In an age where ICOs are the rage and everybody with an idea is rushing to the market to sell tokens and raise money, have you wondered why OpenBazaar doesn’t have a token yet?
A recent phenomenon has been the rise of initial coin offerings (ICOs) to fund the development of new ideas, based on the Blockchain. These ICOs (or tokens) help the sponsors of a project to fund its development.
Of late, there has been a large number of ICOs with questionable ideas/backers who have raised funds. Investors rush to buy these tokens because of the opportunity to make profits once these tokens are listed on exchanges and increase in price.
The huge amount of money raised by ICOs is currently under the scrutiny of regulators. The SEC is looking into ICOs and if it decides that these tokens constitute securities, it could lead to a lot more oversight/regulation of these tokens. Currently, there are no disclosure norms followed by ICOs and tokens can be sold to anybody without restrictions. If there indeed is a regulatory crackdown, the market for these tokens would disappear overnight and there would be a huge price correction.
OpenBazaar token? Not anytime soon
OpenBazaar doesn’t need a token to work. It is a protocol, using software to connect people and help them trade without a middleman. It works perfectly well and is able to reach a wider audience with the help of Bitcoins.
Using a token would actually restrict its user base and would increase the barriers to entry. While OpenBazaar is looking to add support for other cryptocurrencies and increase its user base, having a token just for OpenBazaar would be counterproductive.
Moreover, any regulatory restrictions on tokens would involve huge compliance costs and might require the protocol itself to be changed. While the possibility of OpenBazaar issuing tokens in the future is not ruled out completely, it is expected to happen only when the negatives highlighted have been resolved.
Frenzy is not forever
The ICO frenzy is not going to last forever. When there is a price correction and investors in these ICOs book losses, the irrational exuberance is going to end. Raising millions of dollars in a matter of hours for any conceivable idea is not going to be possible.
Companies could, however, raise money in stages, similar to the traditional equity market where there are initial public offerings and follow-on offerings.