The risk and value of investing in "token digital assets"

In yesterday's article, I shared with you the risks and investment strategies in the process of investing in native digital assets. Today I will share with you the risks and investment strategies of token assets in the investment process.

1. How token assets form their own value

The so-called token assets refer toThe starting point of most of these projects is not to solve the problems in the blockchain ecology, and actually does not require the innovation of blockchain technology. Its focus is to use tokens as a tool to solve problems in an existing industry. For example, insufficient incentives, unclear interest relationship, etc.

It is hoped to use blockchain technology as a tool to reconstruct the format of a certain industry, change the relationship between producers and consumers, and change the value distribution system in the original format.

I gave an example in the previous sharing: BAT. Some readers are not familiar with this currency. It just so happens that the abbreviation of this currency is the same as the abbreviation of my country's Internet giants Baidu, Ali, and Tencent. It is easy to confuse, so I asked in the message.

The full name of this coin is "Basic Attention Token". Enter "BAT" in coinmarketcap.com to find its information. As of writing, it ranks 28th by market capitalization at $0.24.

This is a very early project with a great reputation. One of the founders of the project team was the founder of the Firefox browser before.

The project is to solve the current dilemma of supply and demand in the advertising industry: in the traditional online advertising industry, on the one hand, advertisers have to go through multiple intermediaries to get in touch with content providers, and every link here means a waste of funds; on the other hand , Traditional content providers cannot monetize content very well, and inserting advertisements on their websites has become almost the only way for them to maintain their operations; finally, when users read content, they will be forced to be harassed by various advertisements and have to pretend to be defensive. Advertising plug-ins.

In the process, all three of them put in a lot of effort to do what they thought was best for them, but in fact none of them had the desired effect.

The BAT project uses an algorithm that can monitor what content users like and how much time they spend on the website. These behaviors can be quantified using the unit of "attention". And a decentralized ledger system is embedded in the bottom layer of the browser code, and the token circulating in this system is BAT.

The Brave browser that integrates BAT tokens will maintain a good positive feedback relationship between advertisers, content providers and users. Usually, when Brave users watch advertisements and high-quality content, they will be rewarded in the form of BAT tokens in the system for spending their attention. Content providers successfully attract users’ attention with advertisements and content, and the system will also reward content providers , the BAT tokens obtained by users and content providers are all from advertisers.

In this way, the Brave browser anonymously monitors the behavior of the three parties at any time, allowing users to watch content and advertisements that are worth watching, content providers can successfully monetize, and advertisers can place more accurately and effectively, forming a perfect "triple win" model.

In this process, we can see that the core of the whole project is not in blockchain technology at all, but in the quantification algorithm of "attention". Blockchain technology is only used to issue tokens to provide incentive mechanisms. So this project solves the pain points of traditional industries.

To reflect the value of tokens in such projects, they must be used as much as possible, and to be used as much as possible, its incentive mechanism must be designed reasonably. There is a more professional term for this incentive mechanism in the industry called "General evidence economy".

2. Where are the risks of token assets?

In the "token economy" project, there are two main risk points:

One is the design of the incentive mechanism. If the design of the incentive mechanism in such projects is not good, or the pain points of the industry are not found correctly, then the tokens of the system will not be able to circulate and have no value.

Second, the value of the token depends on the credit of the project party. The operation of this type of project is actually controlled by the project party, which is a centralized or weakly centralized operation method.

This kind of centralized or weakly centralized operation is very similar to the operation of traditional enterprises, so the success or failure of the project is very dependent on the credit of the project party. If the project party is not honest enough, the project will also have considerable risks.

This is significantly different from the decentralized and trustless operation of native assets we shared earlier.

In such projects, whether the blockchain technology used is innovative or breakthrough does not play a major role.

If a new competitor emerges, its traditional credit is better, and a more reasonable incentive mechanism is designed, then the new competitor may surpass the existing project.

3. Precautions for investors investing in this type of assets

Therefore, investors can start from these two points when investing in such projects. The first is to examine the professional integrity of the project team in the past. For teams with tainted professional integrity, investment must be cautious; the second is to understand the industry, clarify the pain points of the industry, and see whether the incentive mechanism of the project is properly designed and whether it can play a role , if the currency is issued purely for the purpose of issuing currency, it is likely to be an air currency.

In 2018, a large number of such projects emerged, all under the guise of transforming traditional industries, claiming that issuing coins can solve the pain points of the industry. In fact, many of them are fraudulent and pyramid schemes in the name of issuing coins. The project party has no accumulated business reputation in the industry at all, and the designed mechanism does not solve industry problems.

Investors should be highly vigilant against such air coins and MLM coins when investing.