What happens when you run out of tokens?

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We know that ‘scarcity’ is one of the drivers of cryptocurrency value. The numbers of Bitcoin etc that are available are limited. That is also true of Initial Coin Offerings. Most, but not all, have a cap on the number of tokesn that will be issued. But what happens when you run out of tokens, as happened to U Network, a blockchain publishing protocol valued at around $8 million.

Worse problems to have?

U Network had a 10 billion cap on its UUU token supply and within that set aside 40% of the total for the founders and future development. However, it was forced to announce on Medium , “The demand for UUU tokens has exceeded our current designated holdings.” The message also said, “The team now faces a problem: leaving our ecosystem tokens intact, how do we pursue these new opportunities to grow the U Network ecosystem?”

U Network opted for its 10 billion limit, because the content-based project, which aims to “help online content platforms better align with the interests of their users,” wanted to “provide sufficient incentives to community members.”

Could other ICOs face the same problem?

The situation with U Network is so unusual that it has made others in the market wonder if this could happen to other ICOs with a hard cap.

The issue of incentives, which are so vital to the success of many token sales, appears to be the fundamental cause of U Network’s current state of affairs. Joshua Gans, a professor of strategic management at the University of Toronto commented on it saying, “If you want to use tokens for incentives, the amount of the incentive is dependent on the price of the token,” he explained. “At the start, it is hard to predict that.”

Basically what the experts are saying is this; there’s no foolproof method for calculating how many tokens should be given away. Catherine Tucker, a professor of management and marketing at MIT said: “I think this case illustrates the huge trade-offs founders face. If they keep too many tokens in reserve, they are often accused of being greedy. But if they give away too many tokens then they lose a crucial lever they need to incentivize people to use their platform or service in the future.”

What can U Network do?

U Network is going to hold a token buy-back and says it will buy 1,000 ETH worth of UUU from current token owners in several stages. Overall it will be a buy-back valued at around $284 million.

How did it decide on this number? U Network said

“We believe it’s a reasonable amount. Not too high to affect market price, not too low to affect the expansion needs.”

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