U Network, a blockchain publishing protocol with a value of around USD 8 million, published a blog post earlier this month announcing that it had effectively run out of UUU tokens.
The company plans to buy back some of the initial supply it earmarked for early investors through its February airdrop, but in truth, this is a problem that we haven’t seen happen all that often in the crypto world.
“The demand has exceeded our designated holdings”
When the project was announced, U Network had confirmed a 10 billion UUU cap on its supply of tokens, with a value of around USD 15.6 million, with 40 percent of that total (USD 6.2 million) being set aside for the founding team and future development.
Yet, this month the project posted on its blog that “the demand for UUU tokens has exceeded our current designated holdings,” and that “the team now faces a problem: leaving our ecosystem tokens intact, how do we pursue these new opportunities to grow the U Network ecosystem?”
Anyone who has followed an ICO or an airdrop will know that they differ depending on the project, and the number of tokens put into distribution also varies.
U Network chose to implement a cap on their total supply of 10 billion UUU tokens based on the type of project they were launching, which is content-centered.
The U Network project aims to “help online content platforms better align with the interests of their users.”
While the situation that U Network finds itself in is quite unusual within the industry, there’s reason to believe that it may not be a one-off.
What’s to stop other startups with hard caps on their ICOs and airdrops finding themselves posed with a similar question in the future?
What do you do when you run out of your own tokens?
A big part of the problem lies in the lack of an established practice when it comes to incentive projects.
How many tokens do you distribute through your incentivized project?
Joshua Gans, a professor of strategic management at the University of Toronto gave the following answer when talking to CoinDesk –
“There is no metric.”
“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.”
When it comes to solutions to the problem, there aren’t that many avenues.
Increasing the token supply is not an ideal remedy, as there’s a good chance this could affect the token’s price which would cause an uproar with investors and could even damage trust in the project.
Another option is initiating a “buy-back.”
The best way to proceed
According to the U Network blog post, “Initially, we plan to buy back a total of approximately 1000 Ethereum (ETH) worth of UUU in several stages. The first stage will be completed with a target of 200 ETH worth of UUU tokens.”
“The first buyback will be executed between $0.004–0.005 dollars.”
Addressing how it came to this figure, U Network commented that “We believe it’s a reasonable amount. Not too high to affect market price, not too low to affect the expansion needs.”
Gans believes this is the best way to proceed, commenting –
“You issue the tokens and retain some other currency to use for buy-backs if you make an error.”
“The other option is to give yourself the ability to issue more tokens for incentive purposes, but that is ultimately the same as retaining some tokens at the outset.”
U Network has indicated that they will keep everyone updated on the progress of the buyback via their blog.
Lover of all things crypto, blockchain and AI, professional tech scribe & part of the editorial team at Crypto Disrupt.