The rising adoption and use cases of cryptocurrencies and blockchain technology as the digital world enters the Web3 era has sprouted numerous projects with a variety of use cases. This growing trend also opened the need for capital to fund such projects, with founders and even individual community members exploring various fundraising options.
In the latest episode of ShuttleCast, the Founder and CEO of ShuttleOne, Zhuang offered the community advice on raising capital and how the business model of Web3 makes crypto fundraising an ideal option.
Crypto fundraising is like raising an investment, but here the funds will be crowdsourced in place of a select group of investors. Like any other fundraising, a positive outlook and profit-making opportunities play a major role in the campaign’s success. That’s why it is necessary to have a solid business model and robust tokenomics in place for convincing the community to invest in the project tokens.
Getting the Tokenomics Right
A word derived from the combination of two words “tokens” and “economics”, tokenomics refers to the total number of tokens and how these tokens derive, sustain, and appreciate in value. The following needs to be considered while designing the tokenomics for any Web3 project.
Token Utility is one of the important aspects of tokenomics as it decides how crucial a token is for the functioning of the project’ ecosystem. Any token that plays an important role in the operational capacity of the project’s products and tokens are always more valuable than those that are just created for the sake of raising funds.
As showcased by Ethereum early on, during its ICO, the token should be built into the project’s operations such that it has clearly defined roles and use cases in the ecosystem. By doing so, projects will be able to create value for Tokens holders as and when the project gains more traction.v
While tokens with product utility witness value addition, it is worth noting that the value of crypto tokens is derived by market forces. More demand translates to increased value while excess supply will lead to a drop in token value, negatively impacting token holders. Each project should factor their business model and the use cases for their tokens to decide on a supply and emission pattern.
The total token supply and emission(mint) pattern will signify the total number of tokens in circulation at all times. Minting tokens in a phased manner ensures that there are enough tokens at a desired price point always available for the community to hold and use on the platform.
However, the dynamic nature of the crypto market makes accurate prediction of supply and demand patterns almost impossible. While sudden increase in demand for the tokens can be met by minting more tokens, token burn mechanism addresses the scenario where the supply exceeds demand. Token burn is a process of removing a certain number of tokens from circulation to reduce supply and restore demand.
While minting and burning are active processes that alter the overall designated token supply, other DeFi options like staking can be implemented to encourage users to voluntarily lock tokens in their possession over a certain duration. By staking the tokens, users will be able to remove tokens from circulation or provide liquidity to products and services offered by the project while earning incentives in the process.
Useful in the early stages of the project, vesting tokens involves locking a share of the tokens in possession of certain user groups for a certain predefined duration. The locked tokens will be released once the underlying conditions like timeframe or milestones are satisfied. By vesting a portion of tokens over time, especially those of the creators and founders, the community can be assured of their commitment towards the project. It boosts the investors’ and users’ confidence in the project and in turn, the token’s performance in near future.
Cross-Chain Tokens and Bridges
Multichain compatibility is a need of the hour as it enables projects to cater to a much wider audience across different protocols. The interoperability between these siloed protocols is possible by implementing cross-chain tokens. The movement of tokens between these protocols is managed by bridges. To preserve the value and maintain accountability of tokens, the inter-chain bridges implemented by projects should ensure that the tokens aren’t replicated on both protocols during transfers. It can be achieved by incorporating smart contracts that utilizes burn-and-mint or lock-and-release mechanisms so that any token on the first protocol is effectively removed from circulation while issuing an equivalent on the other protocol.
A good example of a cross-chain bridge following the lock-and release concept is the ShuttleOne Metachain bridge. It is a smart contract driven, two-way bridge that is quite different from other available bridges. Unlike other bridges that connect between two protocols, the Metachain bridge can establish cross-chain communication and transaction infrastructure between multiple supported blockchains. It further deviates from a few conventional bridges by utilizing separate smart contacts to store liquidity instead of holding within the bridge.
Why is Crypto Fundraising Ideal for Web3 and Not Web2 Projects?
