Some ICOs show great promise. The cryptocurrency space is bursting with great technological innovations. We don’t mean to disparage cryptocurrency technology and its possibilities; in fact, we believe there is a lot of potential. KorroBox is trying to be as modular as possible to take advantage of any technology that will help our players and developers.
Initial Coin Offerings, or ICOs, are an unregulated means by which funds are raised for a new cryptocurrency venture. As the popularity of ICOs rise, so does the scrutiny around them. Some ICOs have proven to be thinly veiled scams, dominating the negative headlines around cryptocurrency. However, there are still major problems with the economies of coin offerings even if the companies behind them deliver on their promises. This article will highlight problems with industry-specific coins, specifically using the video game industry as an example.
Price Fluctuation: Rising & Declining
A high percentage of video game industry revenue is individual game releases, which leads to economic problems. Let’s say a game company just finished developing their game and hopes to have a successful release. To reduce costs, they opt to distribute on a platform that uses its own ICO’d coin —we’ll simply call the coin “GameBucks.”
If the game’s marketing is successful, there will be hype around the release, and gamers will want to play the game as soon as it goes live. In this scenario, many gamers will likely purchase GameBucks before the game is available for sale.
At this point, the only change from the hype is an increase in demand for GameBucks itself. Because GameBucks is in a niche market, this new demand has a large impact on coins being bought relative to people looking to sell GameBucks, causing its price to rise. When the game becomes available for purchase, there may be another spike in demand for GameBucks as gamers who don’t already own any of the currency rush to exchange enough to purchase the newly released game.
Eventually, the developer will also start selling GameBucks they are accruing from the players buying their game. This is necessary to recoup dev costs, pay employees, and fund future projects. There may be a healthy period while the developer cashing out equalizes with some players still coming in, but inevitably the developer will have to cash out after the purchases. As the value fluctuates and demand for the coin goes down, the dollar value that the developer sells the GameBucks at will be lower on average than what the game was sold for.
It Gets Worse
Price movements aren’t always this clean, but developers are clearly on the wrong end of the buy and sell timing. Any systematic delay in the developer being able to cash out or player purchasing with their GameBucks will make these effects even worse. This includes:
- Bulk payouts with any amount of delay
- Extra expenses during the hype period such as paying influencers with GameBucks for referrals or other marketing paid out with GameBucks. These costs will be paid out to generate hype, which will cause the price to rise in the first place.
These effects become even more pronounced if market manipulators get involved and learn how to manipulate prices around releases. Any value gained by market manipulators will be value that players and developers are losing out on. The above example is also a best case scenario example of successful marketing campaign and release. This problem still holds true even if the GameBucks economy were larger. If any popular game is released on the GameBucks platform, that game would heavily influence the value of GameBucks.
The risk is even worse for indie developers. If a Triple A studio is using GameBucks as well, they will have more influence over the underlying price of GameBucks than an indie studio. Indie developers have the potential to fall on the wrong side of price fluctuations.
Problems with Liquidity
If GameBucks is only available on smaller exchanges or spread out on too many exchanges, developers will need to cash out through multiple exchanges (as to not crash markets on any singular exchange). Many of these exchanges have little to no fiat options, which adds an additional layer to the already complex process. This creates a very complicated situation and increases the risk for developers to realize their profits.
Feasibility of GameBucks
You’re probably asking yourself why developers would participate in this. Well, the answer is they probably won’t. As we were gathering information from industry finance experts during the R&D phase of our game distribution platform, it quickly became clear that this type of external risk was way too high.
But the blockchain has such a great synergy with the video game industry and many other industries that share these patterns. There is so much potential for innovation here, but how do we fix this ICO issue?
It’s simple: sell assets with a cryptocurrency that is diversified across industries with large trading volumes where the effect of a few players or a single product is much less pronounced. At KorroBox, we chose Ethereum (ETH) to start out with because it’s both a large cryptocurrency and it’s a great fit for us to list game assets on. In our roadmap, we have plans to build out other cryptocurrency payment options. Any of of the future options must have the following properties:
- Diversified enough that price volatility will not be affected by game release cycles
- Quick & easy to exchange into their country’s currency (aka fiat)
- Decentralized enough to not have to worry about trusting an external entity
- Easy to use without special software or technical knowledge
Many coins offered in game industry ICOs have at most one of these properties.
For the reasons above, KorroBox decided to opt out of the ICO model and create a dApp to drive adoption and create a sustainable ecosystem. Please visit our website at korrobox.com to read our whitepaper and join our telegram at t.me/korrobox.