FOR digital currencies still in the market, the prospect of incoming supply - some with a predetermined schedule - could pose a challenge to their businesses given the current downturn in the market.

''Many people don't fully understand the impact of new supply on this market particularly when there's low liquidity,'' said Ryan Selkis, co-founder of Messari, a crypto data platform in New York

''I don't think anyone has any idea how much hidden inflation there is in the form of token reserves  that are going to be unwound gradually.''

Data from Messari showed that 71 coins of more than 400 tokens on its database have issued less than 50 percent of their targeted total supply, which means there is flood of these assets that could be sold to the market or distributed in some shape or form.

ZCash, a more than two-year-old digital currency with strong features, has 28.05 percent of its total supply issued so far, according to Messari data.

That means its tokens holders could see the supply mushroom more than three-fold in the years ahead, which would pressure coin values unless outweighed in demand.

The supply pressure is not just coming from the companies that need to sell tokens to finance their operations, but also from the early investors in ICOs who were given investment contracts that give them the right to future tokens.

The terms of these contracts are at the discretion of the company raising the funds, or the issuer of the token.

Those token have liquidity provisions that allow investors to sell them, but have found it difficult to do so because the coins are now under water, analysts said.

''I think a lot of these tokens have been issued on the assumption of very bullish crypto market on all fronts,'' said Kyle R. Chapman, a partner at Boston based COSIMO Ventures, a private equity and venture capital firm focused on early-stage technology companies. [Agencies]


Post a Comment

Grace A Comment!