Necessity for Token Planning and Tokenomics in Crypto World

What is a Token?

In the real world a visible or tangible representation of quality, fact, feeling is known as token. But, in crypto-verse, a token can be defined as a representation of “something” in its ecosystem. Generally a token represents a utility or asset that a company is having and the companies usually give those during a public sale to their investors.

What is Tokenomics?

Tokenomics comprises of two words “Token” and “Economics”. So tokenomics is defined as the quality of token which will attract the investors or users to adopt it and to help in making the ecosystem for the project which is around the token. It mostly focuses on token supply, token application, and validation. Token usage and its behavior is explained by tokenomics, while conducting a transaction and even after its accomplishment.  

When we are talking about the quality of token, what do we mean exactly? It’s a big subject and it includes a variety of components that we are going to talk about.   

Cryptocurrency and Blockchain projects raise funds using the three most popular methods. These are ICO, IEO & STO. All of them have their own perks and drawbacks, which one should consider before opting one.

• Initial Coin Offerings (ICO) –

The start-up companies which are seeking funds to finance their projects can get to the public directly, without the banks or venture capital interference. But, unlike the regulated stock market, the investors of ICO don’t get to own a part of the company and they don’t have voting options either in the company. However, they are investing in a currency so they get the coins themselves (for example Bitcoin), which can be used later for investments in future or online transactions.

• Initial Exchange Offering (IEO) –

Earlier methods like fund raising or token sale was performed at the issuer’s platform but in IEO fund raising is performed in cryptocurrency exchange platform. IEOs and ICOs are both techniques of crowdfunding, the difference lies in the management. IEO is managed by an exchange platform with help of startups who are willing to raise funds while ICO is managed by the issuer of the tokens responsible for ICO. Since the exchange of token takes place on crypto exchange platform, so the issuer needs to pay brokerage on the listing, IEO works more like a modern day IPO in stock exchanges.

• Security Coin Offering (STO) –

• STO or security coin offering is also used to pool funds for the new project and it is mostly considered safe and secure, mainly due to the program and encryption on which it works.
• STO is a regulated version of ICOs, the project selling tokens to a group of investors to find their work. In STO it is legal purchasing of digital ownership of a physical or digital assets. STOs are built in such a way that it tends to abide by all the relevant securities regulations and operate entirely within legal boundaries.

The team -

A credible project needs a reliable team behind to support it. The people involved in the project are critical in determining the chance of the coin gaining widespread adoption.

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IEO the current trendsetter and a brief comparison between 2018 and 2019 IEO

Before we discuss this topic, it is very important for us to understand the basic terms first.

What is and IEO?

IEO stands for Initial Exchange Offering. It is like an ICO run through an exchange. In ICO, instead of shares, utility crypto tokens are sold at a discount in return of cryptocurrencies to fund the project. Here the tokens are sold via a crypto exchange. It is more reliable than an ICO as it is regulated and listed. Instead of an ICO where only two parties are involved, IEO involves three parties, i.e. Projects – Exchanges – Investors.

Why IEOsare currently trending?

• Trustworthy: As it is listed on crypto exchanges, the chance of fraud is very slim. The exchange’s reputation is on the line, so they study each project very carefully before listing.
• Open to all exchange users: It is open to all the investors on the exchange as there are no eligibility criteria.
• Security: The exchange makes sure there are no frauds like hacking and theft. It is more secure than ICO, as it is regulated.
• Regulation: The exchange conduct KYC for its users to make sure it is genuine. The issuing company does not need to conduct its own regulation, as it is done by exchanges.
• Token liquidity: After the IEO ends the investor can easily sell their tokens through exchanges to liquidate the money. It is one of the major factors which makes IEO much better than ICO.
• Not restricted: It is not restricted in many countries like ICO. China and many other countries have restricted cryptocurrency trading and ICOs. IEOs doesn’t face this problem.
• Reward programs: It includes distribution of airdrops and bounties for the investors. Exchanges are airdrop friendly, and it encourages more investors to invest in the project.
• The benefit to exchanges: The exchanges receive listing fees from the issuing company. They also benefit from new users.
• IEO development: There are many IEO development and marketing companies which help the users to develop and market tokens. They provide IEO development services for a new project from scratch as well as an existing project. An IEO development company, thus is extremely beneficial for investors looking for one point solution.
• IEO solutions: There are marketing companies which provide IEO solutions to its users. If at any point, you need to start an IEO project, you can simply approach an IEO solutions company.

These are all the factors which makes IEO so much better than ICO and still trending despite all the odds.

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The Growth Of STO industry: Then and Now

Despite the bearish landscape of the real economy, cryptocurrencies continue to soar to new heights each day. The Bitcoin and cryptocurrency market has found stability in tandem with its growing branches in almost every sector. Everybody, from traders, marketers, investors, government agencies to the financial experts talk about it and take a keen interest. And why not! They help you make fortune without much effort.

