4:20 PM Newsletter, an update…
On Inflation, Liquidity, and the Tokes Corporate Reserve
One of the most exciting components of working within the cryptosphere, and indeed a large factor in a project’s success is the necessity and ability to adapt in the rapidly evolving ecosystem. One area that has required our attention lately is the management and strategy underlying the unsold TOKES from our ICO. These units represent the totality of our ability to generate operating capital for the Platform into perpetuity. In other words, once they are all sold, we will theoretically have a finite budget to continue development on the project. Fortunately, that should not present a problem for us for a long time, if ever.
A secondary consideration is how the available supply attracts or deters new adopters of the token. Counterintuitively, having a limited distribution to supporters who are dedicated to holding can be to the detriment of growth. While the supply/demand imbalance is positive for short term growth, it can also discourage new adopters from buying due to an unsustainable increase in price-per-token. Market slippage is also a deterrent to potential buyers. There is a psychological barrier to purchasing at an opening price, but moving the market with even small purchases (i.e. 0.00050000 btc and closing at 0.00070000 btc). For these reasons, it’s essential that a sufficient level of liquidity is available in the market to encourage new buyers, which recruits new community members and supporters of the project. This is good for everyone.
Unlike proof-of-work coins in which inflation is predetermined via the distribution curve, we are in a unique situation with the responsibility of defining an inflation schedule post-genesis. This is a delicate matter, as it needs to be executed in such a way that does not dampen value of the token while encouraging adoption from new investors. I will discuss more on our initial proposal for this below.
With that foundation laid, I want to add that it was never our intention to be in possession of the majority of the remaining units. The ICO sale made 95% of TOKES available for purchase by the public, with 5% retained by the team as an incentive for development. However, this is the situation we are now left managing, and one we are committed to handling equitably, responsibly, and diligently. And with that, we are releasing our first Tokes Improvement Proposal to the community.
Tokes Improvement Proposal #1 (TIPS 001)
Part 1: Smart Contract
The first stage in this proposal applies balance sheet management through the implementation of a smart contract with publicly available rules defining the accessibility to the Corporate Account funds. The intent is to provide some assurance to the community that we can’t freely ‘dump’ to the detriment of the market. The smart contract would control 90% of the token (45,000,000 TOKES), with a proposed distribution period of 3 years. Distributions would be made monthly to our corporate account in the amount of 2.5% of supply (1,250,000 TOKES). The remaining 10% consists of the Founder’s Share units (5%), and approximately 3% from unsold ICO units. The 3% will be immediately available to facilitate any private equity sales opportunities that might present themselves, and will also be utilized as a medium of exchange in our fiat onramping service. This system is designed to significantly reduce free float in TOKES, and also motivates the team to continue development over several years.
Part 2: Inflation Schedule
The inflation schedule dictates not only the rate of distribution of unsold units, but also a methodology to provide enhanced liquidity for early adopters. A hypothetical example detailing this distribution is outlined below, but I’ll provide some context first. Under this distribution model, the remaining balance has been divided into four tranches of 11,875,000 TOKES, which makes up 95% of the total supply (5% remaining being the Founder’s Share). The units sold during ICO will be included as part of Tranche #1. Our proposal is to trade in the market volumetrically, based on a weighted average of sales in BTC over a pre-defined period, i.e. trailing seven days. Early tranches represent a higher proportion of trading volume relative to later tranches, but still represent a small percentage of total daily volume. In the example below, Tranche #1 is designed to represent 5% of daily trading volume, and Tranches #2-4 represent 4%, 3%, and 2%, respectively. This system enables us to raise additional capital (as our ICO fundraise was relatively small at about $90K), and also provides enhanced liquidity for new adopters and speculators. Our sales are only executed as the price increases, which means we remove any downward pressure created from our volume during periods of negative volatility. For example, once price reaches 0.00080000 btc/tks, we will not sell lower than that point. It can be thought of as a ‘high water mark’ that must be breached before we re-engage in sales. The analytical reader will note that this strategy is quite positive momentum driven, for a couple of reasons. Since we only utilize limit orders placed higher than current price, our efforts to do not depress values. Also, as volume increases and more units are sold, we are decreasing the proportion of our sales relative to that of the market. And finally, as the price increases, we’re releasing fewer and fewer units, which is purely a result of the fixed proportional trading we are proposing.
Part 3: The Burn
The third and final part of the proposal addresses the possibility of a token burn. While not something we’re strongly considering at this point, it is a concept we do not want to rule out. Should our capital reserves be sufficient to operate into perpetuity, coupled with the potential success of our tangible lines generating profits, we could enter a scenario in which we do not need to raise additional capital. In the event that occurs, we will look at destroying the balance of tokens in the corporate reserve.
And that concludes the components of our initial improvement proposal! This has merely been presented to the community so that we can obtain feedback on the underlying ideas. We welcome and encourage everyone to join us in slack to discuss this proposal, and alternatives to our suggestions. We have created a channel in slack dedicated to this discussion, #improvement_proposals.
Michael Wagner | Founder