Radix Counter-FUD for dummies (2)
Economical
“What is this token release? Why this inflation?”
First of all, if you consider the token release as inflation, you have understood nothing. Zero. You should go back and read the economic paper all over again.
In the case of eXRD (before mainnet launch), all 4.4B tokens that will ever exist are already minted, they already exist. So, no new tokens come to existence at every release, as they were already existent, but were locked, meaning they couldn’t be moved, sold or staked.
If you bought your tokens on the open market, you will not receive additional tokens at each unlock. There are no free tokens for anyone. Those tokens that are being unlocked were already bought by early investors or allocated to the Radix Foundation as per described in the economic paper. So, despite the dillution you indirectly suffer, the token release doesn’t affect you at all. And if you consider that the dillution and the supply is known beforehand, it’s only a matter of perception. You can always think the right way, namely, you’re buying a % of a fully dilluted market cap, and invest accordingly as explained in the previous article.
“I don’t get it. Why did you guys came up with that? That’s a terrible idea!!”
First of all, this is nothing new, it has been used in traditional finance for decades where it is called stock options (with the difference that the tokens never expire). Stock options were usually given to employees as bonus to incenticize them to work hard and generate value so that they could cash it out. If the company stock price doesn’t reach the target, they get no bonus.
Second, it’s the opposite of a terrrible idea, it’s the most inteligent thing a project can do to allign its investors to long term value generation. It kind of “choose” the right early investors though — those that are willing to take additional risk and hold long enough until the project has delivered real value and real use cases, or until the market recognizes that value and reflects it on price. It surely scared some short term flippers from the token sale.
“I won’t buy now, then, because there will be a dump at every unlock”
Well, that’s a heavy assumption. You are basically assuming these investors are dumb, because if they dump and the price tanks, the rest of their tokens will not unlock any soon. In fact, they assumed a risk so great, that their tokens may never unlock if the price targets are never met. They would be basically shooting themselves in the foot.
Of course that might be some cashing out, some profit taking, some correction in price. That’s how a natural and healthy market behaves. There may be some new investors irrationaly panicking and selling prior to the unlock antecipating a drop that might or might not happen. There was one unlock we even pumped, hurting some of those panick sellers.
And, of course, there is the liquidity incentives, that added a little spice to the game theory. Those incentives were so generous that some investors sold to get equal value in USDC and take part in it. The liquidity incentives will end in their due date, though.
You can choose to not buy now and wait untill all tokens are unlocked. But don’t you complain missing 2,71x from the price at the moment at this writing (~11x from token sale price).
“But that means the market cap is jumping and I’m not following. That benefits early investors!!!”
Ok, that was the craziest reasoning I saw an investor complain at. He said that, for instance, if he bought at $0.07 and the price appreciated to $0.11, the market cap would do a >3x jump but his investment would only do ~1.5x.
His math is not wrong, but his perception is. Because it makes no difference for his personal investment what the market cap does. The only thing that affect his investment is the price when he buys and the price when he sells.
For the overall project, it does make a difference. It brings Radix to the spotlight, as it jumps in ranking and that brings more awareness to the project, which may bring more demand for the token. So, market cap jumps are good for all token holders, be they early investors or new ones.
Regarding early investors, of course, they bought at a cheaper price, and will benefit all the way up on the price climb, but they assumed a much greater risk by accepting the price vesting, let alone those that are waiting for years of R&D to come to fruition.
Final remarks
What many don’t consider, there was a ton of crypto projects whose ICOs were subjected to time vesting. Time vesting don’t allign any incentives, doesn’t incentivize hodling, it doesn’t prevent dumps, it just delays them, as investors have just to wait for releases, and might realise profits or losses regardless of the price.
Finally, there could be no vesting or release schedule at all, where investors can dump at any price at any moment, as there is no counter-incentive to do so.
So, in the end, I don’t see why someone would think price vesting as worse than time vesting or no vesting at all. The only reason would be a blurry perception or plain ignorance.
More information:
Also read the full Economic White Paper
Follow Radix on twitter: https://twitter.com/RadixDLT
Come chat with us on Telegram: https://t.me/radix_dlt
