[2018-8-23]Crypto Startups Are Destroying Millions of Coins & Investors Love it

[Portal_Network]

Throwing away revenue?

It might not make sense in conventional business, but don't tell that to crypto entrepreneurs. Indeed, for some projects, economist Joseph Schumpeter's notion of "creative destruction" is taking on a literal meaning in that they're actively destroying their own money supply – and generating value for investors in the process.

It's turning out to be an unexpected benefit of the initial coin offering (ICO) model, whereby startups and projects fuel and fund their projects with a scarce digital asset they create. In short, these projects can use the token to price their services, and then strategically alter the economics of the money supply to which they have a direct relationship.

To that end, burning tokens, or destroying the cryptographic keys to these assets so they can't ever be recovered, has proven to be a selling point for investors, with ICO white papers finding projects promising they will destroy new tokens as they return to the issuer as earnings. Essentially the ask is, if you buy our token now, these companies promise potential backers they'll trash them as they earn them back.

However unorthodox, one thing is clear: speculators appear to love the model.

Take Switzerland-based Eidoo, which just announced that it was burning 1 percent of the total supply of the EDO tokens it created when it did its ICO in November.

Its latest blog post reads: "The excellent news is that we will destroy 920,000.00 EDO tokens starting from August 31st. This means that we are going to permanently remove one percent of the total supply of EDO tokens."

Sure enough, EDO's price spiked nearly 40 percent shortly after the post above came out.

For Eidoo, this means it earned the tokens it created back as revenue from helping startups to run ICOs on its app. But since it isn't going about this process alone (the company says it has 200,000 users eager to get in on more sales), it's jettisoning a full half of the money it brought in by burning the tokens.

The twist is, Eidoo is a major holder of EDO tokens, meaning it's a win-win for the company and investors.

As Eidoo's Amelia Tomasicchio told CoinDesk:

"Burning 50 percent of our revenue is not really creating any loss for the company itself, but it is creating value for the entire EDO token holders."

See more:https://www.coindesk.com/crypto-startups-are-destroying-millions-of-coins-and-investors-love-it/

[1714534869]

1714534869

[1714534869]

1714534869

[1714534869]

1714534869

[AltEvangelist]

Had read a tweet on the token burning phenomemon. It provided a pretty balanced view on why burning only benefits the company and not ICO investors. Say, a project raised USD 10 million through ICO and has a total supply of 10 million tokens. ICO was only fund raise they did. Each token was sold for USD 1 during ICO. Price dips 50% after ICO i.e. each token is now worth USD 0.5. Company burns 10% of supply. Tokens are now worth USD 0.55. Company still has USD 10 mill. ICO investors are 45% poorer.
This is especially true in a bear market.

[odolvlobo]

Had read a tweet on the token burning phenomemon. It provided a pretty balanced view on why burning only benefits the company and not ICO investors. Say, a project raised USD 10 million through ICO and has a total supply of 10 million tokens. ICO was only fund raise they did. Each token was sold for USD 1 during ICO. Price dips 50% after ICO i.e. each token is now worth USD 0.5. Company burns 10% of supply. Tokens are now worth USD 0.55. Company still has USD 10 mill. ICO investors are 45% poorer.
This is especially true in a bear market.

Your analysis has problems. If the company burns 10%, then it must own 10%, and the burn increases the value of the coins.

The company holds $10 million plus 1 million coins (10%) valued at $0.50 each. The total value before the burn is $10.5 million. After the burn the company own 0 coins so its value is only $10 million. It lost $0.5 million in the burn.

Each coin that an investor owns is worth $0.50 before the burn and $0.55 after the burn. The burn increases the value of the investor's coins by 10%.

[dreamhouse]

just ICO tactics, can fool some people for a while, it does not change the fact many ICOs are worthless.

[AltEvangelist]

Had read a tweet on the token burning phenomemon. It provided a pretty balanced view on why burning only benefits the company and not ICO investors. Say, a project raised USD 10 million through ICO and has a total supply of 10 million tokens. ICO was only fund raise they did. Each token was sold for USD 1 during ICO. Price dips 50% after ICO i.e. each token is now worth USD 0.5. Company burns 10% of supply. Tokens are now worth USD 0.55. Company still has USD 10 mill. ICO investors are 45% poorer.
This is especially true in a bear market.

Your analysis has problems. If the company burns 10%, then it must own 10%, and the burn increases the value of the coins.

The company holds $10 million plus 1 million coins (10%) valued at $0.50 each. The total value before the burn is $10.5 million. After the burn the company own 0 coins so its value is only $10 million. It lost $0.5 million in the burn.

Each coin that an investor owns is worth $0.50 before the burn and $0.55 after the burn. The burn increases the value of the investor's coins by 10%.

Not my analysis. Quoting the tweet. But fair enough.
Also, investors lost 45% (since ICO). Incorrect to say they gained 10%.
Consider this.
Total Supply: 10 mill
ICO amt raised: USD 9 mill
Tokens released in ICO: 9 mill
Investors spent: USD 1/token
Post ICO dip: 50%
Company burns 1 mill
So they make USD (9 - 0.5) = USD 8.5 mill (reference point: since ICO)
Investors lost 45% (since ICO). Burn made them 10% richer. But they are overall 45% poorer.

Burn is definitely a temporary relief. But overall, it still keeps the investor in the red.

Looking for the tweet. Will post it here if I find it