In order to support the value of their crypto-currency, more and more issuers agree to use a portion of their profits to buy units and destroy them. In this article, I propose to explore the benefits of these crypto-currencies that I call deflationary seen that the quantity of units in circulation, instead of grow or be stable, decreases.
The interest of destroying the chips in circulation
While the sector of “crypto-currencies” (the term generalist who covers a wide variety of tokens) goes professional and attracts the sector of FinTech, the question of valuing cryptos arises to investors conscientious. You are going to invest in a bank that specializes in cryptos, a decentralized system of content distribution… of the platforms that could generate income. But, unlike an action, your tokens have nothing to offer you in way of performance, if it is not the appreciation of their value. In this context, we understand very well the interest for a start-up to raise funds through an ICO, which provides almost nothing in return. But what is the interest of the investor ?
Some of the projects of crypto-currencies already offer dividends, even if the term is not used for legal reasons (we are talking about reward, reward, compensation, etc). Nevertheless, the regulators could very well go in addition to the semantics to rule that it is of similar assets to the securities, which are subject to this legislation.
The issuers and the most cautious who want to somehow reward their investors can thus choose to reinvest a portion of profits in the redemption of tokens which are destroyed. Not need to have a phd in economics to understand that this decline of the offer supports mechanically the price. This strategy allows to circumvent the possible problem of legal redistribution of profits to holders of crypto-currency. It also provides other benefits, such as prevent the complication of payments (logistics + transaction fee when dividends are paid by ETH). This solution also has the advantage of simplifying the declarations to the tax, or to increase the liquidity of the crypto-currency.
Dividend – source Pixabay
The crypto-currencies, deflation : examples
This feature already exists in the white paper of many crypto-currencies in the phase of the ICO, or which just come on the market. Others, who had not envisaged the device, have adopted it afterwards, especially under the pressure of investors who are willing to be rewarded for their financial contribution to a project.
Again, this is not an exhaustive list (feel free to add a comment), but here is a list of crypto-currencies that I know who bought regular chips to eliminate them.
- Binance Corner (NBB) : NBB is the token home of the exchange platform to success Binance. It allows to obtain a reduction of 50 % on the costs of trading. Each quarter, the chinese Stock market uses 20% of its profits to repurchase the ETNS, and destroy them. This operation will take place until the half of the 200 million of the ETNS will be eliminated. On the occasion of the last operation of “burning” that took place on the 15th of January, Binance bought 1 821 586 tokens for the scratch card.
- Iconomi : this management platform specializing in crypto-currencies has opted, after the ICO, for the system of redemption of tokens with part of the profits of the fund ICNP (20 %), and a portion of the management fee used in the client of the fund ICNX and other costs incurred by the use of the platform Iconomi.
- QuantumProject : QuantumProject is a project of investment funds based on a crypto-currency deflationary. He bought up all the months its own tokens to destroy them. How is the transaction funded ? QuantumProject uses the crypto-currencies gathered during the ICO to generate income, in particular by lending to the platforms of exchange for margin trading, arbitrage (exploitation of price differences between platforms or pairs, for example BTC/XML-ETH/XML) and a bit of algorithmic trading.
- Caviar : this fund joint cryptos/real estate credit short-term (renovating a property for resale) uses 5 % of its quarterly earnings to redeem CAV and destroy it. 75% of the profits are distributed, Caviar has therefore chosen to use two existing methods of payment to investors.
- Coinvest : this project exchange platform is decentralised, which the ICO is about to start, will use part of the 50 % of its net profits to buy back CORNER and destroy (the amounts allocated for redemptions are not clearly defined, the white paper refers to 50 % of the profits being used to build reserves and redeem the tokens).
The start-ups that develop around the chain of blocks will not be able to eternally hope to raise millions of dollars without offering guarantees more tangible profits. If dividends and other similar devices pose legal issues, the system of the redemption of chips, tokens seems to address this issue. It is led to generalize, that it is among the new projects or those that are already operational, while the competition rages on.