In a previous article I wrote about a possible valuation method for so-called utility tokens and used ivy’s token as a case study. Since writing that article, further information has been provided by ivy regarding its token mechanics. Here, I will discuss the new information and share my personal interpretation of what it might mean.
In crypto land it is very common for the team members, advisors and certain types of large investors to be subject to vesting schedules in respect of their token entitlements. This is otherwise known as a ‘lock up’. Ivy seemed to have taken a different approach and did state that ‘while some management will have vesting periods, by and large there are no lock ups or material vesting periods. Nearly the entire circulating supply is free float’. However, it is now asserted that ‘milestone mechanisms and vesting schedules (are) in place for management and other large holders of tokens’. This seems to be rather a different statement of position and deserves fuller explanation. This is especially relevant in respect of Change Financial, being a significant shareholder in ivyKoin LLC and possibly the largest direct holder of tokens. A lock up would provide support for the token market price by reducing circulating supply.
Part 6 of the whitepaper states that on completion of a (payment) transfer, one of the options for dealing with the IVYA returned to the ivyKoin Network is for the tokens to be burned. This would have the effect of reducing circulating supply and would be supportive of the token market price. However, ivy has now stated that burning is not contemplated.
Initial Market Opportunity
The team was understandably reluctant to share any thoughts it may have regarding its likely market penetration over time (i.e. market share). However, it was disappointing not to learn more about the specific nature of the initial market to be targeted. I would imagine that there has been significant research undertaken to quantify the opportunity identified.
The whitepaper describes the magnitude of the value of all global payments by financial institutions. It is certainly an eye-catching number, but how does it relate to the opportunity for ivyKoin? In my previous article I assumed that fiat to fiat B2B cross border payments would be a primary initial target. However, on re-reading the whitepaper, there does seem to be a greater emphasis on facilitation of transfers involving cryptocurrency. Perhaps the ambition is to initially roll out cryptocurrency to fiat payments and then to naturally gravitate to fiat to fiat payments? If that is the case, then the opportunity will be smaller in the early days, given cryptocurrency’s nascent state.
The ivy Influence
One aspect of token mechanics that warrants closer consideration is the role of ivyKoin Network itself.
Ivy Interface and Convenience of Purchase
Ivy plans to develop an interface/portal which will allow participants (senders and receivers of payments) to set up an account, populate KYC data fields, view IVYA token to cryptocurrency rates of exchange, purchase IVYA tokens and send payments. Senders also have the option of purchasing IVYA tokens in the market (at public exchanges). However, senders will still need to access their accounts to effect payments, possibly needing to add relevant KYT data for the specific payment.
If there is little or no difference between the open market rate and the ivyKoin Network rate of exchange, then it is reasonable to assume that senders will prefer to use a one-stop shop (i.e. ivyKoin Network). However, it may be that the cryptocurrencies initially to be offered for exchange by ivyKoin Network will be limited to a few of the larger ones (e.g. BTC, ETH, LTC), where hedging might be reasonably effective. Hedging will be important to ivy, given its pledge to hold quotes firm for a minimum period, albeit within an agreed volatility band. This would mean that those wishing to use other cryptocurrencies for payments would first need to convert them into another cryptocurrency for which there existed a trading pair. Either way, the majority of IVYA transactions might end up being executed on the ivyKoin Network rather than on public exchanges.
Liquidity and ivyKoin Treasury Operations
Once ivy gains traction the demand for IVYA will increase. This may be exponential, depending on uptake. Liquidity of the token will therefore be of paramount importance. Given the convenience described earlier, it is quite likely that ivyKoin Network will be the single largest source of token liquidity. It is quite possible that there will also be decent liquidity offered on one or more public exchanges. However, for that to be the case would require committed market makers, together with some form of monetary policy from ivyKoin. Here it is important to consider what happens to IVYA once a payment is successfully completed. All such tokens return to ivyKoin Network, where it is then decided whether to sell them ‘on secondary markets or on the Company’s website for either cash or third-party cryptocurrency’. It is quite possible that many of the IVYA tokens managed via ivyKoin Network will simply be recirculated within the Network.
I was hoping to write an article in which I might revisit and refine my valuation model. However, ivyKoin seems to be at such an early stage in its development that many important aspects of its business model are yet to be discerned, let alone validated and made public. That is perfectly normal for a start up. So, I have confined myself here to considering a few points that I believe have merit and may have influence on token market price, which is itself a reflection of perceived value.
The matter of vesting schedules should be clarified. The disposition of Change Financial towards its token holding and/or any lock ups that it is subject to are particularly relevant. As to its market operations, it may well be that ivy is considering how it will manage monetary policy to achieve the twin outcomes of required token liquidity and satisfied token holders. I am sure that this activity is likely to be highly influential on token market price and it would be good to hear the team’s thoughts, when formed.
As always with new ventures, there are more questions than answers. There is no doubt that ivy is planning to play in a very interesting space and one that has tremendous potential. Doubtless more information will be forthcoming over time and things will become clearer. Until then, one can only speculate.
Disclaimer: This article expresses my personal views on the subject matter and is not intended as investment advice of any kind or a recommendation to buy or sell any cryptocurrency.