Seasonal Tokens — Utility and Demand

There are two very important questions about the economics of Seasonal Tokens that are asked more than any others:

• What utility do the tokens have?
• Where does the demand come from?

To answer these, it’s necessary to look at the unique partnership between miners and investors in the Seasonal Tokens economy. In terms of utility, the tokens can be used for payments, like any other cryptocurrency, but that’s not what they were designed for. They were designed purely for investment, but that doesn’t mean that they have no relation to the real economy. There’s a mining economy, in which miners spend real economic resources to generate new tokens. Investors play an active role in the economy, helping the miners to produce tokens efficiently, and earning a share of the new tokens in return.

Once every nine months, the rate of production of one of the tokens is cut in half. When this happens, the cost of producing that token doubles, but the price doesn’t double. On the 5th of June, the Spring halving took place, and Spring became instantly unprofitable to mine. Miners switched from mining Spring to mining the other three tokens.

This situation is less than optimal for the miners. With more miners competing for Summer, Autumn and Winter tokens, each miner gets a smaller share of the tokens produced. Those three tokens became less profitable to mine, and Spring was still completely unprofitable.

This inefficiency in the mining economy was caused by a mismatch between the costs of production and the market prices. The ratio of the costs of production of the tokens was 10:6:7:8, while the prices were still close to the ratio 5:6:7:8. Miners need to sell the tokens they mine to cover their cost of production, so they need the prices to match the cost of production in order to mine with optimal efficiency. Spring would need to rise in price relative to the other tokens to allow miners to switch back to Spring.

Miners don’t control the prices, though. Investors who hold the tokens are the ones with the power to trade one token for another, and shift the relative prices. Both miners and investors know that the price of Spring will rise over time in comparison to the other tokens, but the miners need to pay their bills today. Investors can look ahead, and allocate resources today in anticipation of the future.

So the mismatch between the prices and the costs of production is a problem for the miners, but it’s an opportunity for the investors. By trading other tokens for Spring, the investors make it profitable to mine Spring again, increasing the efficiency of the mining economy.

The investors provide a valuable service to the miners by shifting their capital from token to token as the mining costs change. The tokens have a utility that no other cryptocurrency does, because they make it possible for investors to provide this service and earn a share of the economic value produced by proof-of-work mining.

It’s possible to understand the value of this by considering what happens when Bitcoin’s rate of production is halved. When that happens, Bitcoin becomes much less profitable to mine, and many miners have no choice except to stop mining. There’s nothing that investors can do with their Bitcoins to help the miners. The price of Bitcoin would need to double to restore the profitability of mining to its previous level. There’s no way to use Bitcoins to make this happen.

The shock of the halving is damaging to the Bitcoin economy because miners have no other coin to shift their mining power to, and investors have no other coin that they can trade for Bitcoin. There’s simply no other proof-of-work coin large enough to provide that much capital or to accommodate that much mining power. Miners are forced to quit, and investors can’t use their Bitcoins to help in any way.

With Seasonal Tokens, the three other tokens allow mining power to shift away from the recently halved token, and they also allow capital to flow towards it. The halving causes a disruption, but the economy can handle it gracefully. In fact, these regular disruptions create the conditions that allow miners and investors to co-operate and produce value with maximum efficiency.

This shows why the Seasonal Tokens have a utility that other proof-of-work cryptocurrencies don’t have. The investors don’t simply buy the tokens and then watch the prices, hoping that they’ll go up. Instead, the investors can use the tokens they own to help the mining economy remain efficient, and in return, the number of tokens in their investment increases over time. Investors who trade tokens for more tokens over time aren’t getting something for nothing. They’re earning a share of the real economic value produced by the miners, by providing a valuable service.

Now let’s have a look at the second question: Where does the demand come from?

Before addressing the question directly, it’s worth asking the same question about Bitcoin and other proof-of-work cryptocurrencies. It’s easy to imagine that Bitcoin’s demand comes from its utility: It can be used as money, for payments. If we think about this more carefully, there’s a problem with it.

Demand, in this case, means people buying Bitcoins, usually with fiat money. But do people really buy Bitcoins when they need to make payments? Most merchants accept fiat and don’t accept Bitcoin. There are some businesses that only accept Bitcoin, but not very many. If you ask people who own Bitcoins why they bought them, how many of them will say, “I needed to buy Bitcoins so that I could make payments”? Probably not very many.

The answer that you’re more likely to get is, “I bought them as an investment.” Bitcoin is a good investment because of its limited supply and decreasing rate of production. It’s going to be harder to obtain Bitcoins in the future than it is today. Buying Bitcoins early, when they’re cheap, is better than buying them later, when they’re more expensive.

This is a very good reason to buy Bitcoins, and it’s why most people bought them. Bitcoin reached its half-trillion-dollar market cap because of investment demand.

There’s enormous demand for a good investment. There are very few things that people want more than future prosperity. If there’s a good cryptocurrency investment, and enough people know about it, then there will be some investment demand for it. Despite the common belief that demand comes from utility, and that investment alone isn’t enough, the truth is that an investment that rises in value is more sought-after than any other utility that a cryptocurrency can provide.

With Seasonal Tokens, like any asset, there will be a number of people who know about it, and some fraction of those people will invest. There will be some investment demand. Like Bitcoin, the tokens will be harder to obtain in the future, and in addition, investors can get a share of the economic value of the proof-of-work mining, and increase their holdings over time. They can guarantee that the total number of tokens in their investment will increase with every trade and never decrease.

These are desirable properties in an investment, and it can be expected that they will cause additional investment demand. Today, the project is still young and very few people know about it, and the market cap is small as a result. What every potential investor wants to know is how much demand there will be in the future, when the project is more mature and more widely known about.

Nobody can answer that with complete certainty, but each investor can estimate it for themself, by looking at the size of the market, seeing how much demand there is for comparable cryptocurrencies, and considering whether the tokens are innovative and interesting enough to merit attention from investors. Someone who believes that the tokens have desirable investment properties might reasonably conclude that there will be a corresponding amount of demand.

One thing that every investor should be aware of is that demand for the tokens can’t keep increasing forever. The dollar prices of the tokens won’t keep rising without limit. The investment value of the tokens isn’t intended to come from perpetually increasing demand. Even if the dollar prices don’t rise over time, the value of the investment can keep increasing, because the number of tokens in it increases. In this way, the tokens are designed to continue being good investments even after they reach the stage when the market has no more demand to supply.