Civic’s Token As An Example Of Why Companies Should Not Masquerade As Tokens
Since the crypto space started gaining attention, there were multiple attempts to approach it, and not all of them were equally successful. Vinny Lingham’s identity system Civic, founded in 2015, is a good example against token-based approaches that companies might choose to take.
Lingham has been a Bitcoin supporter for a long time, which was noticeable even in time of his previous gift card firm, called Gyft. In 2016, he raised around $33 million in funds via ICO. Participants of the ICO (tens of thousands of them), were placed in a queue and were allowed to purchase CVC tokens randomly, regardless of when they joined the ICO.
The price per token was $0.10, and the ICO sold 33% of its 1 million coins, with another 33% percent retained by Civic’s own team. The last 33% were used to incentivize the community, while 1% was left for running the sale.
Civic And CVC
The question on everyone’s mind at the time was — why would Civic do this? What use would a centralized firm have from a token? Their whitepaper does not explain this dilemma, as it spends more time explaining the digital identity industry and the way blockchain works. There were some plans that talked about creating utility via its use as an ecosystem token. After looking into the token’s potential use cases, it was discovered that it can be used for making payments.
However, this solution was also not good enough of a reason, as there are many other methods that are better for making payments. There are stablecoins which are more stable, Bitcoin, which is decentralized, and even the USD which could serve the purpose. The whitepaper states that CVC can be used in different jurisdictions, as well as that using blockchain-based assets allows users to perform automatic settlements through smart contracts. Again, this can also be achieved with already existing coins. Another reason is the creation of a stable cryptocurrency which will have the ability to protect the ecosystem from volatility.
This also did not work, and the coin has lost 96% of its all-time high and is currently trading at half of its ICO price. Civic seemingly had a wrong impression regarding the token industry, with the company believing that it will be able to “manage incentives”, which just resulted in token giveaways and attempts to buy people and have them build things with their tech.
Another reason why they may have kept the tokens is to use them for reducing the cost of KYC verification, which will make them more interesting to potential partners. Lingham even mentioned in an interview that a giveaway-based growth model (one that almost destroyed PayPal) might work for Civic. In another blog post, he explained how the growth of a certain network, and especially its transaction volumes, will create more utility in a token. The conclusion that Civic apparently came to is that the token price will keep growing forever due to its fixed amount.
However, things do not work that way, and there is no guarantee that an increase in demand will lead to a price surge. According to experts, nothing in the entire Civic project hints that the coin should ever reach any impressive worth. However, despite everything, CVC continues to enter partnerships, although it should be noted that all of Civic’s partners are working with other blockchain and crypto projects as well.
After this year’s backlash against payment tokens, Civic decided to create another white paper which adds staking to the process. This is another mistake that desperate blockchain projects often tend to try in order to create more robust mechanisms for capturing value. In the end, many believe that Civic could have been a successful identity startup, but that it made a lot of bad decisions due to the market situation in 2017. It is certainly not the only one to do this.
However, it is important to note that not every company needs to become a crypto or blockchain project. There are those who can succeed at it, although there are also countless token-less models that can be much more promising.