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Lingham on Token Economics, Ads & Liquidity

“A lot of [token projects] when they come to me, say, ‘We want to launch a token,’ said Vinny Lingham at a StartEngine event last year. “And I start digging into what the token will do, how it works, and we discuss token economics. They say, ‘Well, we will deal with that later.’” Giving such a project funds amounts to gambling, thinks Mr. Lingham.

His company, Civic, raised $33 million in June 2017 for its blockchain-based identity providing platform. The app enables people to do KYC and AML for ICOs, and more.

On the panel, Mr. Lingham discussed some of his pet peeves, like poor thought-out token economics and ICO advertisements.

“At that point, I might as well go to Vegas and put money on the roulette table,” he quipped. “…The notion that utility tokens can have TBD token economic models is kind of weird to me. In the case of Civic, we have customers live right now using Civic tokens and doing ID verification on the blockchain. We have your ID info stored on your device, we have hashes on the blockchain, and smart contracts that allows us to exchange information between receiver and sender.”

He adds: “When we started Civic, we believed identity on the blockchain was one of the key uses for blockchain. You wouldn’t have a situation like Equifax where information is stolen because its decentralized and stored on your device only. If your device gets hacked, the rest of network is not affected. And we use a token infrastructure to do this, so [blockchain] does work.”

The entrepreneur, who appeared in South Africa’s version of Shark Tank, has nothing against investing in securities tokens.

“There’s a yield curve, I know how much I get back [in the form of] some percentage of revenue,” he said. “There is some risk involved, but you call a spade a spade.”Mr. Lingham also commented on Facebook, Google and Twitter banning crypto ads.

“I think it’s a pretty good thing, personally,” he said.

He discussed how in his first company, which was in the advertising space, he saw people engaging in pump and dumps using their media influence. The crypto-space in its current form is “similar to that”, he said.

“Believe it or not, it is relatively easy to go buy ads on these networks and get people to put money into your scam,” said Mr. Lingham. “People believe its a legit project. The more money you get in, the more you can spend on advertisements. If advertisements cost you 20% or 30% of what you raise, that is just the cost of stealing, [since] you’re not conducting any business.”

He adds: “With the lack of regulation we have right now, these platforms are trying to protect the people who see the ads, which are their users. The last thing they want are users to click these ads, transfer bitcoins to some scam in eastern Europe or wherever, and the money disappears.”

Mr. Lingham believes it’s the responsible thing to do right now due to an absence of regulations. “If regulations come in and you’re doing a securities offering stamped by some organization, you can run ads on Google, Facebook or whatever [targeting certain] individuals.”

Mr. Lingham has reason to believe that ads for ICOs are unnecessary and potentially detrimental to the industry.

“[Civic] had one hundred million in commitments,” Mr. Lingham imparted. “And we spent zero on advertising. We didn’t buy a single advertisement. It was purely on the basis of what the team was doing, what the white paper said, and what the economics of the model was.” This has led Mr. Lingham to take a hard stance when it comes to investing his own funds.

“Personally, I will not invest in an ICO that is actually running ads,” he said. “The cost of advertising is coming out of your money and you’re not sure how much they are spending on ads to raise that money. I can see a situation where some of the smaller ICOs [spend a significant percentage of their money] on advertising to try and raise [their goals]. So, that is not a good use of capital.”

Mr. Lingham also takes issue with the notion that $8 billion has been raised in initial coin offerings. He thinks that number comes with a very important asterisk.

“We didn’t raise $8 billion dollars,” noted Mr. Lingham. “We raised $8 billion worth of crypto in market value at the time that it was raised. Now it makes for really good headlines, but you can’t liquidate $8 billion right now in crypto.”

He explained: “The problem is when [thousands of companies] try to sell it to pay [their] bills, rent, salaries, wages and expenses in general. This money has to flow out in fiat because landlords don’t accept crypto. Or at least any that I know. This is a worldwide problem, where there is so much money raised in crypto, [but] the liquidity isn’t there to support it. Still, there are good use cases for tokens, despite the lack of liquidity weighing down the market at present.”

Image credit: Shark Tank: South Africa

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