ICO Tokens Are Already Changing Traditional Startups

It wasn’t so long ago that scraping a flat fee off of a user’s transaction was a reliable revenue model.

But with the advent of cryptocurrencies, a new wave of startups is beginning to set its sights on something different, with mainstream brands like Telegram and Kik pivoting to embrace an alternative model that wasn’t yet possible when they launched.

If you’ve been confused about the announcements, there’s a simple idea close to the center – namely, that companies in question could use cryptocurrencies to distribute revenue in a more equitable way, using a digital asset that behaves like bitcoin or ether in that it gives users an actual, tradeable stake in a platform’s growth.

It works like this: companies issue a certain number of crypto tokens (keeping a percentage for themselves) to be used on a platform now or in the future. If users see value in the platform, they’ll purchase the tokens needed to interact with that platform.

Yet, since the amount of crypto tokens is limited, supply and demand pushes the value of the token up (or down). And as the company holds a reserve of the tokens, the value of that reserve fluctuates as well.

Effectively sales revenue is being replaced with asset appreciation, with payroll covered through the early years with proceeds from the coin “offering.” But, as announcements have shown, you don’t exactly have to be a new company to get involved.

After selling $24 million worth of its ethereum-based token in December, YouNow CEO Adi Sideman is already reporting that its revenue strategy has changed.

He told CoinDesk,

“Our business model shifted from taking a cut, like a 40 percent or 50 percent cut – like YouTube and Facebook do today – [to instead] benefit from the growth in the token and the ecosystem.”

And industry experts like Mason Borda, CEO and co-founder of token sale management company TokenSoft Inc, believe this trend will continue.

“The more ethically pure way to look at this is the company will be rewarded because their metrics will go up because they will have been able to drive user engagement,” he said.

He continued, speaking to how the model will make companies build better products and applications:

“You benefit and you have a stake in making sure the token is useful.”

Making the switch

Yet, not every company will benefit from or be able to execute on the switch to a revenue model that relies on crypto.

YouNow, for example, has a head start in making the transition – it’s had a traditional virtual currency, called “bars,” on the platform for years now. And according to YouNow, users spend an equivalent of $24 million on bars every year, buying virtual gifts such as super-likes and digital stickers that they can shower videos and content creators they enjoy with.

There’s also a reputation mechanism on YouNow. While bars can be purchased outright to buy digital gifts, when a content creator receives digital gifts, their clout on the network increases.

And YouNow shares the money spent on purchases of digital gifts on a broadcaster’s channel with the creator.

But on a new app, called Rize, that the company plans on releasing publicly on Feb. 23, a virtual currency, similar to bars, called “coins” will work in tandem with the cryptocurrency “props.”

Rize evolves the user experience from one where viewers just watch content creators to one where viewers are also part of the experience (their cameras will also be streaming, so that content creators can see their reactions). Users will buy coins to purchase digital gifts within the platform, but they’ll earn the cryptocurrency props for engaging content.

“I would call it a move toward more participation,” said Sideman…

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