Tokens, Velocity & Goldilocks Zone

Discussion with Blockcrunch on token trading velocity. If the token is being only used as a liquidation vehicle not a vehicle of value, investors don’t want to hold the token. If the token is held and nobody trades then the transactional volume collapses. We discuss if there is there is a goldilocks zone which would maximize the token economy. So how do we move the present market forward? How do we move beyond seeing short-term velocity via token speculation?

You indicated recently to me that “velocity” is one of the key levers that will influence long-term, non-speculative value in the blockchain.
Most utility tokens don’t provide a compelling reason for token holders to hold the token for more than a few seconds. Security token by definition have accretive value and have high velocity.
How does velocity change the the way you see investing in the blockchain?
Great question Gary. Velocity has to do with the frequency in which assets change hands. The federal reserve has an eloquent method of determining economic growth with monetary velocity as the primary contributer towards increased output.
Tying this to tokenized assets, I think there is great potential for companies to unlock tremendous amounts of wealth by tying equity to a unity of value on a decentralized ledger (aka a token), and that equity can also be integrated into that company’s ecosystem as a reliable method of payment.
To illistrate what this would look like in real life, if Amazon were to issue equity onto a blockchain ecosystem, and those “Zon” equity tokens can also be used a method of payment on Amazon, the velocity/demand for those tokens will be tied to Amazon’s total transactional economy size in addition to speculation on Amazon’s overall profitability.
As the transactional economy size will virtually always exceed speculation on profitability, there may be great potential to create excetionally large ledgers and thus access to more capital.
While this is the potential I see for security tokens, very few if any ICOs have acheived this goal of having their tokens utilized in their ecosystem. Almost all current velocity for token’s are investors speculating on the token’s price appreciation.
I do think this will change as the industry matures and as great companies such as Pegasus Fintech, BlockCrunch, and MLG Blockchain work to bring winning projects into the industry :)
Token velocity is a complex topic, with little historic data. It does stand to reason that if the token is being only used as a liquidation vehicle not a vehicle of value, investors don’t want to hold the token. If the token is held and nobody trades then the transactional volume collapses. (See below chart from woobull.com on token price over time.)
So Ronen, you are arguing that there is a goldilocks zone which would maximize the token economy. Your “transactional token economy”, where tokens are both utilized in the ecosystem and are a measure of the value of that ecosystem, would mitigate speculation on profitability.
So how do we move the present market forward? How do we move beyond seeing short-term velocity via token speculation?
You touched on a key point which is velocity based on value. I think as the industry is maturing, investor appetite is moving towards funding and identifying those projects that capture real value.
I also think a big component to lack of user adoption has to do with friction at key points of the consumer process. The bottom line is less than a quarter of a percent of the population has wallets, and only a fraction of that percentage are active. Should larger “everyday” companies enter the space, the crypto market cap heads north, or icos create products/services that truly generate deman, we will see more everyday use cases of crypto - leading to demand/value based velocity.
Would love to hear your thoughts on this Gary!
My understanding is that token velocity = total transaction value divided by the average network value.
Average Network Volume = Total Transaction Volume / Velocity
Network value is the key ingredient to drive sustained token velocity as well as impact the duration investors hold the tokens. It is essential is institute security token voluntary holding periods to allow for the long-term growth of the token. Tokens that offer a quick in-and-out there is a bubble and the token loses value.
Additionally, Tokens that offer sustained value via gamification, reward, dividend - or where the token is utilized in the ecosystem mitigate speculation on profitability.
James Kilroe explains the math of token velocity as follows:
Thank you Ronen for speaking with us. Follow Ronen and his team at Blockcrunch.com.