Momentum blockchain loyalty program. Have they got the tokenomics right?

We wish Momentum all the best, but have concerns their tokenomics haven’t been given the consideration required.

Momentum are seeking to raise €42m via ICO to power their blockchain and crypto-token based marketing automation platform that enables companies to reward their best customers and supporters with crypto-tokens.

They are attempting to sell 500m Momentum tokens (from a total 1 billion) as part of the raise.

Wow! That’s a lot of money to raise to launch a loyalty program. Loyalty & Reward Co estimate a blockchain loyalty platform can be built and launched into market for well under €1m, so we’re wondering what Momentum will do with the rest of the funding. It’s assumed much of it will go towards marketing.

The main challenge with large tokens sales like this is it really messes with the tokenomics. According to Ennis et al, tokenomics covers ‘the set of all economic activity that has been generated through the creation of cryptotokens.’

The biggest challenge Momentum will face is building a big enough eco-system to generate sufficient demand for all the tokens they’ll have in circulation. With €42m tokens sold at ICO (assuming they hit their hard cap), that will require a lot of retailer and members participation. In the early stages of the program, most of the buy and sell activity for their cryptotoken will take place on exchanges which means the value of their token will be almost entirely dependent on market sentiment. With a market as volatile as cryptocurrency trading, price swings can be considerable and in the current bear market, many cryptotokens are down 90% from their highs.

Loyalty & Reward Co recommend a more conservative strategy for blockchain loyalty companies which involves limiting the amount of tokens held by investors, with the ultimate ambition for the majority of buy and sell behaviour to occur within the program via earn and redemption transactions. Thus, if the speculative market pumps or dumps, the loyalty program token value is somewhat insulated because the average member isn’t trading but accumulating for a future reward. A blockchain loyalty company has a greater chance of survival if most of the buy/sell behaviour happens within the program, not as speculative trading on exchanges, and if the demand for tokens within the program is greater than the supply held by traders.

Quality commercial modelling will allow the loyalty company to ascertain the minimum amount of cash they need to raise via ICO to survive the first couple of years, how many members they need to acquire, how much each member needs to spend per annum and what percentage of revenue retailers need to return to members in order to generate enough demand for tokens within the program than the supply available for sale by traders. This will lead to a sustained and sustainable cryptotoken price rise, and one which is resistant to downward price pressure from speculative selling.

The outcome from this should be a decision by the loyalty company to aim for a much smaller ICO raise, so less cryptotokens are injected into the hands of investors/traders. The company always has the option to sell more cryptotokens if required.

We wish Momentum all the best, but have concerns their tokenomics haven’t been given the consideration required.

Philip Shelper is a specialist loyalty consultant based in Sydney, Australia who obsesses about everything to do with loyalty and rewards. His company Loyalty & Reward Co are a leading loyalty consulting firm.
Phil is the author of “Blockchain Loyalty: Disrupting loyalty and reinventing marketing using cryptocurrencies.” is a global resource centre for everything blockchain loyalty.
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