What is a Bubble Token and why do these things keep bringing down crypto companies? - Crypto in Plain English - Episode 293 - by cryptohunt.it

What is a Bubble Token and why do these things keep bringing down crypto companies?

Welcome to the Cryptohunt Jam, where we spend one minute a day to explain crypto. In plain English.

Today, let’s talk about “Bubble Tokens”, a very dangerous kind of crypto token that has brought down many crypto companies. Never heard of those? That’s because we coined the term - pun intended!

Why invent a new word? Because nobody wants to talk about these tokens, yet they are the elephant in the room and we need to have a conversation about them. But let’s dig in!

Bubble tokens are crypto tokens that are artificially inflated in value. And when they pop, they can bring down entire ecosystems. A great example is the role of FTX’s bubble token, called FTT, in the collapse of the popular exchange.

Let’s say your local sandwich shop creates a new incentive: For every sandwich you buy, you get 1 point. 10 points can be redeemed for a $10 discount on your next purchase. So far, so good, we’ve all seen this before.

But let’s say this store becomes very successful. The owner buys every business in your town and allows you to use the discount everywhere. Now, the points have real value to people, they become a sort of currency.

And this is where things go wrong: The owner gets greedy. He decides: I’ll just sell the points for cash - points are now everywhere in your small town. And he buys more businesses, but instead of paying for them with cash, he convinces the bank to give him a loan that he can pay off with his own points.

You probably see it coming: The owner keeps printing points until someone realizes what’s going on. Everyone rushes to exchange their points at his stores and the whole system collapses.

That’s what happened with FTX. They created that kind of bubble token, hyped it, borrowed against it, and ultimately had nothing left to show for when people started questioning the system. Whenever a company or ecosystem builds on an asset that is already inflated, it is easy to pop the bubble.

So how do we avoid those? We’ll talk about it in the next episode!

This podcast is produced by Cryptohunt.it the easiest place to learn crypto. Copywriting is done by Arndt Voges, Social Media is done by Brett Holleman, Design is done by Carmen Rincon and my name is Christian Byza, Co-Founder of Cryptohunt and I am your host of this daily show.

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.