Token control mechanism as seen from the CryptoBike case

Token control mechanism as seen from the CryptoBike caseBitcoin.

Tokenomics is one of the factors that help investors choose a cryptocurrency project. However, these commitments are not always strict enough or are not properly implemented.

Tokenomics is understood as a mechanism to control the delivery of any cryptocurrency project. If there is a good mechanism in place, the project can gradually distribute tokens, which will help it hold up longer and limit the situation of first-time investors releasing tokens.

However, since cryptocurrency projects are often based on smart contracts, token locking can also be exploited if investors don’t study carefully.

Supply control mechanism

Tokenomics is a combination of token and economy. This is understood as the economic nature of assets that operate on the blockchain. In short, tokenomics is the mechanism for controlling the supply of cryptocurrencies.

As with other asset classes, the value of cryptocurrencies depends on two factors: supply and demand. If there is too much supply in the market at once, as is the case with early investors receiving the full amount of promised tokens, the price can drop quickly.

Hence, modern cryptocurrency projects all have an element of tokenomics, which is a mechanism for distributing tokens according to each stage of the development roadmap. This is one of the most important factors for investors to decide on a project.

The earliest example of tokenomics in the cryptosphere was the allocation of bitcoin. The creator of this coin, the mysterious programmer Satoshi Nakamoto, designed it to reward the “miners” at a regular rate of 50 BTC after completing each block of 10 minutes. The halving mechanism also causes the Bitcoin reward to be cut in half every 10,000 blocks.

Thanks to this initial mechanism, the amount of bitcoins in circulation does not increase, but actually decreases. The last bitcoin was not mined until 2140.

In the blockchain world, cryptocurrencies have an algorithm-based coin token release route that is specified in advance in a smart contract. This information is also often published in the project’s whitepaper. Therefore, investors can predict in advance the amount or the date of the release of the offer of a particular cryptocurrency project.

Tokenomics is not a permanent commitment

“Currently, decentralized exchanges are being developed, users can have complete control of their tokens. Therefore, most of the mechanism is embodied in smart contracts that have complete knowledge of the code. Readable. However, there are many projects whose code is not public, so will this will be the case. Hard to verify” said Tran Dinh, CEO of cryptocurrency investment company AlphaTrue.

According to CoinMarketCap, the developer of the project can change the schedule for unlocking coins / tokens. Before the release schedule can be changed, the project team must obtain approval from the investors. CoinMarketCap believes this will provide convenience and protect investors from spurts of inflation.

According to Dinh, tokenomics can still change after a project is published. Simply unlocking the offer is one of the loopholes that allows the development team to pull for the benefit of the individual.

“The change in offer depends on each project. Many projects that have been running for a while can fully adapt tokenomics to the current market. However, this is not recommended. Usually, tokenomics have to be consulted by experts or experienced teams when designing ” said Dinh. This investor also said that those who want to put money into projects need to arm themselves with knowledge of blockchain and smart contracts in order to keep a close eye on their money.

CryptoBike does not have a transparent supply mechanism.

On January 1st, CryptoBike (CB), a recently launched NFT game, released a large amount of tokens, which caused the price of this digital currency to collapse. Investors attributed this sell-off to the manipulation of the issuer.

According to Investor NT, it is a loophole not to block the token after the first financing round, so that the development team can “pull the carpet back” at any time. After tracing the source of the sell-off wallet address, some investors discovered that this account was related to the development team.

“Checking on BSCScan has not blocked the number of tokens in the bonus fund from the time CryptoBike is listed. The development team has split wallets to receive rewards and cash out to collect the amount of money. $ 700,000”  Said Mr. T. in a post about a crypto investment group.

Some other investors also believe that this wallet address received 0.2 BNB as a transaction fee to release a large amount of CB. Solidproof, the project’s audit unit, revealed the developer’s identity after CryptoBike showed signs of fraud.

Accordingly, the person behind the construction of CryptoBike is a Vietnamese programmer, not an American, as the project announced. In addition, the game’s official website is currently inaccessible.

The CryptoBike development team announced on Twitter that the project had been hacked. The 6 million CB sold came from the CryptoBike player bonus fund. This number of tokens corresponds to 60% of the total project offer.

At the same time, the development team has set a rule for the time at which tokens can be withdrawn from the wallet. In particular, if the player withdraws early, there is a discount penalty. With a holding period of 6 days, users can transfer tokens without a deficit. According to Mr. Do Phat, an investor involved in the project, the usual psychology of players is to wait enough time to withdraw funds without losing that fee.

However, on January 1st, at the same time as the first free payout, an order to “unload” 6 million CB (CryptoBike project token) was placed, causing the price of this digital currency to drop below the milestone. 0.82 U.S. dollar up to 0.046 U.S. dollar, shared more than 17 times.