Why Understanding Token Utility Is Key to Finding Real Value

It feels a little like the heady days of the ICO boom of 2017/18 again with the rise of meme tokens, which have captured crypto investor’s attention following DogeCoin’s 14,000% rise in value in the first six months of 2021. Back in the ICO boom scores of crypto projects backed by little more than whitepapers and a compelling story pulled in newbie investors keen to benefit from the spectacular gains on offer. When the ICO market collapsed, and the lack of any real utility for most of these tokens became clear, as well as leaving people out of pocket it also left a question mark over the long-term value of crypto ventures.

With the rise of meme tokens the importance of establishing real utility is even more important in 2021, not just for meme coin projects, but also for the wider crypto and blockchain industry. For the crypto investor, faced with an overload of token listings, how do you find the hidden gem rather than fall for a dud, whether a new meme token or an innovative blockchain project? “Some things are clearly legitimate, and some things are clearly bullshit, and there’s also this long tail of things that are a little bit confusing,” said billionaire entrepreneur Sam Bankman-Fried, the head of Alameda Research and the FTX cryptocurrency derivatives exchange in a recent Vox article. “In this financial environment, sometimes just a token with a meme or a stock with a meme or an asset with a meme is enough to get a $20 billion valuation.”

Luke Stokes, Managing Director for the Foundation for Interwallet Operability, pointed out the challenge in finding utility and thus getting in early on a crypto project: “Projects like ChainLink, Polkadot, Cardano, EOS, BitcoinCash, XRP, Stellar, and more are backed by billions of dollars of market cap with billions of dollars in liquidity. You can argue, to various degrees, they are innovating and providing solutions in ways investors (actual investors) believe bitcoin and second layer bitcoin solutions currently cannot. Will these projects be around in 10 years? That’s the real question. Another important question is how to spot these projects before they reach the top 20 or so in marketcap.”

As a shorthand for how to spot a coin with real utility and real value, there are several common characteristics worth paying attention to, suggested Stokes. The first is to look at the team, what is their track record, do they have much experience or is their first venture. In such a new sector as meme coins this may not be easy to assess, but it’s still worth looking out for. Secondly, to review the product or service the crypto startup is looking to solve. In the case of meme coin DogeCola, the team not only took the initiative in launching the first crypto-backed cola drink but has also followed up with its first GameFi product, MoonAlley. “This is a great example of how meme coins are maturity, as they see the need to demonstrate real utility to users, and not some ‘pump and dump’ token. I think it’s just the start of an exciting phase of development in the crypto space, which harnesses the power of the meme community to real world projects, from consumer products to eco campaigns,” said BigONE chairman Anndy Lian. BigONE exchange was the first central exchange (CEX) to list DogeCola, in large part down to its understanding of the value of utility to its long-term prospects, confirmed Lian in an Investing.com article.

“Entering the cryptocurrency gaming industry…indicates that DogeCola is here to stay and aims to bring cryptocurrency into the traditional economy of the world,” the DogeCola team confirmed last month. When reviewing token value, it’s also worth reading the fine print too when considering the impact that its perceived utility can have on token price. For example, as the DogeCola’s website states: “Even though DogeCola DeFi/Crypto project is related to the brand, the token and the soft drink are not to be considered the same legal entity. DogeCola Token is made, managed, and maintained by a community of Devs in a decentralized way. DogeCola Trademark will be used from a different company aiming to connect crypto and real worlds.”

So, when looking for crypto projects worth investing in consider whether the token utility helps solve a real need for the customers, from consumer-facing gaming projects to more business-to-business propositions. In the rapidly emerging play-to-earn (GameFi) sector, the utility token often has value both as the crypto currency to reward the gaming community and to fund in-game transactions. Consider the rise of Axie Infinity, the hugely popular crypto gaming platform which runs on Ethereum, created by Vietnamese developer Sky Mavis. After generating more than $220 million in revenue in 30 days to the start of August, the play-to-earn game has its own in-game token, SLP, that can be sold on an exchange, with top players earning up to 1,500 SLPs a day. As a further revenue stream the game’s cute digital pets called Axies can be sold as a non-fungible token (NFT).

So where else should investors look for the long-term gains of utility, rather than a quick buck? Paddy Osborn, managing director of the London Academy of Trading, said it’s clear that crypto with utility offers far superior returns to coins with no intrinsic value or function. “The challenge,” adds Osborn, “is to identify these hidden gems within this very complex and fast-moving industry before their price gets too expensive”. A good starting point is that when looking at token utility, any evaluation must be set in a business context. CEO Mayande Walker, who’s blockchain startup OpenCT first emerged in the ICO boom days of 2017, agreed that explaining the role of token utility within the business is key to persuading investors. “When you look at the technical details of how our OpenCT protocol delivers data transport – it soon becomes clear just how dependent it is on a utility token to drive our VPN-killer product, the Private Crypto Network. But it’s also our experience working with governments and global carriers that goes a long way towards convincing would-be-investors and partners of the OCT token’s long-term value” he added.

For rising stars of the GameFi sector, or with fast-moving NFT projects it probably involves doing more in-depth research into the sector, as much as an individual project. If you are interested in more established token projects then the likes of ChainLink, Polkadot, Cardano, EOS, BitcoinCash, XRP, Stellar, and more are backed by billions of dollars of market cap with billions of dollars in liquidity. Also attracting attention is Solana, which despite outage issues since the beginning of August, the price of Solana has risen by more than 100%, making it the tenth largest cryptocurrency by market capitalization. In the Raconteur article Osborn highlights three other coins with real utility, he thinks are worth watching. “Polkadot is building a network that can support multiple different blockchains and enable them to work together. Internet Computer is aiming to disrupt the internet space by building a decentralized web platform that runs on a blockchain. And then there’s vechain, which helps companies track their products safely and securely through each stage of the supply chain,” he confirmed. Ultimately, it’s down to the individual investor to do their due diligence before parting with their hard-earned cash, whether to back a popular meme coin or invest in a lesser-known crypto startup’s token.

Article written for Anndy Lian. Published version on Programming Insider.

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