Alongside the digital currency phrases, a security token offering (STO) is heard quite often. Security tokens, financial securities’ digital versions have become the latest buzzword in the world of crypto. The cryptoians see security tokens as a development that could regenerate the crypto sphere.

In this blog, we are going to jot down a brief on what is STO and how is the STO industry right now compared with 2018 and 2019. Let’s get started.

What Is A Security Token Offering (STO)?

STO is a process similar to an ICO (Initial Coin Offerings) where an investor/merchant is issued a crypto coin or token in exchange for money representing their investment. In short, a security token displays the information of the ownership of the investment product that is recorded on a blockchain and issued as a token.

In contrast to the traditional financial system, STOs cover users with investment smart contracts and make sure that every party abide by their obligations.

Securities include financial instruments i.e. 

• Real estate
• Bonds 
• Private equity
• Venture capital (VC)
• Stocks 
• Shares 
• Revenue participation notes

These financial instruments hold monetary value as they are tokenized and put up with a security token offering. 

Unlike ICOs, STOs distribute tokens that offer securities. Also, security tokens can not be traded on regular token exchanges. Exchanges need to fully abide by regulations including extensive investigations, token listings, data sharing and investor onboarding procedures. That is why these tokens are traded on specialized exchanges that support STO Platform Development.

Given below are the four key ingredients of STO:

• An issuance platform – These platforms make the issuance and distribution process easier.
• A blockchain protocol – Some of the issuance platforms, such as Polymath, have their own blockchains whereas some still use Ethereum. The Ethereum solution is a widely used one. 
• A smart contract – Smart contract is a programming language for the blockchain protocol that lays down the rules for the issued token.

Security Token Offering Services

STOs were created to bring the institutional investors on board during the cryptocurrency and blockchain era. We are the leading sto development company providing the A to Z security token offering services. Our list of security token services include:

• Security token development based on equity, asset reserve or debt token 
• Fundraising across Asia
• Formation and incorporation of required entity structure for security token issuer
• A complete audit of STO website, owner’s manual and marketing materials
• Financial model development for the project and much more.

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Products Of Crypto Derivatives Trading And Trading Strategies

The cryptocurrency trading sector is gradually evolving into a complete ecosystem. Gone are the days when only conventional trading of coins was encouraged. The market has matured and has bestowed the traders with sophisticated and mature financial instruments – Crypto derivatives. 

If you are looking to start trading derivatives, then this is the only article you need to read to get up to speed. I have used the Q&A format to cover most of the key concepts for the crypto derivatives.

What Are Cryptocurrency Derivatives?

Mathematics and financial markets walk on similar paths when derivatives come into the picture. The concept of derivatives was introduced in Mathematics. It referred to a value or a variable which has been derived from another variable. Similarly in financial markets, the derivative is an instrument that is derived out of some market products. Its price is dependent on the value of the underlying asset from which it is derived. The underlying asset can range from stocks, currencies, commodities, indices, etc.

When the underlying asset is a cryptocurrency, the derivative is referred to as cryptocurrency derivatives. It is a financial contract between two or more parties based on the future price of the cryptocurrency.

Futures Contract

What is a futures contract?

It is a derivative contract between two parties to buy or sell the underlying at a pre-defined price and on a pre-defined date in the future. The underlying in this case is the cryptocurrency. One who buys the contract is said to be in a long position and one who sells it is said to be in a short position. The pre-defined price is the price of the futures contract and the pre-defined date is termed as the maturity date of the contract. Such contracts are standardized and are traded on exchanges. 

Let us understand the effect of changes in the price of the underlying cryptocurrency on the returns of the two parties. The buyer of the contract gains profit when the price of the underlying goes up because the contract allows him/her to buy the underlying at a cheaper price. In the same way, the seller is at the profit when the price of the underlying declines. 

So while trading futures, all you need to know is – go long when the price is predicted to increase and go short when the price is expected to fall. 

The futures contract in which the underlying is the cryptocurrency coin, then it is known as a cryptocurrency futures contract. For example, if the underlying is the Bitcoin, then it is called Bitcoin future contract and if it is XRP, then it is called a ripple futures contract.

Do I need to have cryptocurrency to trade cryptocurrency futures?

It is not important to have a cryptocurrency to trade cryptocurrency futures. The gains and losses of the futures contract are independent of the underlying. Let me explain it through example. Consider a Bitcoin futures contract. Assume there are two types of the futures contract on this coin:

Bitcoin settled: The gains or losses of this contract are in terms of Bitcoin and hence one needs Bitcoins to trade this contract.

