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Tokenomics

2018-07-04 11:44:33.0


A token is a unit of value issued by a private entity, according to BBVA. “Within a private network, a token can be used to grant a right, to pay for a job or to transfer data, as an incentive, as a gateway to extra services or a better user experience’.

Yet, as we are only at the very early stage of tokenization, there are many pending questions regarding the meaning and the utility of these modern finance instruments.


Coin versus token
Before we start, we would like to clarify one thing. Both coins and tokens are cryptocurrencies, yet not all of them are used as ‘currencies’.
For many, an electronic coin should at least serve one specific purpose: online payments. A token on the other hand is anything other than a coin.

In addition, what differentiates a token from a coin is the blockchain they rely on.

Digital coins run on their own blockchain, while tokens are created on existing blockchains. Therefore, to create a token, one should often use the native coin of the utilized blockchain.

The most famous cryptocurrencies such as Bitcoin, Bitcoin Cash, Ether, Ripple and Litecoin are coins. As everyone knows, they are most commonly used for transferring monetary value, although some of them could be used for social media posts (Bitcoin Cash), online gaming (Ether) and more.

Tokens on the other hand are used for a multitude of different purposes that we will discuss in detail through this article.


How to create a token?
While creating a coin requires a set of technical competences, creating a new token is very simple; only basic computing skills or knowledge are required for creating one. It is indeed so simple that a person familiar with the subject could create his or her own token in less than thirty minutes.

Ethereum is the most commonly used blockchain for token creation. A clear majority of tokens operate on Ethereum’s blockchain.
You may have heard of ERC-20 protocol. Well, it is simply a type of token based on a list of characteristics that need to be determined in order to operate on Ethereum’s blockchain. It includes the total supply function to determine the maximum number of tokens that will be made available for trading, a cryptocurrency account/address which is generally the one of the ICO’s (initial coin offering) owner, transfer functions to determine how tokens will be traded between users and verification functions to finalize transactions.

Recently, Ethereum has also launched ERC-1155, aiming to provide a technical basis for online gaming dapps. 

We will not provide more details on how to create a token. For those who are interested, it exists a large library of simple guides on internet.
Our point is, it is not difficult to launch a token, the tricky part is to make a token valuable.

Why would individuals buy and hold tokens?


Why do tokens have value?
Many understand why a digital asset for exchanging monetary value is worthy. But, we could also argue that only a couple of them would be large enough to make global transactions.

So, why would there be a need for tokens to be created? Because as mentioned earlier in this article, tokens are not used for monetary transactions only.

They could be used on various decentralized applications, called Dapps, including e-commerce, logistics, online gaming, social networking and many more fields.

They could stand for physical objects. Say, you want to sell your bicycle on internet. You could create a token that stands for your bicycle. The transaction could be made through a smart contract.

They could also offer their holders some advantages similar to membership-like rewards. To illustrate the latter, we will take a concrete example: MDP.



MBAex Digital Pass
MBAex has launched its own token MBAex Digital Pass (MDP) on June 29th. The MDP trade zone, where MDP tokens will be used as base currency and could be traded against major cryptocurrencies, is on its way.

The market reaction was overly satisfactory; MDP tokens rose steadily and were exchanged at $3.49 on Monday, July 2, significantly higher compared with the opening price of $0.16.

Technically, MDP is an ERC-20 standard token based on the Ethereum’s highly secured blockchain. Though, MBAex is building a Consortium Blockchain Ecosystem, where MDP will then become the coin of its own environment.

Why is it tempting to trade and invest in MDP? Because, it allows,
- traders to operate on the MBAex platform with advantageous prices,
- business partners to benefit from numerous corporate services, such as discounts on transactions, business advertising fees and VIP user services. This means, there is demand.

The current amount in circulation is 660 million units. The tokens will be purged after use and considered a member fee. Hence, MDP’s price is expected to rise gradually over time, as it becomes rare.

In addition, MDP tokens should also benefit from a stable demand from medium to long-term investors, especially in expectation of the first decentralized trading platform that MBAex is preparing to launch.


In summary
The bottom line is that the underlying activities and projects determine whether a token is valuable.

In theory, millions of tokens could coexist. This is comparable to the stock markets. Each token has specific underlying characteristics and they are certainly not interchangeable.

The most difficult task for crypto-investors is to choose the right crypto-investments among thousands of tokens available on the market and avoid the ones that have little to offer in them.



Ipek Ozkardeskaya
Senior Market Analyst
MBAex Analyst