Every day I receive questions from prospective entrepreneurs from both startup and growth companies asking if they should run an ICO.
I respond with two questions:
- Does a blockchain-based system improve the product/service you offer?
- How would a token improve the use and access of your product/service?
With the first question we explore how blockchain provides greater security, audit trails, and for some applications a lower cost of operation as it encapsulates many of the supporting functions. We then discuss how this impacts the company’s product/service and if it would benefit from a blockchain implementation.
The second question, delves into tokenomics. It’s the role of the token in the application. In the rush to raise ICO money many force the token on their system without regard to how it will be used. One can build the best system in the world but if users don’t want to use tokens to interact with it, it will go nowhere. It would be more prudent to find a token use case and then build a system around it.
The discussion around token usage is sometimes referred to as Tokenomics and answers the following:
How many tokens are generated and available?
What is the value of a token?
What does it cost to obtain a token?
What do you do with leftover tokens from the raise?
How many tokens does it cost to use your system?
And the list goes on…
You can more easily charge users of your platform such as those who want the data coming out of it and not the product/service itself. Even more, you could add AI algorithms to the system and charge tokens for the answers it produces.
I can even see tokenized systems of the future charging tokens for making a positive impact. For example, if the company’s platform generates more business through lead generation, the company receives a commission from the increased revenue of the company and not just the increased lead count.
Tokens also can incentivize others to provide ancillary services through your platform. If you need additional functionality you don’t have to build it all yourself, you can attract partner companies to build around your system and earn tokens for the use of their add-on application.
In short, building a digital ecosystem requires mechanisms to attract, incentivize, and compensate those who provide value. Tokens provide a seamless, non-invasive payment mechanism to achieve this.
An ICO promotes the use of blockchain based applications with strong tokenomics behind it.
Hall T. Martin is the founder of TEN Capital and a builder of entrepreneur ecosystems by startup funding through angel networks, funding portals, syndicates, and more. Connect with him about fundraising, business growth, and emerging technologies.
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