests, and lot of failures before being successful. Conducting an ICO with a utility token before building your product obliges you to adapt your product to your token, and keeps you from designing the perfect product with the best token mechanism you could imagine.
Because of this, most of current projects are going to fail. Better ones will emerge and take the rules of traditional entrepreneurship back to the blockchain ecosystem. Only professional behavior can lead to success, whereas hardly any inexperienced founding team with huge amounts of money is able to set up an efficient startup company.
In its current model, there is so many reasons for the blockchain ecosystem to fail. But with time, it will keep evolving and maturing. Actors will slowly understand what blockchain and tokens mean and what they can accomplish with these new promising technological tools. As the ecosystem is still in its infancy, there is time remaining to improve one’s former behavior. At Nyctale, we will provide to entrepreneurs the adequate tools to design their token and to investors and institutional actors the appropriate indicators to understand, analyse, and support projects with a real transformative potential.
Let’s continue to build the future. Our society, as well as our economic system, needs it. We are working to provide an economically viable prospect and a realistic alternative. It’s time to nip bad behaviors in the bud and to promote the growth of a promising approach.