For those who don't know, Token is a company that claims to be developing a debit card called "TokenCard" that allows users to exchange ethereum and other ERC20 tokens into fiat when purchasing items. Token recently had a fairly successful ICO that raised over $12.7 million in less than 30 minutes.
The problem, however, is that their business model makes absolutely no sense and will not allow the company to survive without the company burning or selling their own tokens. The root of the problem can be quickly identified in the fee structure provided in Token's whitepaper.
When a user swipes the TokenCard, a 1% transaction fee is incurred. This fee is then put into an account from which all holders of TKN profit from. TKN holders can redeem their share of the profits by burning their shares. The problem here is that no fees go to the company (Token) itself.
100% of all profit made from TokenCard swipes go to a fund that is shared among all holders, and this value can only be redeemed by burning your shares or selling your shares into the market. If none of the profit from the swipes goes into the pockets of the company itself, how will the company maintain cash flow to do basic things like keep the lights on and pay its employees?
The only method for Token to generate cash is to either burn their shares or sell them. Eventually, they will run out of shares to burn or sell, and end up with no stake in their own company. In conclusion, the business model outlined in their whitepaper is fundamentally flawed in such a way that the Token as a company cannot survive in its current form without burning their own shares in the company.
I would advise all to stay away.
I tend to wonder why there cant be cash back credit that gets paid with whatever token when it is convienent less hacker risk.
Here's someone trying to get cheap tokens.
IMO, this cash-and-burn model doesn't make much sense, - whether looked at from an operational perspective of the company, or from an investor's perspective.
The whole idea of having to forfeit future earnings just to claim your share of the already earned "dividends" is ridiculous.
Why would someone want to keep their share of the earned assets permanently dormant in a smart contract when those same assets could immediately be directed towards further investments?
After all, those ERC-20 tokens sitting there don't accrue any interest whatsoever.
And then (of course it's just my speculation) I wonder if this was intentionally structured in such a way as to discourage investors from ever claiming their earnings, which would then allow the company to use these virtually dormant assets accrued in the smart contract as a collateral to secure funding for other undertakings from which the investors would get exactly nothing.
Again, this is just my wild guess, and by the way the Monaco project - which appears to be a 99% knockoff of TokenCard - imposes the same exact cash-and-burn rule.
They make money from "loading fees" I believe, when you load ETH or another ERC20 token onto the card. So I think your critique makes absolutely no sense when ignoring this critical detail. But thanks for the DD. I am not associated with them, was just thinking about buying some tokens on this dip.