Does the money-making logic behind platform coins really make sense?

The money-making logic behind platform coins

When it comes to the hottest keyword in the cryptocurrency circle this year, we have to mention "platform coins". Platform coins, led by BNB, have emerged one after another in the past year. Just the names that can be called out, such as OKB, HT, BIX, ZB, CEO, etc., can be listed in a long list. Platform coins seem to have become the standard of the exchange ecosystem. However, the main reason why platform coins are so popular is that people make money by following them.

Legends of platform coins making people rich are not uncommon. In January this year, BNB experienced a surge in price, with its price tripling in just two weeks. If we look at its entire life cycle, this growth is even more astonishing - in less than a year, BNB has doubled a hundred times. In addition to BNB, platform coins such as OKB and HT have also achieved great success. Such brilliant achievements naturally attracted the attention of most people in the currency circle.

However, does the money-making logic behind these platform coins really make sense?

To answer this question, we need to discuss them separately, because the concept of each platform currency is different, and the money-making logic behind them is also different.

The concept of BNB is relatively simple and crude. The money-making logic behind it is somewhat similar to stock dividends. The money earned by users is closely related to the operating results of the exchange itself. To put it bluntly, holding BNB is like obtaining the exchange's dividend rights, which is equivalent to indirectly enjoying the exchange's profit sharing. So, how does the exchange do this? In fact, its implementation method also adheres to the simple and crude concept - that is, the repurchase mechanism. The exchange repurchases BNB with 20% of the quarterly profit every quarter and destroys it directly. Under the condition that the total capital disk remains unchanged, the number of coins decreases, and its price naturally rises.

OKB and HT are more complicated. Compared with the simple and crude model of stock dividends, although they also have the attributes of platform dividends, they are more like a board of directors' voting rights. Users directly participate in the decision-making of the entire exchange by holding OKB and HT, and the results of this decision will also be reflected in the future development of the exchange and the price of the currency. Therefore, relatively speaking, there are many more uncertain factors in the prices of OKB and HT, and their logic of making money is reflected in the overall awareness of the holders and the market trend.

The above-mentioned dark horses among the platform coins have been in the market for some time. Even though they have not yet reached the mature stage, they have gone through many tests and the logic behind them has been recognized by some people. The dark horse I will talk about next almost came out of nowhere and soared to the sky. However, the controversy surrounding it is also very huge, and even makes people suspect that it is a routine.

It is FCoin’s platform currency FT.

02

Standard or routine?

FT was only worth about 0.09 yuan when it opened, but it has soared to 7 yuan recently, which is more than 70 times the value. According to the transaction fee data on its official website, its daily trading volume once exceeded 200 billion yuan. Even if there may be some problems with the platform's volume manipulation, this data is still enough to beat many other currencies and become a strong dark horse in the currency circle. The reason why people are so popular with FT is to make money. So, what is the logic behind FT?

One of the main concepts of the platform currency FT from the beginning is "trading is mining". In short, the user's trading behavior is equivalent to mining, and the transaction fees generated during the transaction are 100% returned to the user through FT. At first glance, this is almost a large return of the profits that originally belonged to the exchange to the user, but things are actually far from that simple.

First, FT's transaction mining model does not have a hard cap, which means that users can enjoy platform currency rewards equal to transaction fees without restrictions. Secondly, FCoin's invitation friend reward program allows users to enjoy a 20% reward for the invitee's transaction fees within 90 days. This means that through certain account operations (such as one person opening two accounts to trade with each other), you can earn almost unlimited profits, and the huge transaction volume will continue to push up the coin price.

However, a little thought will show that this model is unsustainable.

There is no limit on mining, which means that the platform coins will be issued and unlocked in a very short time. It is conceivable that it is almost impossible to complete the ecological construction of the entire exchange in such a short time. Moreover, this snowball-like profit model requires a steady influx of funds to support the price of its platform coins. Once the inflow of funds is not enough to support the price of the coin, it is likely to cause a sharp drop in the price of the coin.

There is nothing wrong with the idea of ​​converting trading behavior into mining. It is an effective way for users to enjoy the growth dividends of the platform or the entire ecosystem. However, this reward model without a hard cap has attracted a large number of fake orders, making the market development unhealthy and unsustainable.

03

It’s not the platform currency that makes you money

Compared with FCoin's platform coin FT, platform coins like BNB, OKB and HT seem to be more reasonable in terms of model, but they also have many problems. For example, when faced with thefts from exchanges, hacker attacks, negative news, etc., the prices of these platform coins often fluctuate greatly, and the price trend charts are often shocking.

From the above cases, it is not difficult to summarize an obvious truth, that is - what makes you make money is not the platform currency, but the growth of the platform/ecosystem itself.

Without the platform or ecosystem, the platform currency has no meaning of existence. The problems faced by the platform currency are exactly the problems faced by the platform or ecosystem itself.

After thinking about it, these problems actually mainly come from the centralized nature of the exchange, the mining model of the platform currency, the overall ecological construction and other aspects.

