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Dividend Paying Cryptocurrencies........Will the Concept Survive?

Image result for augur crypto logo Image result for bitshares crypto logoImage result for DigixDAO crypto logo

Initial Coin Offerings (ICOs) are means through which blockchain startups raise funds to implement their ideas.  But when you consider that their investors are sometimes not holders of any stake in the firm, you begin to wonder why that is so.

In the conventional business fundraising through sell of shares, debentures or bonds, the rights of the investor or shareholder are clearly spelt out and followed, but that seem not to be so in the case of blockchain ICOs.

One way to bridge the gap for investors and assure crypto investors of the safety of their investment is for the startups to commit to paying dividend to their investors from profits.  This idea of dividend payment seem good to authorities and this may be the reason why many new ICOs are including dividend reward in their proposals.

It is a scheme that will task startup promoters to develop their ideas properly and follow through its project implementation and pay dividend to investors at the end of the year.

In this piece, we examine the few known cases of dividend paying cryptocurrencies and what it means for the market.   Crypto-investors should be aware of the dynamics of these kind of cryptos, and how they can enhance returns. It means that if you are trading such crypto, you want to know their year end and dividend cut-off dates, so you can crystalize investment with such cryptos in order to receive the dividend for the year, after which you resume your trading.

Dividends vs. Proof of Stake Rewards
Before we proceed further, I want to clarify that proof of stake rewards do not qualify as dividends. Dividends are paid via economic profits, whereas proof of stake rewards are paid via inflation. These should not be confused. In order to pay dividends, the cryptocurrency needs to provide some economic benefit, and use those proceeds to pay dividends to the token holders. 

Some proof of stake cryptocurrencies will pretend or mislead investors, and call their stake rewards dividends. Please don’t fall for that. In this article, we’ll strictly discuss ‘real’ dividends, i.e. earnings created in the ecosystem, and not ‘fake’ dividends paid out via inflation of the monetary base.

A Brief History of Dividend Paying Cryptocurrencies
To be sure, the idea of cryptocurrencies paying dividends is not new. However, the idea has evolved over time, and so have the implementations.

The first time the idea was seriously used in a cryptocurrency system that I am aware of was in Bitshares. Bitshares originally was a decentralized asset trading platform that traded market-backed assets, with game-theoretic price convergence between the Bitshares-assets and real-world assets.

Bitshares’ original idea and implementation was that the entire ecosystem would take a fee for trades that occur on its platform, say, BitBTC/BitUSD trades. This fees is then returned to all the BTS holders. This original implementation didn’t increase the supply of BTS to the holders while keeping supply constant. Rather, due to programmatic ease, it just decreased the overall BTS supply, in effect making each BTS a little more valuable.

This is more like a stock-buyback rather than a dividend. Economists would argue they are the same thing, but psychologists should know better. The Bitshares idea never took off, and the dividends were limited anyway. Add in a later inflation schedule, and the supply increased way more than any economic benefit to the system, thereby rendering the whole idea invalid.

DigixDAO was the first Ethereum-based token that started paying dividends. Note that this dividend is paid from earnings, not inflation. The earnings model comes from gold storage – the Digix Gold Tokens (DGX) are asset-backed Ethereum tokens (gold-backend) that freely trade in the market and can be transferred via the Ethereum network to Ethereum addresses. This generates fees – usage and storage fees. This fees, in the form of earnings of the DigixDAO, is distributed to the holders of DigixDAO, the DGD tokenholders.

Note that unlike Bitshares, DigixDAO has a full backing of gold in its valut. This naturally also requires costs to maintain, insurance, audits, etc.

After the launch of Ethereum and its use as a serious cryptocurrency platform, there was a renewed interest in systems built on top of Ethereum that had real economic benefit. Many projects chose to provide that economic benefit in the form of dividends to the holders of the tokens.

The first large-scale Ethereum project to implement this idea was Augur. Augur is a decentralized prediction marketplace where REP (reputation) tokenholders report on all the events created in the system. To provide incentives for them to report (and report correctly), they are given a certain fee from all the markets.

This economic system in Augur is quite clear. REP tokenholders get rewarded based on the total economic activity occurring in the Augur system. The more people use Augur to place bets and trade them, the more the REP holders get paid. The payment to REP holders is clearly from the economic benefits provided by the system, not via inflation. Note that Augur differs from some other Ethereum-based tokens in that there is no ‘central’ party that generates earnings (centralized gold storage in Digix, the ICONOMI team in ICONOMI, the Singular team in SingularDTV, etc.) and the system is completely decentralized – there is no one party that holds power over the system.

Note that Augur as a token has launched, but the full platform is still in Alpha and hasn’t launched yet. It would be a great case study for dividend paying cryptocurrencies when it launches.

Ethereum-backed tokens:

ICONOMI (ICN) – it is a crypto fund-management platform that will create and trade an index-fund like token and a hedge-fund like token. The future plans also include a fund management system open to all investors and traders. The more popular these funds become, the more dividends ICN tokenholders get.

SingularDTV (SNGLS) – it is a digital rights management platform combined with original content. The original content includes a documentary and a mini-series. The more revenue the original content production gets, the more dividends get paid out to SNGLS holders. Also, the more their digital rights management platform gets used by artists, the more the payout to SNGLS holders.

FIRE:  This is an introduction to the evaluation of dividend paying cryptos and the reason why government authorities seem to support this arrangement.

Friend, Jesus came looking for you. Give your heart to Him, Love the Lord with all your heart, strength and might.  Love your neighbour as yourself, hold no offence, no bitterness - the Lord is near you to help you!


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