CRV Returns Experimentation with Tokenized Business Models – Trustnodes

CRV Returns Experimentation with Tokenized Business Models


Curve total deposits, July 2020

Almost precisely three years since numerous experimentations were tried with the aim of fairly distributing tokens, and almost three years since the Securities and Exchanges Commission (SEC) put a stop to all that, it appears 2020 is 2016 again or early 2017.

As some of you who were around may know, the idea of Initial Coin Offerings (ICOs) began being developed around then with it eventually reaching the point where even Telegram and Kik’s Kin ICOed.

SEC then moved in to say you couldn’t do that with just a whitepaper of ideas, you need a product. The products are now here, so they doing that again.

Curve is the latest token to go to market sometime by the end of this month they say, with CRV being more a free gift to the users of Curve pools.

They’re giving 61% of some 3 billion tokens to the users of the dapp, with 5% set as an emergency fund to be burned if not used. The rest is kept by the shareholders and team.

Until now defi dapps have distributed the tokens as they go, announcing a set period when users are entitled to the token, and then gradually these tokens come to market.

Arguably that’s not a great way to distribute tokens because it seems to dampen enthusiasm.

Compound's price, July 2020
Compound’s price, July 2020

Compound for example started off as the hot new thing, not least because they kind of invented this new business model where you give free tokens to have governance rights over a dapp.

Since then however, then being just last month, price seems to have taken only one direction and that’s most likely because initially there was almost no liquidity as the tokens were being created by the block.

Just to give you an idea with this very simple example, let’s say 1,000 tokens are distributed within an hour starting from 0. By the second hour inflation is 100%. Then it gradually slows down because total supply is increasing while new tokens are fixed at 1,000 per hour, but it’s still a very high rate of inflation of maybe 80% in this fictitious example.

Supply and demand being the name of the game, as supply increases then demand has to increase by at least as much for price to remain stable.

However as demand knows there’s a very steep curve with new supply initially at a very high rate and then gradually going down, then that demand may well wait until there’s more liquidity.

Hence perhaps explaining the price direction for Compound and why Curve is trying something different.

For Curve all users of the dapp will receive proportional distribution of the initial supply of 1.2 billion CRV, about 40%.

The difference here being anyone who has used the dapp since day one will receive the token, but instead of this one billion being at once, it seems to be at about 2 million a day.

The reason is presumably because the ‘business’ aim of these tokens is to encourage liquidity. Thus this gradual distribution means people will keep their deposit there or will add more.

They could also try giving at least a good chunk of it at once so that a somewhat proper market price is found, with the rest then brought to market more gradually at the rate of maybe 10% inflation and falling.

Presuming demand rises above this 10%, then the price increase will probably be a far more effective attractor of deposits as people will want this free 10%.

That’s not been tried so we can’t fully know whether that is indeed the case, but it makes logical sense and therefore you’d think it will be tried.

They will probably also try other methods of distributing the tokens, with that being a very important decision as how they are distributed may well affect how much liquidity they get and what price.

All of which thus returns experimentation to this space as ethereum moves to the second stage in its smart contracts ecosystem developments.