A lot of what we do in crypto obviously focuses on tokenization of activity and then, the value of those tokens, with most seeing price as the main indicator of success. However, tokenization is all over the internet already and, already has prices attached to it, we just don't usually think about it or interact with it in the same way we do for example, on Hive.
For instance, Facebook interaction data is essentially tokenization, where posts, likes, shares and all kinds of transactions are tracked by their platform and then the "tokens" (data) are sold. As users, we are not privy to this data, but for the intents and purposes of the value of the data tracked, in 2020 Facebook made 86 billion dollars from advertising, which accounts for 97.9% of their yearly global revenue.
We all know that data is valuable, but what gives it value is the basics of economics, supply and demand. The data is valuable because someone is willing to pay for it and they are willing to pay for it, because they can use that data to affect their outcomes. Facebook tracks the various tokens it spreads across the platform, collates the data into something that represents a marketing segment and sells that data to the highest bidder, with the winner hoping that paying the price will generate more value than the cost of not paying.
But, as is with the supply of anything - buyers are required to add value, which is why so many of the speculation tokens will fail, as investors move their money into business models that offer a higher rate of return, than the cost of what they paid. Speculative tokens like the vast majority of cryptos will fail because they do not offer utility, meaning a reason to buy them. Remembering that the tokens themselves are useless, except what they are able to give access to, where in the case of Facebook, the data gives access to market segmentation for targeted advertising.
On Hive, the HIVE tokens give access to various activities, but the main usecase is for staking to gain access to the emissions pool to mine more tokens. These tokens can be invested as stake in order to earn more, or sold on various markets, for which they will need a buyer who can speculate on price hoping it will go up, or bring back onto the platform and stake to gain access to the emissions pool.
The more compelling the usecases a token has, the more demand there will be on it and the higher the price will go, but this isn't going to be a direct relationship in a space that is still highly speculative on tokens with no usecase whatsoever. We can however see how quickly the value of a token can change once a compelling usecase is added by looking at the meteoric rise of something like BNB, which has gone about 1500% since the start of the year, thanks to the Binance Smart Chain exploding in usage.
But, more than it being needed for transactions, BNB can also be staked to produce a yield from another token's emissions pool, effectively creating a sink for BNB making it both scarcer which drives price and, useful as a passive income earner. Especially for those who were able to buy at the 40 dollar price at the start of the year, or those (who unlike me) held from the single digit prices of 2017. The demand for BNB has increased magnitudes, but the value of not selling has also increased, due to usecase.
The problem on Hive with a lot of the layer two tokens is that while they are able to get access to the emissions pool, the value they have is essentially no different to Hive in usecase. LEO was able to build value around the token by developing a community around a niche topic and introduce applications and various usecases in DeFi, but in time they will have to add more value in order to attract buyers. Many of the other tokens however, have very little use other than being able to reward a post and hope to sell, which is why tokens like SPORTS saw so much abuse, as people self-voted and alt-voted the crap out of it, yet, how many people were ultimately buying?
If there is no reason to buy other than getting more of the token being bought, it is unlikely that the long-term value is going to hold as eventually, the niche group is going to run out of disposable income they are willing to spend on more token, especially if the price is getting restricted because early participants are selling. Something like PoB Token is going to require buyers to really drive the price and while it is going up now as people get excited over a new token, what is the long-term prospect for value creation, other than doing what HIVE already does. Now, if they are able to build a community willing to keep buying for some reason, it will keep seeing gains, but they would have to attract the kinds of accounts not only willing to buy, but also willing to hold long-term and add value to the development of the community to increase reasons to keep holding and buying. On Hive, this is notoriously hard, as even on the first layer, people are not overly willing to invest long-term.
When it comes to investing into a token in the hope of price increase, one has to think about what is creating demand for that token, what are the reasons for others to buy at a higher price than you and, what is the potential depth of the market willing to buy. When I see a project where the largest holders are sellers, I am not overly enthusiastic to buy into it, as I assume that once the price gets high enough, they are going to dump, and the worse the distribution is, the greater the impact these people will have.
For example, if you imagine @blocktrades dumping 5M of their stake on the open market, what happens to the price of Hive? Well, it will take a dip for sure, but how long will it be to start to recover, as whoever bought that HIVE is likely to take some of it and use it to access the HIVE emissions pool or affect other mechanisms on the platform, like witness voting or investing into various other activities. While people are not enthusiastic about Hive as an earner where token price increases, it is actually relatively robust, because there is a community behind it who believes in more than just the token price as a usecase reason to buy and hold.
So, if the demand for a token is driven by what several other tokens are already doing, what is the long-term outlook for that token and, is it worth buying? If you look at the littered remains of many of the tokens on Hive-Engine, you will see that while many got early interest, very few of them have survived, with only a handful coming close to thriving. Some people are pretty depressed by the lowering LEO price, but if you consider what it has achieved, the current price is still very, very good. If they continue to develop, it could be much better long-term - if they stagnate, it will not be.
I have always seen Hive as a long-term project, a "slow-burner" I call it, as it incrementally adds a diverse set of usecases, including playing host to all of the layer two tokens, over time. Games are being developed, new platforms like NFT Showroom and Have You Been here, as well as continual development to the core layer itself to improve scalability, efficiency, security and overall value of the blockchain. The reason I have to invest into HIVE is indeed being able to access the emissions pool, but it is also to be part of every other development that is happening on Hive as we speak, now and into the future.
Who knows, the demand needed to push price upward may never arrive, but if it does, I will be here, staked, active and looking to demand more of the goods and services that Hive enables. The more there are, the greater the demand and, the more stable the platform becomes.
One of the issues that a lot of people see with DeFi products is the amount of choice that is going to split attention. One of the problems people see with CUB is that it took attention away from LEO. However, if looking long-term, it is the best way to go, to concurrently develop alternative product lines to distribute risk of reliance on a single source. Hive does this through communities and usecases, where each community is powered by HIVE and enabled to create its own value, but Hive is not entirely dependent on a single source of attention.
Over time, the Defi returns will reduce markedly from where they are, as there will be literally thousands of projects similar vying for market attention, but, it will be the market attention of hundreds of millions and billions of people, each taking a stake in the entire outcome of the industry. This is the mature development of the replacement economy, but most people are only interested in their immediate ROI, without thinking about all the value to come.
Most people early into projects are also going to be the first sellers - the value will come from the people who get in, add usecase to improve the system and hold, knowing there is more value in the long-term development, than the short-term sale. Not all projects have merit for the long-term view, but those that do will eventually be the port of call for all the floating money that is created in the short-term speculation.
The trick is, being where the ball will be and ready to take the feed when it arrives.
Taraz
[ Gen1: Hive ]