After the conception of Ethereum in 2014 crypto tokens have emerged as a new way to design business models and value propositions. By enabling the development and growth of new open networks, tokens could help reverse the centralization of the internet, creating new incentives for all open network participants.
As networks and platforms tend to only become useful when they’re able to reach critical mass, the current art of network development usually involves raising funds to be able to finance growth. In the rare case networks succeed, the financial returns tend to accrue to a small number of equity-holders. Therefore tokens might offer a better way.
The following definition by William Mougayar is a good starting point for our discovery.
(A token is) a unit of value that an organization creates to self-govern its business model, and empower its users to interact with its products, while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders.
Why scaleups should be interested
Most established companies have little incentive to decentralize themselves. However, the seemingly best way to attract customers for blockchain related projects is through established networks. Therefore the first blockchain-based systems that will operate at large scale will most probably be very specific use-cases that operate on top of existing platforms and business models.
Most coin launches up until recently were ran by startups that were looking for money to start developing their product. Arguably, the future of successful token-based funding will require a proven business model and a solid customer base, as opposed to concept-phase projects without market-traction, effectively solving the chick-and-egg problem of populating decentralized platforms. Hence, the recent appellative ‘reverse ICO’.
Up until now the Achilles heel of token-based network models remains the fact that they have to interact with their underlying business models. Therefore, going forward, token usage relationships will become of far greater importance than the design of the underlying crypto-economics (the mechanics of token distribution).
As big incumbents are notoriously bad at adopting new technologies, tokenizing business models and assets provides interesting opportunities for scaleups. Although the concept is still in its infancy and it may take years for traditional entreprises to adopt and adapt to, a non-dilutive means of fundraising that entails no transfer of control rights is definitely something any company looking for growth should investigate.
Let’s have a look at some of the companies that are getting it right
Although coins have been predominantly launched by nimble startups with great aspirations, a new generation of ICOs is being launched by existing companies with proven track records. Some of them looking for an alternative means of financing, others looking to expand their business.
Tokenization is currently happening for everything from fine art to real estate, to ownership of commodities such as sand and oil. Even century-old incumbent players such as Maersk and Kodak have announced plans to launch their own tokens and corresponding platforms. For an overview of the most funded industries have a look at these stats.
The social media industry has already had a few examples of venture backed scale-ups introducing their own tokens. The first WhatsApp-challenger is Telegram, which raised over €1 billion in their private sale, launching a token to try and become the decentralized counterpart of everyday money. The second being Kik, which overthrew their business model to fully decentralize and start compensating their 300 million users – in the form of tokens – for generating value on their platform.
A similar example is Ask.fm, a Latvian-founded teenager Q&A social network, which recently decided to shift its business model and reward users for their interactions on the platform. And there is Friendz, an Italian scaleup, which enables companies to involve their customers in product placement and influencer campaigns. By now it should be clear that all are trying to leverage their existing customer base in decentralizing their business model.
Nostrum is a Spanish company with a 20-year track record, selling prepared dishes and distributing them over their more than 100 restaurants in Spain, Andorra and France. As the vast majority of their restaurants are operated in a franchise model, the company was looking for a way to expand their franchise network while building a community of healthy customers. They effectively found so in issuing their proprietary MealToken, which will act as an incentive instrument with a payment function to be used within the Nostrum ecosystem.
Our final example is Fenero, a company founded in 2013, offering full-service enterprise cloud communication solutions to contact centers globally. Venturing into the blockchain industry, Fenero launched PodOne in an attempt to create a decentralized, manpower exchange for contact centers to lend and rent trained employees.
Ready to tokenize your business?
There has been an explosion in the growth of blockchain-based startups over the last year and most of them have converted to fundraising by means of a token sale. In the first three months of 2018 alone, already over €5.4 billion had been raised through coin offerings, amounting up to about 120% of last years total.
Tokens provide a new model for technology and entrepreneurship. Similar as to how a lean startup would fund its product through a Kickstarter campaign, any company can now launch a new token protocol and sell the tokens at its inception to fund the development or growth.
In the same way that increasing sales is an alternative to raising capital, token sales are an effective, non-dilutive alternative to traditional financing. Besides, while venture capital can’t create growth, ICO capital will by accelerating customer adoption. Those scaleups that are able to connect their fundraising to their product growth have a unique opportunity to parallelize multiple company objectives.
All in all, a tokenized future looks bright, allowing for a variety of use cases in a plethora of industries, but lots of questions remain unanswered with regards to its profound implications. Will somebody be able to crack the code and open Pandora’s box or will governments step in and have regulation nip things in the bud?