Initial coin offerings are a means of fundraising that can leave a project with several years of runway before financing is a concern. However, what happens when the money runs out? Bitcoin benefits from a core development team working for free to address technical issues, but consider other projects that don’t have such a dedicated development community. For example, Golem’s roadmap spans 4 years but what about the years that follow? If not all milestones are completed on time or if the protocol requires maintenance who will implement the needed code when no money remains? Donations are a possibility, but realistically projects need to have an income model to be self-sustaining past the project roadmap. Not every project takes this income model into consideration, but it necessary to understand before committing to a long-term hold.
While Golem was used in the example above, many project whitepapers fail to describe cashflow sources following the initial coin offering. This is a serious threat as investors could be left with worthless tokens if the development team runs out of Bitcoin or Ethereum and decides to cash out its holdings. Two projects addressing this issue in different ways are TenX and Sia. TenX receives a portion of the .5-3% debit card transaction fee, while Sia has Siafunds which are tokens separate from Siacoin that act as a dividend to direct 3.9% of the tokens spent for hosting services back to Sia’s parent company Nebulous.
Some cryptocurrency enthusiasts may cringe at the idea of funneling money back to the development team as this reintroduces a form of the middleman they are trying to eliminate. With that said blockchain technology is all about the economic incentives that reside over each project. Users find benefit in the service being provided, miners are rewarded for verifying transactions, so there should also be an economic incentive for the development team to maintain and market the network. There are many ways to solve the issue of sustainable cashflow, however as an investor it is important to understand how this is being addressed to ensure your investment will withstand the 5-10 year hold period you may be banking on.