An $8 Million ICO Ran Out of Tokens. What's Next Is Anyone's Guess

In early July, the developers behind U Network, a blockchain publishing protocol valued at around $8 million, abruptly announced that it had run out of its reserve of UUU crypto tokens, and that it planned to buy back some of the supply it distributed to early investors through its airdrop in February.

At the start of the project, U Network established a 10 billion UUU cap on its token supply, setting aside 40 percent of its total tokens for the founding team and future development.

Due to a rising number of strategic partners and interest in its token, the project announced on Medium, "The demand for UUU tokens has exceeded our current designated holdings."

While some projects do not limit the number of tokens that can be created within their blockchain ecosystem, others, like U Network, choose to implement a cap on the total supply.

U Network's situation may force similar projects to confront an even more difficult question: what happens when your startup runs out of its own tokens?

Incentives are especially important in blockchain systems, and so far, there is no established methodology by which projects can determine how many tokens to issue and keep.

"If you want to use tokens for incentives, the amount of the incentive is dependent on the price of the token," he explained.

"If they keep too many tokens in reserve, they are often accused of being greedy. But if they give away too many tokens then they lose a crucial lever they need to incentivize people to use their platform or service in the future."

As for how the project determined the number of tokens to re-purchase, it explained, "We believe it's a reasonable amount. Not too high to affect market price, not too low to affect the expansion needs."

From Gans' perspective, the buy-back is "a good way to go." He went on, "You issue the tokens and retain some other currency to use for buy-backs if you make an error. The other option is to give yourself the ability to issue more tokens for incentive purposes but that is ultimately the same as retaining some tokens at the outset."