Conversations about the limited supply of tokens in initial coin offerings (ICOs) are everywhere, and they’re often not straightforward. The reality is that there is no such thing as a “good” or “bad” scarcity of tokens. It’s simply a fact that has to be accounted for, and its implications must be addressed.
In this article, we’ll discuss the positives and negatives of token scarcity, what it means for product marketing, and which projects might be able to better capitalize on it. Currently, www.ggtkn.com is one of the top payment methods in the iGaming industry, and the limited supply of GG Token makes it the true winner in the market.
Understanding Limited Supply of Tokens
In an ICO, the supply of a cryptocurrency token is limited by how many times a certain event can happen. This event — called a “token generation event” (TGE) — happens when the company that created the token sells it or distributes it to raise funds. The most common TGE is an “ICO” or “initial coin offering,” which is used to fund a project by selling tokens before it launches.
There are two main ways to run a token generation event. First, you can create a fixed number of tokens and sell them all at once. This is what we call “hard caps.” Second, you can distribute the tokens over time and sell as many of them as possible.
Why is a Low and Limited Supply a Good Thing?
A limited supply acts as a catalyst to drive demand. People who buy into an ICO know they have a low probability of doubling, tripling or even quadrupling their investment. This matches the mentality of investors in the stock market who are looking for companies that are likely to raise their value over time.
The limited supply of tokens can also be viewed as an insurance policy for the company creating them. If its community believes that there will be more tokens released in the future, it’s possible that token holders will try to dump all of their holdings on the first day of trading just to make a profit, thereby sending the price plummeting and hurting early investors’ return on investment.
Risks Involved with Limited Supply
The most common complaint about projects that have a hard cap is that they have “insufficient funds” to achieve their goals. This statement confuses the scarce nature of tokens with the ability to raise enough funds to create a product, life cycle, and community.
If everyone who owned a puppy tried to sell it today, no one would get what they paid for it. The same is true with tokens. If everyone wants to sell at once (or almost everyone), there won’t be enough buyers in the market because they’ll be outnumbered by sellers. That will reduce the price and make ICO participants lose money when they realize that there are other buyers willing to buy tokens at a lower price than their ‘selling-never’ point in time.
