It doesn’t take much economic education to figure out how inflation ruins economies. What is completely obvious to 5th graders, is somehow evading the eyes and ears of central banks and governments for the last 100 years. The token destruction, which is becoming popular is something governments and banks have used to deal with hyperinflation in the past.
Some crypto projects have started taking a rather drastic and unexpected approach. They are literally throwing away revenue by destroying their own money supply, something that is known as “creative destruction”. This process is creating impressive amounts of value for the investors.
This unexpected and new approach is taking ICO’s by storm. The projects are using their tokens, which they price their services with, and then strategically alter the economics of the money supply. This is followed by a destruction of the cryptographic keys to the assets, guaranteeing that the assets are not able to be recovered. Newer ICO’s list in their white papers the plans to destroy new tokens to increase the investors’ earnings. Essentially the ICO’s promise the potential investors that in the case of a token purchase, a large supply of them will face token destruction.
Token Destruction is becoming more popular
As unorthodox as this method seems to be, it’s really picking up steam. Speculators are in love with this new model of ICO’s. Eidoo just recently announced that it would destroy 1% of the total token supply. The ICO was held last November, collecting just under $28 million. Starting on August 31st 920 000 00 EDO tokens will start being destroyed. This is irreversible and this announcement was followed with a 40% price spike. Eido is also a major holder of EDO tokens, which means this is a win-win scenario for both the company and investors.
There now concrete guarantees that this model of business will work in the long run. As with many projects, financial experimentation is welcome and counter-intuitive measures like this are seen. Eidoo is not this first case of such measures and recently some crypto exchanges have launched tokens of their own and tried the same approach of token destruction.
July saw Binance burning 2.5 million BNB tokens, which are mostly used for discounts. If we take into account Binance’s post that the total token worth was $30 million, this would mean that it’s more than the total market cap of all existing EDO tokens. Binance said that they would continue to destroy 20% of the token profits every year until they’ve gone through half of the BNB token supply.
While some experts remain critical of this method, it’s important have experiences like this so future projects can more reliably plan their marketing strategies. Who knows, maybe even central banks and governments can learn a thing or two.
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