The unique utility token structure of Creditcoin was detailed in the previous post.
If you haven’t already done so, go read it here; otherwise, I’m afraid the burger references will be lost on you. We’ll talk about some of the model’s potential flaws in this article and then how we can turn those flaws into positives.
To summarize, Creditcoin (CTC) provides token holders with a perpetual license to utilize the CTC network, as tokens are returned to the user after a year of use. This means that companies can make long-term CTC purchases based on current prices and transaction capacity needs. They are not reliant on CTC market conditions in the future.
However, such a new system may come with its own set of limitations that we should examine. While these are all theoretical issues, especially since we lack the necessary usage statistics to draw accurate conclusions, it is helpful to consider the potential pitfalls.
CTC’s Initial Cost May be Higher than Other Utility Tokens
If CTC provides unrestricted network access, we expect the price to reflect this reality. After all, you’re not just paying for one burger; you’re paying for an endless number of burgers in principle. As a result, CTC’s initial cost and entrance barriers may be higher than for other utility tokens, even if the long-term gains are worthwhile.
Future market conditions entirely affect CTC’s long-term price and usage stability. While corporations’ tokens guarantee network capacity, they may wish to liquidate some CTC if their trading patterns alter and their transaction volume decreases. Of course, corporations do not have assurance of their initial investment’s resale value, which creates uncertainty.
This could be particularly troublesome for short-term users who want to sell their tokens after only a year.
Consider the case of a company that is experiencing a sudden rise in demand that exceeds its CTC transaction capability. However, the company’s liquidity makes it difficult to invest in more CTC. The company isn’t sure if this surge in demand is part of a longer-term trend or just a one-time blip. The company may be hesitant to invest its limited liquidity in a token whose price is based on several years of usage and whose value may fall in the year before it can be resold.
This example shows how, while CTC provides long-term stability in its current implementation, it may do so at the expense of short-term flexibility.
CTC’s Flexibility
So, the issue we’re trying to solve is one of flexibility.
Surprisingly, we don’t have to travel far to find inspiration. CTC is a network that connects borrowers and lenders to create a global credit market. It also aims to boost the power of idle capital in developed economies. To put it another way, they generate interest for lenders while allowing borrowers to make informed financial decisions.
So why not make CTC its own rental market? Under such a system, owners of CTC would be able to rent their transaction capacity to other users for a fee. This addresses the issues raised above and allows CTC holders to receive interest on their fixed assets.
Users can now more efficiently adapt to fluctuations in their transaction capacity requirements in terms of flexibility. Instead of selling their tokens and risking having to repurchase them later at a higher price, a company with extra capacity might lease them out to other users, ensuring that their money is not idle. Similarly, a business responding to a rise in demand can use this new rental market to find a competitive rate. Thus, it meets its short-term transaction needs without committing liquidity to a long-term token.
It’s worth noting that this appears to give CTC the best of both worlds. Users who rent CTC treat it like any other utility token, with the price-controlled by short-term supply and demand. Users that want to decide on assured long-term transaction capacity based solely on current market prices can do so as well.
CTC’s Unique Usage Mechanism
Furthermore, the ability to rent out excess capacity assures that CTC will never be an idle asset. Creditcoin’s unique usage mechanism is the only way to access both benefits.
Indeed, this model has flaws. But it appears to solve the flexibility difficulties with CTC’s existing approach. At the same time, it also provides the added and very substantial benefit of potentially converting CTC into an interest-earning asset within its ecosystem, at least theoretically.
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