USDC settled: The gains or losses of this contract are in terms of USDC and hence one needs USDC to trade this contract. 

Thus, the Bitcoin future contract can have its profit or loss in potentially any fiat or cryptocurrency. So there is no need to have a particular cryptocurrency to trade futures of that cryptocurrency.

Example of a cryptocurrency futures trade

Assume that the current price of Bitcoin is $4000. Trader A thinks that the price will go up to approximately $4500 in a month’s time. He buys the contract from trader B that will allow him to buy Bitcoin at $4100 one month hence. In this case, trader A goes long the Bitcoin futures at $4100. 

Profit/loss for Trader A = Current_BTCFutures_Price – $4100

Profit/loss for Trader B = $4100 – Current_BTCFutures_Price

As a matter of fact, the price of the Bitcoin futures typically tracks the current price of the Bitcoin. Also, at the time of maturity, the price of futures equals the price of Bitcoin. So if trader A holds the position till maturity and at that time the price of Bitcoin is $4300, then:

Profit/loss for Trader A = $4300-$4100=$200

Profit/loss for Trader B = $4100-$4300=-$200

Note that, we are considering the changes in the price of the futures contract and not the price of Bitcoin. 

Espay’s crypto futures derivatives contract development can help you in developing a competitive platform for futures trading.

Options

What are Options?

Options are the types of financial derivatives that give the holder the right but not the obligation to buy or sell a certain number of an underlying asset at a pre-defined price at a pre-defined time. They are extremely useful to hedge the risk and protect the portfolio. As a matter of fact, if they are traded with precision, one can earn outsized trading gains. 

Let us now understand what are crypto options.

Crypto Options are the options contract that has specific cryptocurrency as the underlying asset. Options enable traders to short the market (i.e. gain profit even though the price is declining). Thanks to options, crypto traders can now reap benefits from both bull and bear markets.

What are the types of Options?

Options are of two types namely call option and put option. These options consist of similar basic components – underlying asset, strike price, expiration date, and order size.

A call option is the right to buy an underlying asset (e.g. BTC or XRP) at a certain price (strike price) at a certain date (expiration date). A put option is the opposite of the call option, it is the right to sell the underlying instead.  

Options are also classified into two more types namely European and American options. European options can only be executed at the expiration date. While the American options can be exercised anytime or on prior.

Examples of Cryptocurrency Options trade

Call Option Example

Underlying Asset – BTC

Strike Price – US $8000

Expiration Date – July 30, 2020

Order Size – 1 BTC

The option mentioned above gives the trader the right to buy 1 BTC at the US $8000 on July 30, 2020, no matter what the price of BTC is at that point in time. As of today, the price of BTC is $4500. 

If the price of BTC does not cross the US $8000 at the expiration date, then it makes no sense to execute the option. It will be worthless (out of money – OTM) option. 

But, if the price of BTC crosses the strike price, then it makes sense to execute the option and buy 1 BTC at a price (the US $8000) which is lower than the then market price. This will help the trader gain profit (in the money – ITM option).

Put Option Example

Consider the similar details as mentioned in the above example with the only difference being that you buy a put option instead of a call. Now trader has the right to sell the BTC at the US $8000. If the price of BTC falls below this price at or before the expiration date, then it makes sense to execute the option and sell 1 BTC at a price (the US $8000) which is higher than the market price leading to gain. The opposite will lead to the loss. 

Espay’s crypto options derivatives contract development can help you in developing a competitive platform for options trading.

SWAPS

What are Swaps?

Swap is a contract between two parties to exchange one sum of money against another sum of money at regular intervals. It is obvious that the sums exchanged should be different. There can be the difference in amounts (say, one fixed and the other variable) or the exchange can be in different currencies. These two payments are the foundation for swaps. Typically, one of them is fixed while the other is floating (market price). 

Consider the transaction between A and B. A like cars and would love to experience the feel of driving BMW. But he doesn’t want to own BMW. B has got BMW and he does not drive it often. He wants to earn some income by loaning out his car. Here, they sign a contract in which A will pay the rate of interest to drive B’s BMW for a short period of time. Here A is willing to swap an interest payment for the use of BMW. This contract is a swap. Here the interest is variable and the car is fixed.

When cryptocurrency is used as one of the foundations in the above-mentioned contract, it is called as cryptocurrency swaps. In cryptocurrency swaps, traders have no interest in owning or storing the coin, but they obtain the same economics through a swap. They want to participate in the price performance of the coin.

How are Swaps valued?

Swaps are valued at the existing spot price of the underlying asset. For example – consider the buyer of the ETHXBT swap. Here the buyer will pay XBT rate and receive ETH. The opposite case will exist if he/she wants to sell ETHXBT.

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