The stark differences in the business models of Web2 and Web3 platforms makes crypto fundraising the best fit for the latter. The Web2 business model is designed around centralized platforms that enable users to create, share and consume content while interacting with other participants for free or at a cost. The stakeholders in these platforms are usually a handful of investors who stand to receive a share in any profits generated by the operation.
In contrast, the Web3 ecosystems utilize blockchain technology to operate as completely decentralized platforms with no middlemen or intermediaries. With almost all the actions on these platforms are driven by crypto tokens, the value of these tokens is directly correlated to demand and their potential utility on the platform. All users owning the token to interact with the platform are actual stakeholders and any resulting value generated by the platform translates directly to the token price and benefits the token holders.
Both models also have their own sets of pros and cons. The development and operations of Web2 platforms are a lot easier as they are centralized, but at the same time they lack transparency and users are never in control of the data they generate on the platform. With Web3 platforms, users benefit from transparency, security, data ownership and privacy. But the current Web3 ecosystem faces issues of fragmentation due to the siloed nature of different blockchains, and there is a need for more skilled people and tools who can develop efficient, truly multichain Web3 projects.
The use of blockchain technology and crypto tokens for interactions on Web3 platforms makes it easier for projects to opt for crypto fundraising. The utility tokens of these projects, backed by bulletproof tokenomics can be used as instruments to raise capital, and gain community support. Meanwhile, the tokenholders stand to benefit from the project’s success as their initial investment continues to grow with the token’s value.
On ShuttleCast, mentioning some of the challenges in crypto fundraising, Zhuang said, “Some limitations for fundraising through crypto includes lack of awareness as not enough people know about cryptocurrencies and there aren’t many creative tools that reduces friction that exist between non-crypto users and crypto-based Web3 platforms.”
$SZO: A Good Example of Token Utility
By taking ShuttleOne as an example, Zhuang explains how the project’s native $SZO has managed to get its tokenomics right, so that it can add value to all network participants. The three-year old company with significant track record and experience in the sector has created $SZO about a year ago as a multichain token. $SZO powers ShuttleOne’s initiative to support multichain dApps through its universal two-way cross-chain bridge powered Metachain solution. The utility of $SZO stretches across the entire ShuttleOne ecosystem on all the supported blockchains as the universal medium for transactions.
As a cross-chain token, $SZO is accessible and easily tradable across multiple DEXs. The project has a cap of 230,000,000 tokens and is an inflationary token with 5% once supply is reached and a reliable burn and mint mechanism in place to regulate its supply. Meanwhile, the cross-chain movement of $SZO token over the Metachain bridge follows a lock-and-release mechanism where $SZOs from one chain is locked into the smart contract before releasing an equivalent in previous locked tokens to the other protocol. By doing so, ShuttleOne ensures that there is no double minting on tokens across currently supported Ethereum, Binance Smart Chain and Tezos networks.
“The utilities of $SZO includes its listing on multiple DEXs, cross-chain compatibility and the fact that we [ShuttleOne] have been around for the past 3 years, whereas $SZO has been live for more than a year. The utility [of $SZO] is baked into our products, such that people using our remittance app don’t ever realize that they are interacting with tokens over a blockchain based system. Even the burn and mint mechanisms, how we reduce token volumes and hard cap etc., are all built into our ecosystem. The use of $SZO will only expand, especially with a great product coming up in mid-April,” said Zhuang
The ShuttleOne Metachain ecosystem provides all the necessary tools for the developer community to create blockchain agnostic cross-chain compatible platforms and tokens. The combination of developer tools, multichain Shuttle Wallet and a robust universal two-way Metachain bridge connecting multiple protocols enables seamless interaction across chains for the users.
As a project making multichain ecosystems a reality, ShuttleOne has a huge potential to improve the blockchain industry, while the solid tokenomics inspire confidence in the community. ShuttleOne’s solutions are open to all, anyone interested in creating their own cross-chain tokens with the Metachain just have to reach out and the team is ready to help turn their idea into a reality.
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