We get a lot of questions that come down to — why should I care about Ferrum? What is your unique value proposition? How are you different than the other projects out there?
We would like to address those questions head on, identify the problems we see in the utility token market, and explain how we are solving those problems.
From our standpoint, the utility token market is plagued with three primary problems: 1) a lack of fundamentals/utility; 2) extreme overvaluation; and 3) a failure to tie the value of the token its utility.
Problem 1: A Lack of Fundamentals and the “Field of Dreams” Approach
Fundamentals are an interesting concept in ICO space. In traditional tech, fundamentals consist of users and revenue. However, those elements are usually irrelevant to a token purchaser because their returns are not based on the project’s revenue, but rather whether the token has any utility. But achieving true utility is a monumental challenge. How do you get people or entities to use your token when the competition is fierce and crypto remains a niche industry?
There are three main solutions to the challenge of utility. One “solution” is to ignore it entirely and rely on hype, speculation and marketing. This is the route many projects take because it was historically the easiest. Building a flashy website with buzz words and paying famous advisors is a lot easier than building a network and getting people to use it. However, this strategy is becoming less and less effective as investors have realized that this approach is not sustainable. While pure hype-based returns are still possible, especially if the project does an IEO, they are still incredibly risky, and are definitely not suitable for anyone with a longer time horizon.
The second option is what I call the “Field of Dreams” approach, derived from the famous quote: “if you build it, he will come”. You see this approach being taken by many of the high caliber projects, which already have a working prototype or product, and a reasonable marketing plan to acquire users or customers. They just need people to come to the network and start using it.
To be clear, I have no issues with this approach since all start-ups were in this stage at one point or another. The problem here is two-fold: 1) the valuation is almost always too high considering the lack of traction; 2) the vast majority of the time, no one comes.
Take “Ethereum killers”, how many are there? Probably hundreds of projects that claimed they had solved the speed and scalability problems of the Ethereum network. Many of them probably even built those high-speed, super cool networks with all the bells and whistles. The problem? No one cared enough to switch from Ethereum. With limited exceptions, most of these tokens have zero utility and hence zero intrinsic or fundamental value.
But there is a 3rd way…
Ferrum’s Solution: Launch with Utility on Day 1 Main Net Based on Existing Products and Users
Instead of building a network and hoping people will come, why not acquire users first, and then migrate them onto the network?
This is the Ferrum Network approach: build products that solve real-world problems, acquire users for those products, then migrate those products and users onto the main net. The result? Immediate network utility on day 1 of main net launch.
Take Kudi Exchange for example. Kudi Exchange is a fiat gateway in Africa with existing users and daily transactions. It’s like the Coinbase + Venmo of Africa. Because Kudi solves real-world problems in terms of money transmission and buying/selling cryptocurrencies, it is growing quickly and user engagement is high.
How does this relate to the utility of the token? Currently, Kudi is running on a private network. However, when the main net goes live in 2020, Kudi Exchange will be migrated onto the Ferrum main net. All those transactions will become Ferrum Network transactions and require the FRM token as “gas”, meaning that the FRM token will have utility on day 1 of main net.
In other words, we did not just build a network and hope others will use it. We built our own products to run on top of the network and acquired users for those products, before the public sale. The result? Purchasers have “de-risked” to a much greater on the grounds that FRM will have utility on main net launch.
Quick final note: just because we built our own products to run on Ferrum Network does not mean we are closed source or don’t want others to build on top of Ferrum Network. Quite the opposite. We have allocated partnership tokens to help incentivize others to build on our network when it is launched…
The Second Problem: Overvaluation
Closely related to the lack of fundamentals is the issue of overvaluation. Put simply, the vast majority of projects have an initial valuation that is not supported by the fundamentals, which means they are significantly overvalued.
We acknowledge that investing in early stage tech companies involves an inherent degree of speculation. But it is completely unjustifiable to raise millions of dollars on an idea or a network/product with little or no traction. Even with a successful marketing campaign and lots of “hype”, an excessive and unjustifiable valuation is bound to disappoint.
Ferrum Network Solution: Only Raise What You Need
Many were surprised by our hard cap of 1.12 million and believed we could have raised more. It’s true we could have raised more. I spend a portion of everyday turning away potential purchasers. But its equally true that raising more would have hurt the project and community in the long term.
In our third Metrics Series Article “Our Low Cap Explained” we explain the reasoning behind our low cap. Fundamentally it boils down to the fact that excessive valuations are harmful; we did not need more than that to achieve our roadmap goals; and we have developed the Traction Based Reserve to access more capital in the future so long as our network gains traction and FRM is being spent and burned.
Problem 3: Failure to Connect the Utility of the Token to Its Value
Even if a project has traction and the token has a real use case, there is often a disconnect between the value of the token and its utility. Similarly, you sometimes see successful companies issue a token, but fail to connect the value of the company to the token.
An extreme example is when companies launch a token that is completely unnecessary but the purchaser assumes that because the company has users and customers, the token will also succeed. The truth is many companies do not need a token and would be better off rewarding people in their ecosystem with fiat money. Whenever you encounter an existing company that decided to issue a token, the question should be: “yes you are successful, but are your customer’s using your token?”
Similarly, there are limited instances where the token has utility but project did not adequately tie that utility to its value, so the asset remains extremely speculative.
In my view, it is extremely rare to see a project successfully tie its utility to its value…Binance and BNB is probably the most prominent example of what happens when utility and value truly come together.
The Ferrum Network Solution: Connect Utility to Token Burns
One notable aspect of the FRM token is that whenever it is spent it is burned. As the “gas” of the network, users must spend FRM to run transactions on the network. Sending a BTC over the Ferrum Network network? This will cost about 1 cent worth of FRM, which will be burned in the process (not to mention executes in milliseconds because it is running on Ferrum’s DAG).
Our forecasting models indicate that our African users alone can account for thousands of daily transactions by the time the main net is launched…Therefore, additional token utility is directly connected to an ever decreasing supply.
Beyond transaction burns, we are developing other means for driving utility and value. For example, we have implemented Social Mining to reward our community for adding value to Ferrum in the form of organic and community driven marketing/engagement.
And we are developing an economic burning system where those who run applications on top of Ferrum Network also contribute to the token utility and token burning (details on Economic Burning to be released later).
The world of utility tokens is rife with challenges. Chief among them is achieving actual utility, not overvaluing yourself, and tying the value of the token to its utility. Achieving all three is difficult, but not impossible.
With Ferrum Network, our goal is to remove unnecessary risks from purchasers, and do everything we can to build a sustainable, virtuous ecosystem, where people are not only using our products, but are also creating inherent utility and value in the token.
We hope you enjoyed this article. Please stay tuned for more updates on this subject as we reveal more information on our token ecosystem such as staking rewards.
Very Truly Yours,
The Ferrum Network Team
Bitcoin Talk: http://bitcointalk.ferrum.network
Why Ferrum is Different: The Utility and Value of the FRM Token was originally published in FerrumNetwork on Medium, where people are continuing the conversation by highlighting and responding to this story.