How impak Finance balances stability and incentives

One of the barriers to widespread adoption of cryptocurrency is price volatility: in an economy where cryptocurrencies must be exchanged regularly in and out of fiat, users must be confident that price will remain stable from day to day, so that costs are predictable, and profits as well.

Bobbi sells bamboo bikes. Bobbi receives $1000 worth of BiteCoin (not a real coin yet) in payment for a new bike. The following week, when Bobbi pays her supplier, the price of BiteCoin has dropped by half. The bill to her supplier hasn’t changed, and so Bobbi just sold a bike for a big loss. Bobbi decides not to accept BiteCoin anymore. Bobbi thinks cryptocurrency bites.

In Bobbi’s case, the price of BiteCoin could also have doubled, which would be nice, but in both cases, lack of predictability makes it hard for her to plan how to efficiently use her resources. For the person holding the coin, if she thinks it may double in value in the near future, it’s wiser to keep it and pay in fiat instead.

What would a cryptocurrency look like that incentivizes use over speculation?

To explore this question, let’s start by putting cryptocurrency holders into two broad categories: those who buy the token to spend, and those who buy it to speculate. The spenders create real demand for the token; the speculators create artificial demand.

Bitcoin owes some of its early traction to darkweb users who wanted to transfer value anonymously; it had real value as a form of payment. As it became adopted more widely, holders of Bitcoin saw the potential for the massive returns made from speculation, and the bubble began to grow. While signs are appearing that Bitcoin is beginning to be adopted as a form of payment for goods and services, the speculators are multiplying far more quickly than the spenders, and the bubble continues to grow from new entrants to the market.

Imagine an ecosystem with only token spenders. The price of the token on the market would correspond to the value the spenders give it by using it, its intrinsic value. If usage and demand is constant, price will remain constant. If usage and demand increase, the price will increase.

Now imagine the opposite, where all holders of a token are speculators, and there is no use case for the token. This is the definition of a bubble, when the price of an asset far exceeds the intrinsic value of it. This describes many tokens currently being traded, that are sold to raise money for a future project, without actually having a use case. Prices of these tokens are volatile, changing daily due to news about the projects and the herd mentality of holders.

impak Finance is proposing a solution to this problem. First, here’s what impak is building: an ecosystem in app form, called impak.eco, where businesses, customers and investors transact to make a positive, measurable social impact alongside profit. impak Coin (MPK) will be used for daily transactions between customers and businesses, from business to business, and by investors supporting impact entrepreneurs through microlending, crowdlending, and P2P lending relationships.

Eamon Leonard is hard at work on a number of blockchain projects, including impak Coin, and he humbly seeks community input in order to further the co-creation of the impact economy, and cryptocurrency ecosystems.