In economics, principal-agent problem is described as a situation in which one entity’s decisions impact another person or entity.
Due to the advent of modern finance, which allows capital raising in so many forms, this dilemma has grown significantly. But most centralized entities and traditional capital raising methods are highly regulated. This wasn't always the case though, as the 2008 crisis was largely a result of financial institutions making risky investments as the underlying capital being invested wasn't the traders' personal money. The financial crisis led to the rise stringent policies designed to proect investors.
Crypto markets, however, are a new development. They remain outside the legal limitations placed on traditional financial activities. Crypto has led to the rise of ICOs, and this form of capital raising remains mostly unregulated in most countries.
Principal-Agent Problem in ICOs
Principal-Agent Problem in ICOs
ICOs tend to rarely issue any type of token that would involve dividends or any other equity-life trait. Therefore, most company’s issuing an ICO have little interest in retaining a token’s value as it is the token buyers that must face the brunt of it. Most tokens simply offer a means to access the service being offered.
Scams and money-grabs aside, even genuine ICOs can be a means for the founding team to boost the value of their own equity in the product they are developing as increased capital funds increase company valuation. Once token purchasers have bought a token, it is up to token issuers to retain its value. But there is little to no incentive for token issuers to do so—at least that is the case most of the time. XYO Network is one of those ICOs which should not lead to a principal-agent problem for the token holders.
A Team Dedicated to Its Product
A Team Dedicated to Its Product
It is common for ICOs to go behind the public eye and issue tokens at greatly discounted values in private sales in order to drive interest from wealthy investors.
The XYO(https://xyo.network/) team has done no such thing. The team, in fact, clearly notified their whitelist via e-mail that they are completely against such gray capital raising methods.
A few other points that can be derived by the company's communication to the whitelist:
- These tokens have been bought by the founding team’s family and friends. The team may not have an affiliation to the public, but they cannot scam their loved ones. Additionally, the team is confident enough in the potential of these tokens that they pitched them to those closest to their hearts
- The team has been contacted by high net worth individuals offering incredibly large sums of money in single lump-sums, but they turned such offers away. This is a testament to XYO Network’s dedication to maintaining a relation of trust and honesty to their token purchasers.
Another important point to note is that the team has been extremely blunt in their dedication to this project.
They have notified in their Telegram that this token may not meet the standards of those in the crypto community searching for lambo-making coins. It’s rare to see such a high level of honesty in ICOs. The way the XYO team has handled their community relations may seem too blunt and some may even find it odd to turn away money, but this shows that this is a project where token purchasers won’t have to worry about the problems of the principal-agent dilemma.
The success of any project is highly reliant on the traits of the team hosting it. Getting behind honest project developers is a rare opportunity, especially in the crypto market where ICOs can sometimes end up as complete scams.
While the project may not have a zero probability of facing PAP, the odds of PAP occuring here are understandably much lower than most other projects.
XYO Network Contact Information
🌐 Website: https://xyo.network/
💡 Whitepaper: https://xyo.network/whitepaper/
👨 ANN Thread: https://bitcointalk.org/index.php?topic=3040825.0
💻 Telegram: https://t.me/xyonetwork
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Wow! I must say, your articles are unique, lovely and catchy.. I'm new to writng articles and I would love to be like you when I grow up lol.
Thank you for the kind words :)
I noticed you write about ICOs. I am considering to make a series of posts on how to approach development of ICO content--stay tuned!
Sorry but I do not see why principal-agent-problem (PAP) does apply. PAP describes troubles that arise from information asymmetry. Abuse of informational advantage can result in manipulation of prices for example.
I do not see where XYO implemented a good signaling that works out that issue. Maybe it is me, but stating something like bringing in friends and family is not convincing to me.
One factor of PAP, moral hazard, is directly linked to information asymmetry. But isn't that what blockchain is designed to reduce?
XYO is based on the blockchain so it provides far more transparency to any incident of PAP than that'd occur within traditional capital raising. That is the case despite the regulations of 2008.
Now, my point was that the fact that the team's families money is in this, and they have shoved aside private deals, we can conclude that their own moral compass (driven by love for family) and honesty (evidenced by them turning down private deals) are a testament to how this project may have far less dangers of PAP than most ICOs.