To understand Protocol Tokens, you are required to be aware of what Protocol means. The advent of information technology has introduced us to the term. They refer to a special set of rules that need to be taken into consideration while two entities are communicating.
Protocol Tokens, on the other hand, are a special set of crypto-economic rules that need to be considered in order to ensure proper maintenance of the distribution of consensus throughout a network.
How Do Protocol Tokens Work?
The way this works is that every blockchain is assigned one native token, which is configured to follow a specifically coded protocol. These set of rules are in no way connected to any “centralized entity” or tangible assets. The protocol tokens are there to incentivize the clients’ system when they make valuable computations to back their network.
These tokens make sure the clients involved in every blockchain are rewarded or punished to make sure they improve their behavior for the next attempt. No one is forced to have protocol tokens, but these tokens are quite effective. This is because everything is digitally recorded and affects the entire network in a positive or negative way based on the clients’ average behavior.
What Is CoinList?
Founded in 2017 by Protocol Labs, CoinList deals with protocol tokens. The American company acts as an effective funding platform that connects investors and allows them to buy these native tokens at an early stage and get an opportunity to be rewarded. It works to raise money through pre-launch token sales. The company not only sells protocol tokens that are highly profitable but also ensures the tokens are simple and easy-to-handle for clients.
Unlike other companies that are involved in cryptocurrency businesses and sell tokens, CoinList boasts of the best legal professionals that help it create the Simple Agreement for Future Tokens (SAFT), which will be a time-saving alternative for investors.
Investors, once SAFT is implemented, will no longer have to create and review one-off legal agreements. Hence, the active involvement of token makers and clients in building and buying valuable technology is guaranteed.
Why Are Protocol Tokens Needed?
Blockchain projects have to look for different ways of raising funds. This is done through selling the protocol tokens to clients set to use their networks.
There are two types of fundraising through protocol tokens – pre-release sales and post-release sales.
Pre-release sales are opted for when a project needs to develop and test a protocol. In this case, the native tokens are not already created and no IOU is signed or sold for them. This is the common and most widely chosen types of token selling idea, as it provides the required resource for developing tokens.
This is the type of fundraising that is chosen when a project has launched the initial version of the protocol and concerned token but needs more financial support for their further development. Once the token creation process is backed, the raised funds are used as digital currencies by the project.
- Protocol tokens offer economic rewards to clients’ networks.
- Through the token deals, investors get a small resource to start with and they gradually develop their project.
- Bad behavior leads to clients’ punishments. This, in a way, induces good behavior in users dealing with the tokens.
- Less capital is needed in comparison to what the clients get as an incentive.
- The security regulations do not allow protocol token developers to raise money through the sale of unregistered securities.
- The token’s legal authorization is conditional under U.S. Securities Law.
Given the advantages and limitations associated with the protocol tokens, overall, it is the best way to raise funds if you aim at developing a blockchain project gradually but effectively without any financial hassle.