I’ve been thinking, reading and posting a lot about utility tokens. I have a few new thoughts, which I think have not been brought up in the literature.
The number one factor driving any utility token is number of people using it
A lot of people thinking about utility token models argue about token models in a scale independent way. But scale itself actually does matter. If a token has a thousand users, no matter how useful it is in the token eco-system, it will be completely unknown outside the token eco-system. On the other hand, if a token has 5 million users (like ethereum currently), then the chance of some person in the overall crypto space having heard of it is very high. That means it will have some perceived value to the larger community, outside of its core use.
This behavior is self re-enforcing. As the token gets bigger, exchanges adopt it, making it more useful as a store of value. Even if the initial use was very specific (example: FileCoin used for storing data), it can then switch to having a completely different use (buying a cup of coffee).
Ability to easily give and receive tokens at low commissions and quickly is key.
Again, even if a coin is intended for a very specific use, the ability to give the coin easily (think venmo) is a great way of growing usage. A coin that requires an entirely separate wallet / infrastructure / login has more speed bumps that a coin that can be instant messaged to a person in a telegram group.
Fees and speed also matter — a lot. People will send LTC instead of BTC just because its cheaper and faster. That’s it. 7 Billion dollars of market cap, with very little code DNA difference.
We’re definitely thinking along these lines with WorkCoin. I am aware of a few people who are ruminating around these ideas, but I haven’t seen anybody isolate sending and receiving.
Staking is very important. This needs to be explicitly built into use case.
My favorite example here is STEEM / Steem Power. By requiring people to lock in their STEEM in order to vote, and thereby earn more Steem, the model discourages selling, and in fact encourages buying in order to “compound”.
On the surface this looks a bit odd. What if you had a crypto currency that paid 2% a month in its own cryptocurrency as interest? Is that a Ponzi scheme? Not really. Many actual currencies need to hike interest rates to double digits in order to attract capital. In the US, under Paul Volker, Fed Funds rates hit 20% in 1980. Hard for millenials to comprehend, but I remember it. Interest rates are used by every single central bank in the world. Why not in Crypto when prices are down?
Eco-systems are important, but maybe more for PR than anything else.
At the present time, the crypto world is obsessed with nascent blockchain infrastructure projects like EOS and HashGraph. The thinking here is that these projects will cause mass adoption as apps are built on top of these projects and generate demand for the currency. I would say the jury is out on this. Is ETH worth billions because of demand for ETH for gas within the ETH ecosystem? Unclear. A very small amount of ETH is required to make and operate an ERC-20 token. On the other hand everybody knows about ETH. A token that everybody knows about is likely to be accumulated, or accepted for payment. If anybody has data on the impact of this secondary use case versus the “primary” I am all ears.