The platform coins issued by centralized exchanges are naturally centralized. Most platform coin data is not on the chain, resulting in a serious lack of transparency, which greatly increases the risk of hacker attacks and market manipulation. Moreover, most centralized trading platforms currently assume multiple roles such as asset auditing, transaction matching, transaction data custody, asset custody, system risk control, transaction clearing and settlement. It can almost be said that they are a combination of investment banks, exchanges, securities firms, custodian banks, and registration and settlement companies. As long as there is a problem in any link, it may cause irreparable losses. History has proved that the losses incurred by the platform will be directly reflected in the price of the platform coin.

The immature mining and reward model of platform coins will also become a major stumbling block for platform coins, and even directly affect the future potential of platform coins. The "trading is mining" model seems to be becoming a new outlet, with FCoin playing its cards, and platform coins of other exchanges following closely behind, with a tendency to follow suit. Even so, as mentioned above, no matter how novel the concept is, an immature and unsustainable mining model will still have a huge impact on the future of platform coins.

In fact, platform coins are equivalent to a tool for building an ecosystem. Even if this tool is very useful, if the ecosystem itself is not built properly, the platform coins will lose their usefulness and become a tool for speculation.

To sum up, if you want to truly build a valuable, sustainable and high-quality platform currency, the following are the essential elements:

1. Comply with blockchain thinking and achieve decentralization (data on-chain is basic)

2. Have a mature and logically self-consistent mining model

3. Ability to build a complete and healthy ecosystem

If the above three points can be achieved, then the platform currency will naturally have intrinsic value, and its logic of making money will make perfect sense regardless of whether it grows tenfold or a hundredfold in the end. So, are there any platforms/ecosystems on the market that can do this?

Unfortunately, at least for now, such a platform/ecosystem does not exist.

However, there is indeed such a project that is rising to the challenge and is trying to achieve the above three points. It is DAEX (daex.io).

04

Liquidation is Mining

Speaking of DAEX, some people may not know much about it. This project rarely hypes itself and seems to have always maintained a low-key attitude. However, from its official white paper, we can see the pragmatism and rigor rarely seen in the industry. They really seem to want to implement the concept of "distributed digital asset clearing ecosystem".

In order to build such an ecosystem, DAEX's approach is to layer trading, clearing and custody, and minimize the risks faced by exchanges due to centralization through a unique clearing chain and wallet system. For those who are more familiar with the financial industry, I believe this approach is not unfamiliar, because China's early securities industry has undergone such an evolution. At that time, since the assets of customers were held in the hands of brokers, brokers were able to dispose of customers' assets at will, and many incidents of customer assets being misappropriated by brokers occurred. In the end, many brokers were forced to close because they could not repay customer assets. It was not until the CSRC implemented third-party asset custody that the phenomenon of customer assets being misappropriated by brokers was stopped. In this way, DAEX actually pushed forward the form of existence that the exchange should have.

In the concept of DAEX, a very critical point is the mining model of "liquidation is mining", which was proposed by the DAEX team long before the concept of "trading is mining" became popular in the industry. It also went a step further, through the liquidation value factor, ASPOS consensus, mining income halving and other mechanisms, to ensure the sustainability of the mining model and the entire ecosystem. Participants in the DAEX ecosystem, including individuals, exchanges and institutional users, can obtain certain mining rewards by contributing to the clearing and accounting ecosystem.

In short, if "trading is mining" means returning the profits of the exchange to the users, then "liquidation is mining" goes a step further and returns the profits of the entire trading ecosystem to the users.

In this case, the ecosystem seems to be the key to DAEX's future development. After a series of evidence collection, we found that DAEX has indeed put a lot of effort into building the ecosystem.

On the one hand, DAEX has established DAEX FUND (Distributed Trading and Clearing Fund), grasping the investment logic of blockchain 3.0 and leveraging its strengths. In the future, it will focus on distributed exchanges, wallets, cross-chain, asset management and other track investments, and make due contributions to industry compliance. In the first phase, the DAEX Foundation will take out 100 million DAX and ETH capital, and work with major investment institutions to jointly build a healthy digital asset trading ecosystem. The cooperative investment institutions include Lede Capital, JRR, Quantum Chain Foundation, J One Capital, ChainPE, Eight Dimension Capital, InnoNext, Leiying Technology, Haru Capital and other institutions with rich investment experience in vertical segments such as blockchain exchanges and wallets.

On the other hand, DAEX has provided trading and clearing technology services to many exchanges. It has also established strategic relationships with blockchain ecological security companies and communities, law firms, and DRC risk control platforms such as SlowMist Technology. Exchanges invested and strategically supported by DAEX Fund will also become the first trading platforms to use DAX tokens as a clearing medium and platform currency technology blueprint.

From the background of the project to the technical implementation, from the construction of a complete ecosystem to the establishment of an economic model and the planning of the project route, we can see that DAEX has fully considered all aspects and strived to make the project realistic and feasible. If we were to ask who is the most suitable underlying public chain for platform coins at this stage, we would undoubtedly recommend DAEX.

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