Where Web3 is Broken and How to Fix It
A tale of three tokens
A Wild Epidemic of Dumbness and Overweening Greed
A question of scale
Imagine I created a decentralised car-sharing platform, like Uber, but decentralised. Let's call it Duber. Instead of accepting payment in fiat currencies like Uber, I issue a token DUB. You can use DUB to pay for your rides.
The Duber team decided to do a pre-sale to investors for DUB tokens, for $0.10 per DUB. The team raised $10m by issuing 100m DUB tokens this way, with the intent of there being a further 900m DUB taking the DUB treasury up to 1bn tokens with an implied protocol valuation of $100m.
They then get building Duber, and do another round of token pre-sales, this time 50m DUB tokens at $0.20 per DUB doubling the valuation to $200m.
Duber is subsequently launched and gains traction. Users start purchasing its DUB tokens to pay for services. A percentage of each ride fee is paid to the Duber treasury.
The problem is, with the growth of Duber, its token price increases, resulting in the service becoming more expensive for users.
This is great for investors, whose DUBs are gaining value, but not good for its users whose rides are becoming more expensive. Duber could decide to lower the price of rides in line with token price increases, but then not as many funds will go to the Duber treasury, which not everyone is happy about.
This is then compounded when one of the early investors in DUB tokens decides to dump their holdings, selling their tokens at $10 for a 100x return on investment. The DUB token price tanks and again the economics for users need to change to avoid DUB rides being too cheap.
The product market fit illusion in Web3
More real-world assets