Digital Tokens Economic Model and Self-Imposed Price Ceilings

Autonomous Next has modelled the increasingly popular market for digital tokens to show how Blockchain start-ups are responding to excessive funding. Digital tokens are a form of crypto-currency released during a new method of crowd-funding known as Initial Coin Offerings (ICO). The price of digital tokens during ICOs is determined by supply and demand with current demand being insensitive to price. Our view is that a high demand for tokens is leading to excessive funds being raised for unproven projects that should be at seed stage. These irregular outcomes show similarities to the Dotcom bubble and have forced start-ups to show signs of constraining supply or demand in order to avoid negative backlash. As a result, a large number of start-ups have experimented with limiting supply and initiating auctions. Our chart shows a popular incremental solution where a self-imposed price ceiling creates a gap between supply and demand. Upon starting the ICO, this self-restriction is often relaxed by companies to raise a vast amount of capital in a short time period.