- What obligations will you take to token holders?
- We don’t know yet, but it will be utility.
- We will make utility token, pay dividends, promise growth, but it will be utility. Can you help us?
- Honey, you have a lipstick stain on your neck.
- No, it’s utility.
I want to present you a legal model of an ideal project with utility tokens, all the possible risks included. So, do you know what is a textbook token? A subway token. It entitles you to one travel. So, it is the best utility ever.
Now lets us imagine that we are conducting subway’s ICO. It is simple to imagine. Our goal is to collect funds for laying cables in remote city areas. That is, we will have a real challenge and the goal absolutely tangible for investors (especially of the area residents). The blockchain here is perfectly reflected in the accounting system of tokens. Corruption combating, payment from mobile phone and so on.
The first buyers will be the residents of those areas where the subway will be constructed. It will be valuable for them due to the fact that they will become consumers of the product they need. But their investment most likely will be not enough. Otherwise, they would have moved to the area closer to the subway station.
Then we will apply a discount. And at this point, you have to be careful because, providing 40% discount for early investors, we already may compare the cost of invested money with the credit money. And if investors want to have subway constructed in four years, the rate will be 10%. And the investors, who don’t give a damn about this subway, will unlikely be happy to give you money for this period of time and wait for payback.
But the founders are smart. They boost the demand by artificial shortages through a “one token per person” campaign. Pylon Pask from Bangladesh and John McAfee become the ICO advisers. In Telegram groups they promise to build a subway not only to Troieshchyna but straight to Mars.
In this case, the founders make such a seemingly smart move — they announce that there is a finite quantity of tokens available, and the price will be determined by the market. Of course, smart founders will never say in public that a token will grow. But in private conversations with major investors over a glass of whiskey they assume x5 or x10. Investors take big packages and… you are right, they hold it.
Let’s suppose that agents offhandedly did not allow founders to make a cash-out. The project has collected a vast amount of money. The founders between digging in the dirt (because the estimates have not been properly calculated) visit conferences and hold webinars on the topic how tokenization is making its way from riches to rags. They make the cover of Men’s Health magazine. Marketing has consumed for sure 20% of fees, but crypto accounts hold incredible amounts of money.
And here comes the day when trading starts. It has been postponed twice, but it becomes rather pressing now. Subway is only 30% built, but one train has been already running. From the first tokens listing day the exchange price falls. The first speculative investors rush to take profits. But there are no buyers, so the founders burn the remnants of fees in order to simulate demand.
The market turns 5% of tokens, the price levels off and begins to exceed the nominal value, population in slums uses taxi services because it is cheaper. Demand falls, token falls, taxi drivers develop their own ICO.
- But why are we summoned for questioning to the Prosecutor’s office?
- Because your ICO is too successful.
- Which colour Lambo is it better to use to drive in for questioning: we have red, yellow and green one.
- The one with more spacious trunk. To put your warm clothes in.
But the founders are not resting. They link all transactions to the exchange. It is possible to buy a token for subway travel only through a special application, and its price changes from moment to moment. Grannies curse the founders, young people buy bikes. Taxi drivers’ ICO gets joined by fixed-root taxi drivers.
Then the founders decide to save the project and link turnstiles to the tokens. Large pools of tokens get exchanged for the turnstiles to generate transactional income. At the same time a turnstile is a complete node. At this point, a number of major investors start to sell tokens, someone finds a vulnerability in the code and starts playing with reward. Now every turnstile takes its fee. There is a crowding at the entrance, people run between the turnstiles and make a fuss.
A big man has got caught in the turnstile, and he writes a complaint to Singapore (Yes, ICO was structured there: from the third world to the first world is the motto of a new subway line) concerning consumers’ rights protection. The founders get permanently pestered from abroad. Participation in a large exhibition at the conference in Singapore has to be canceled because there is a risk of failure to pass passport control.
At the same time Pylon Pask gets caught selling moonshine in Bangladesh. LetKnow.News highlights it, tokes fall. The project has to be operating, but there is no revenue. All of it has been distributed on the wallets of whales, who have created a separate Telegram-channel and have been shaking the market. The founders sell their Lambos and try to make subway cars at least having identical wheels. It takes a year. One of the founders freaks out and leaves for Bali to meditate. The rest shut down the project. Trolleys pulled by rats ride the excavated tunnels.
This utility token may be of interest to venture investors or be attractive enough for bonds issue.