A friend brought to my notice this important comment, ostensibly about crypto tokens:
same thread:
With Bitcoin and other digital-money-type cryptocurrencies, this point of view is understandable. The total mined Bitcoins are now worth nearly two trillion dollars (no one yet denominates items in Bitcoin; the US dollar has that locked down). Millions of people trade bitcoin 24×7, institutions hold it, firms create derivative instruments for it, publications cover it, social media chats constantly about it.
And yet, there are very few applications of Bitcoin outside of it being a speculative asset. It has not displaced the dollar or even threatened to do so.
Events in Syria, Afghanistan, Venezuela, Lebanon and other countries have severely devalued people’s savings in their local currency, but we have yet to see a wholesale shift to bitcoin. This is for several reasons, not necessarily a lack of trust in an all-digital currency, But the fact remains.
The decentralised finance world is similar but slightly less straightforward. Hundreds of projects doing very interesting things have their own native token. Several people do their research, identify which projects actually have teams, are building products, have pedigreed backers, and then buy and hold the native tokens of such projects. The expectation – and basis for speculation – is should the project do well, the token will rise in value too.
That isn’t necessarily true. The research should also look at what the native token represents. How much of the value that the project creates does the token capture?
It is a lubricant in transactions in the project ecosystem? In that case, how does holding the token cause its value to appreciate (other than you holding so much that you cause scarcity).
Does the token aid proof of stake? In that case, how distributed is the network? Does your holding the token aid one of just a few concentrated pools?
Does the token confer voting power on decisions? In that case, who (or what) decides what is brought to a vote or not? Are decisions binding? How diverse is the voting pool?
Did the project’s backers get some exposure to their project’s native tokens themselves? If not, why are they not aligning themselves with the project’s value capture?
This research is not radically different from that in the world of traditional finance. If you aren’t doing this, it’s fine – then do make peace with the fact that your crypto holdings and trades are just that – speculation.