Categories: ICO

An $8 Million ICO Ran Out of Tokens. What’s Next Is Anyone’s Guess

Click here to view original web page at www.coindesk.com

"Scarcity" may be a crypto buzzword, but "shortage" has hardly made the footnotes - until now.

In early July, the developers behind U Network, a blockchain publishing protocol valued at around $8 million, abruptly announced that it had run out of its reserve of UUU crypto tokens, and that it planned to buy back some of the supply it distributed to early investors through its airdrop in February.

At the start of the project, U Network established a 10 billion UUU cap on its token supply (worth approximately $15.6 million), setting aside 40 percent of its total tokens (about $6.2 million) for the founding team and future development.

Yet, due to a rising number of strategic partners and interest in its token, the project announced on Medium, "The demand for UUU tokens has exceeded our current designated holdings."

The post continued:

"The team now faces a problem: leaving our ecosystem tokens intact, how do we pursue these new opportunities to grow the U Network ecosystem?"

The result is a problem that seems to have little precedent.

The structure of ICOs and airdrops varies widely across projects, particularly with regard to the number of tokens minted, distributed and maintained by a given company or non-profit. While some projects do not limit the number of tokens that can be created within their blockchain ecosystem, others, like U Network, choose to implement a cap on the total supply.

For U Network, the 10 billion limit was implemented because the content-centered project, which aims to "help online content platforms better align with the interests of their users," wanted to "provide sufficient incentives to community members."

While U Network's dilemma is currently an outlier in the industry, other blockchains that have implemented hard caps on their ICOs and airdrops may soon find themselves in a similar quandary as they begin building their ecosystems.

Likewise, U Network's situation may force similar projects to confront an even more difficult question: what happens when your startup runs out of its own tokens?

Method to the madness

Incentives are especially important in blockchain systems, and so far, there is no established methodology by which projects can determine how many tokens to issue and keep.

That's according to Joshua Gans, a professor of strategic management at the University of Toronto, who told CoinDesk: "There is no metric."

"If you want to use tokens for incentives, the amount of the incentive is dependent on the price of the token," he explained. "At the start, it is hard to predict that."

Gans added that establishing the amount of tokens projects should keep is equally as unsystematic.

According to Catherine Tucker, a professor of management and marketing at MIT, projects face a doubly difficult situation in the highly scrutinized industry. Not only do they lack methodologies for determining token supplies and holdings, they must also consider the perception of their actions.

"I think this case illustrates the huge trade-offs founders face," she told CoinDesk. "If they keep too many tokens in reserve, they are often accused of being greedy. But if they give away too many tokens then they lose a crucial lever they need to incentivize people to use their platform or service in the future."

The buy-back

As such, remedying a shortage of tokens looks to be a precarious task. Solutions such as increasing the token supply of the network could influence the token's price, angering investors and jeopardizing their trust in the project.

So instead, U Network plans to refurbish its holdings by conducting a token "buy-back." In practice, this means it will re-purchase 1,000 ETH worth of UUU (about $284 million worth) from current token holders over the course of several stages.

"For the first stage we would be buying back 200 ETH worth of UUU between the price range of 0.004 and 0.005 USD," U Network told CoinDesk. At press time, one UUU token was valued at $0.001569.

As for how the project determined the number of tokens to re-purchase, it explained, "We believe it's a reasonable amount. Not too high to affect market price, not too low to affect the expansion needs."

From Gans' perspective, the buy-back is "a good way to go." He went on, "You issue the tokens and retain some other currency to use for buy-backs if you make an error. The other option is to give yourself the ability to issue more tokens for incentive purposes but that is ultimately the same as retaining some tokens at the outset."

And as for what the rest of the industry could do to avoid U Network's dilemma, MIT's Tucker suggested:

"If I had to give advice to founders, it would be to think about the uncertainty involved with the project. In those cases of heightened uncertainty, it might be best to limit the initial distribution of tokens until the business plan has evolved and been tested."

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

In early July, the developers behind U Network, a blockchain publishing protocol valued at […]

cinerama

Illuminati, Mason, Anonymous I'll never tell. I can tell you this, global power is shifting and those who have the new intelligence are working to acquire this new force. You matter naught except to yourself, therefore prepare for the least expected and make your place in the new world order.

Disqus Comments Loading...
Share
Published by
cinerama

Recent Posts

Bitcoin Is Up Against An Extremely Important And Powerful Resistance Zone On The Monthly Chart: The Kijun-Sen (Base Line)

We can identify the price action causes of why price is finding it difficult to move higher by analyzing longer… Read More

5 hours ago

BTC ATM goes missing and no one notices

When you think of thieves stealing an ATM, the mind jumps to the idea of an exciting crime. Maybe there’s… Read More

5 hours ago

Major Swedish Bank Orders Negative Interest Rate on Euro Deposits

Sub-zero interest rates have become the norm in some countries, especially in Europe. Nordic nations such as Sweden and Denmark… Read More

5 hours ago

Researchers Concur Current Bitcoin Market Cycle is Only Just Beginning

Bitcoin price cycles can be influenced by a number of factors, FOMO and public sentiment is one, and mining profitability… Read More

5 hours ago

Hopes for Bitcoin as China’s Renminbi Drops to 11-Year Low

A recent plunge in the bitcoin price is looking to negate some of its losses as China’s currency weakens to… Read More

5 hours ago

Why Bitcoin Rules in the ‘Insane’ World of Negative Interest Rates

Central banks around the world are on a negative rate binge to further a compelling case for bitcoin.. | Source:… Read More

5 hours ago

This website uses cookies. We use these cookies to collect data about your interaction with our website for the purpose of continuously improving your experience with our site. For more information we encourage you to read our privacy policy.

Read More