Your token sucks – But there’s hope.
By David Fritsche, From NASA to Crypto, David has created more than $1 Billion in business valuation
Be real. Your token sucks – But there’s hope.
“We have the latest ICO project that is the best thing ever and is changing the planet.” Do you believe this anymore?
In the past year, most ICO’s put their hope in a token backed by a plan with some technology people at the helm. It worked for the sale and got them funded. Continued funding was anticipated to come through a rise in the token value, which allowed the project to continue being funded. Many proposed that increased demand for the token coupled with limited supply was a recipe for increasing prices.
Reality – most token holders didn’t really care about the project. They cared about making money very quickly. The token buyer’s universe of supply had nothing to do with the project’s supply. Their supply is any of 1,700 tokens they could buy. Not much limited supply and HODL there.
Now the reality for many ICO’s is they can’t raise operating money through their token if the price has dropped 70% this year. They are holding onto whatever funds they raised initially. It’s not as much as the public thinks due to all the costs of raising it and all the many hands in the pie. And, without a positive cash flow, it will not last forever.
Most projects are worthless.
Billionaire Bitcoin investor, Bill Miller says, “Most Cryptocurrencies are worthless”. Some say none will survive. I have a dozen more articles, but won’t bore you. They say that maybe 98% of the 1,706 tokens out there will fail. That leaves us with 34 survivors. Which ones? How do you know which existing tokens will survive and which new ICO projects are built to survive and thrive?
Learning from history – Were the 90’s much different?
I had the privilege of being actively involved with Microsoft, Intel, Apple and a number of iconic companies during the 90’s. I also started and sold a social media site to a public company. My company helped Microsoft get on the web with its databases at the time and we had the largest Internet database developer community on the planet.
The company I built and sold eventually died after the Dot Com bubble burst. I have a friend that started a company that sold to Yahoo for $5.7 billion. They also failed shortly after the bubble burst. I don’t have an exact figure, but most of the internet companies of the 90’s failed. The few that didn’t, you know.
Now, what happened to my friend’s $5.7 billion company? First of all, he and his business partner became very wealthy and in one case, very famous. Yahoo used the acquisition to bolster its stock price and in the short term and the initial stockholders did well. The business model for this company just didn’t work and they couldn’t compete. They could not make enough money. And without money, companies, non-profits and governments will fail.
Is that all that different today?
ICO owners sell and get rich, just like my friend. Original token holders may make it fine, like Yahoo and their shareholders. In the end, the project will succeed or fail based on if they can sustain some value.
There’s one main difference I see between the companies of the 90’s and the ICO’s of today. The Internet companies were out to make money. Many of the ICO’s today deny that even matters. Some don’t even have a value proposition to their token holders. And worse yet, what their project does has little or no relation to the token.
To quote Warren Buffet, “The asset itself [tokens] is creating nothing,”. There is no value by themselves. The same could be said for stock. Speculation in a token will only carry it so far. If that’s its entire value, if will fail 100% of the time. The entire success of a token is tying it to the actions and value of those who received the benefit of its capital. Even if the project is a non-profit foundation, the rule still applies. There are no non-profits that do not have to produce a profit to survive. The largest ones can function off an endowment, meaning they can live off the interest. But in the case of ICO projects, I do not believe this exists.
Reality check – Vitalik may still take that job at Google.
Your token will not always go up in price giving your project unlimited resources. You have to produce something of value to operate and incentivize people. To put it simply, you have to sell something or you have to create something that people want to use that involves your token. In essence, it comes down to business fundamentals. Produce value, people buy it, your project survives. Do this a lot and your project thrives.
Let’s take an extreme example – Ethereum. This is just my opinion in this example and I bow to many who know this ecosystem better than I…this is just to make a point: No one owns the Ethereum ecosystem. There’s a controlling foundation. Ethereum could keep going forever the way it is. In my opinion, Ethereum produces a great deal of value and its platform is 90% of the reason for ICO’s. So, in this case it checks a huge checkbox for me – Value.
But what will it take for Ethereum to survive for 10 years? We can’t count on the foundation surviving on donations. The foundation can’t count on the price always going up so it can fund itself and its developers. We are in a lean period now. Ethereum nodes won’t continue if they don’t make money. Also, Ethereum faces stiff competition. They have to continue to compete and innovate or something like EOS will wipe them out (or Stellar, or Credits or Neo, or …). This may be against the decentralization gods, but Ether may need to charge a fee to incentivize the people who need to innovate. Without debating this idea, if the value of the token wasn’t going up for a long enough period and the developers and nodes are not making money, Vitalik will take that job at Google. ?
My point is not this specific solution to Ether. But that many, maybe most, ICO’s don’t even have Ether’s first part: 1) Produce something of value creating demand for your product. Without that, they can never get to the second part: 2) benefit from that value so you can continue to innovate and compete.
Be honest – here’s some critical ICO factors that I do not see on any ICO rating site:
- Is the token value tied to the project’s success?
- Does your project produce something that drives value and demand to your token thereby benefiting the token holders?
- Can your project – and I apologize for the language in advance – PROFIT, from this value to be able to continue to drive innovation and value to your users and to those who are doing the work?
Even with these, 90% will fail. Without them 100% will.
There’s hope for token holders
If you are a token holder or an ICO investor, protect yourself. Consider some business fundamentals about the project. Consider the three points above when evaluating a project even if the project is a non-profit or a DAO.
There’s hope for Crypto projects
Many projects have cash in hand. If you are a project leader, you can adjust and find ways to create value in your project and in your tokens. The clock is ticking. You can’t simply wait for the market to turn around. It may take some critical decisions and some internal honesty. You may need an external opinion so you can have a clear perspective and if needed, to rally your internal troops. Then it will take external PR to convince the public you are doing the right thing.
What can you do? We’ll explore that in future articles.
Your token may suck – But there’s hope.