Participating during ICO campaigns means supporting emerging projects by buying the native tokens of these projects; with the hope that these tokens, will sooner or later give you a positive ROI’s (Return on Investment). However, most of these projects fail; leaving us with tokens that have been described as functionally dead (dead coins).
A friend of mine said this sounds creepy. Truly, I think it does, but the idea behind the name given to these now obsolete tokens is based on the fact that coins are totally useless if the only use case for them; which for the most part is to get incentivised services from blockchain projects, that are now non-operational.
When a project is built to leverage on blockchain technology it usually needs a token to fuel its operations. As against the traditional crowdfunding or fundraising campaigns, supporters of blockchain based projects are allowed to hold a percentage of the native token of the project they are supporting which was sold or exchanged at a given rate. This is what ICO’s (Initial Coin Offering) are all about. It is all about raising funds through distributing the native token of a given project to all those who would be willing to buy them at a given price and at a given time; usually before the official launch of the projects.
Have you ever heard of the word “early birds” or the saying that “the early birds eat the fattest worms”?
in the cryptocurrency world, this is used to describe individuals that are the first set of participants in a blockchain project. The first set of people to hear about a project and purchase its native currency.
The price of tokens are always cheaper during ICO’s and the promises of incentivizing services for cost-effectiveness among many other promises by project founders makes early participation quite attractive. Not all these promises were meant for scam purposes, some of the failed projects in the coin market had good intentions but the demand for the token wasn’t enough to push the price to the point where fewer quantities would be required to fuel the development of the project.
I like to take it this way;
institutional investors keep your eyes on the horizon, then they cut it right in the middle…
Institutional investors and some individuals like to participate in ICO’s early so they can benefit from the lowest prices and as the project begins to grow, the value of the token increases then they can sell-off some of the tokens they acquired initially at lower prices. This is where the greed comes to play; since most of the initial investors don’t get to stop when the sell-off is becoming just too much. When this happens, it becomes detrimental to newcomers in that token-economy. The early birds bought the token at a cheaper rate and they begin to sell off as new investors come in. These new investors bought the same token at a higher price compared to the rate at which the early birds bought theirs, so the newcomers are trapped as the early birds keep selling off the token.
This also affects the project owners because a certain percentage of the token in circulation is meant to be for the maintenance of the team. For example; Digitex reserved 10% of the total DGTX tokens in circulation for their team and developers. Let’s say that this plan was made while the token is worth $1 and 10% of DGTX in circulation is a 10 million DGTX tokens and now the token is worth $0.5, that means the $10 million worth of token will now be around $3 million. This could put the continuity around the project in jeopardy and the worse case is that it gets discontinued.
That is how tokens die. The token is supposed to be used for trade and commerce within the ecosystem of the project and now the project is no longer operational so what happens to the token? There are no more use cases for the token and that means no utility. In economics and trade, whenever the utility of any commodity is zero, the value of the token also tends towards that direction. No one will be willing to pay a dime for a worthless commodity.
value is proportional to usefulness…
Tokens are terms “dead” when they become useless. That is what it means when CoinJanitor refers to some tokens as dead.
We have about 4500 coins in the cryptocurrency market and more than half of these coins are not listed on any exchange. This means, that they are not tradable; so the funds of investors that participated in their ICO’s are stuck in those projects forever. Some of the tokens belong to abandoned projects just like I described earlier, while others are still struggling to rise above their economic challenges due to the swings and volatility in the cryptocurrency markets. This makes it difficult for new investors to start supporting emerging projects irrespective of the promises they make. Some investors are even pushing their funds out of the markets and this depletes the market capitalization of the projects in question.
CoinJantor will be buying these dead coins from their owners in exchange for Bitcoin. This will help with cushioning the effect of the loss generated from wrongly investing in those abandoned projects. This means that CoinJanitor will be compensating those who made wrong investment decisions by giving them a buyout offer. This will be carried out in five basic steps which I will be explaining in details in a future post or you visit the CoinJanitor Website for the details. But below are the steps required;
These steps will be taken after the CoinJanitor team has been able to verify the motive and the cause of the failure of the project. CoinJanitor will also ensure that project owners and investors will be properly amalgamated to the CoinJanitor community for the purpose of enjoying future benefits.
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