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💩📈 Sh*tcoins solve the liquidity crisis
Liquidity comes in many shapes and forms
Jonah Schulman
January 03, 2022
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Gooood morning, Rainmakers! ☀️
I hope you all had a wonderful New Years celebration!
It may be a new year, but... as always, I have a very captivating topic for you to dive into:
1️⃣ Sh*tcoins solve the liquidity crisis: By instilling a liquidity tax via AMMs on decentralized exchanges, we can solve the security token liquidity crisis once and for all!
Without further ado, it's time to…
Get liquid 💧
💩📈 Sh*tcoins solve the liquidity crisis
Yes, you read that title correctly!
You may be thinking... "Jonah, are you drinking too much Eggnog? What the heck are you doing talking about sh*tcoins?"
Good question haha and no I am definitely not drinking Eggnog because it's disgusting!
I understand sh*tcoins get a bad rep and a lot of that is warranted (rug pulls)...
Through my deep dive into the sh*tcoin madness this year, I had many ups and downs.
I first passed through the seven levels of Doge coins, then through the sea of different DEXs, and then finally walked through the tunnel of clarity.
(Hands up if you love the movie Elf 🤚)
The clarity I obtained from transacting many of these unique cryptocurrencies was their built-in functionality to bootstrap liquidity.
First, let's get basic on the three types of security token liquidity:
Issuer-managed (The issuer buys back the asset from the investor)
Peer-to-peer (From one investor directly to another)
Secondary market (think marketplaces like tZERO or Robinhood in traditional markets, etc)
Those are the traditional liquidity methods, but with the onset of DEXs (Decentralized Exchanges), there is actually a 4th method now...
That fourth method is through AMMs (Automated Market Makers).
This one is a doozy to explain, but I'll do my best!
Let's get basic on AMMs:
First, let's take a step back.
In order for a trade to be conducted (traditionally) there needs to be a buyer or seller on the other side of the trade.
That is changing forever - with DEXs, you actually don't need to have a buyer or seller on the other side of the transaction.
In DEXs users trade against a pool of tokens — a liquidity pool.
So in essence, if you own some sort of cryptocurrency - instead of relying on a seller or buyer on the other side, you can trade it against different cryptos.
This enables automatic liquidity 24/7 for the investor.
It's okay if you don't understand it at first, it's quite a complex idea.
In the security token industry, there are over 100 security tokens trading on different DEXs!
If you have been tracking any of trading assets on STOmarket.com you would observe that many of them lack significant trading volume, with major slippage risk.
Crazily enough, we sometimes see a $10 trade cause an asset to double in price, which is a sign of poor liquidity.
It's okay though because I have an idea to solve this issue!
The idea is to impose a tax on investors for every trade!
Let me walk you through the current process of how many cryptocurrencies do this and how I think security tokens can too.
Essentially, a company or community creates a token and markets the token to the world.
The thing is - many of these tokens don't have a strong community when they launch, so they have to bootstrap their growth.
It's the same with any company from the beginning of its lifecycle, except imagine the token of the company is available to trade from the start!
Sounds ridiculous right?!
It usually takes ample time for any company/community to incur any substantial trading activity.
So, how can you bootstrap trading and ensure liquidity for the investors?
A liquidity pool tax!
My name is Jonah, not sure who Willis is 😜
Anyways, what I was saying is whenever a trade is executed, an investor would pay a tax.
That tax would be added into the liquidity pool to ensure stability and liquidity for the token.
I want to see compliant security tokens try a similar strategy to alleviate the poor liquidity we are currently experiencing.
Without this tax solution, investors' money could be locked up forever.
Now, I am not saying this is the only solution, but it is a step in the right direction.
A potential strategy is whenever the token goes live - it launches on a DEX until it gains enough traction to be listed on other marketplaces.
I mean after all, a major value proposition of security tokens is interoperability.
So, assuming all goes to plan, there would be no issues in moving your asset to another marketplace that doesn't have a tax.
This is all theoretical and of course, all investors would preemptively have to agree to a tax.
I don't believe this has been done before, but would be an interesting experiment, to say the least!
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Disclosures:
• No money or other consideration is being solicited, and if sent in response, will not be accepted;
• No offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement is filed and only through the platform of an intermediary (funding portal or broker-dealer); and
• A person’s indication of interest includes no obligation or commitment of any kind