Crypto Equilibrium: How Free Markets set the Optimal Strategy

crypto market

Free markets were theoretically proven to be more efficient than any centralized system. However, traditional markets kept the power of the free economic will locked down. In the digital economy, the blockchain is bringing the equilibrium back to the market to function as the pioneer of the political economy as Adam Smith, known as the father of modern economics assumed: “I have never known much good done by those who affected to trade for the public good.”.

We would like to thank the team at CBDoken for their contributions to the design and implementation of the research and to the analysis of the result.

Deadweight loss backed by fiat currency

Market price is defined by the interaction between supply and demand, as it is written in economic theory. Nevertheless, in the real world, other factors influence the price, limiting its capacity. If you examine the application of economic theory to real-life cases, third-party interventions quite often result in losses that would have otherwise made new deals:

  • The United States Department of Agriculture (USDA) proposed to pay farmers for not farming and to stop growing crops on their land to protect soil, streams, and wildlife habitats according to the Conservation Reserve Program. In the long term, the market forces will ignore public concerns when a downturn comes.
  • Accounts Chamber of the Russian Federation reported that the state program “Housing for the Russian family,” that was intended to provide affordable apartments for 463 thousand families, failed.

free market

These are just a few examples of the economic policies that led to market inefficiencies. Having taken a look back in history, the role of the government has not been widely discussed during the Period of the Great Recession, when interest rates were kept significantly low under the economic policy of the Federal Reserve, which appeared to be not the least bit reasonable in the list of the crisis prerequisites.

High tax rates, limitations on trade volumes, and quotas for particular economic agents used by the governments in their economic policies are supposed to redistribute wealth and improve living standards. The equation, however, has not yet been solved, and the economic agents are not fairly remunerated. Government interventions resulted in deadweight losses with money taken out of the economy. Manual resource allocations become inefficient, leading to a reduction in the overall welfare within a society. Alternatively, an automated resource distribution system is able to register the origin of produced products and services as well as track transactions made by economic agents on the supply and demand side. The crypto economy creates an infrastructure to store real asset value and define prices based on the actual data from producers and consumers. This is what neither traditional markets, nor governments were able to accomplish.

Bid farewell to high prices

With the overall reduced benefits in the traditional economy, the market attempted to step away from government control and keep the money within the economy. Thus, the online auction offered  conspicuous advantages in comparison to traditional models, such as the use of automated bids, a search engine to navigate through items, and to filter items by categories.

However, the tremendous trade volumes provided capital owners with an engine to multiply their fortune. Moreover, the participants are prone to taking higher bids because of the format itself.

auctions

As online auctions appeared to be another centralized model that didn’t meet the needs of economic agents, crowdfunding was supposed to fill the gap between capital and intellectual property.

Your riches are where your friends are

In 2003, with a website for musicians to seek donations from their fans to produce digital recordings, a new type of economic interaction had emerged. On crowdfunding platforms, creators and capital owners meet each other for fundraising purposes. The world’s largest funding platform for creative projects, Kickstarter, increased the funding pledged to projects by over $3 million in five years. Some creative ideas raised far more than they had pledged. Unique ideas pledged over $12 million of the initial $100,000 goal.

This type of economic interaction doesn’t seem to be beneficial for minor investors as they don’t possess the rights of sponsored projects. The centralized crowdfunding platform itself is the one that generates revenue from transactions at an average rate of 5%, plus processing fees and ownership of the information about projects.

Would Adam Smith, called “The Father of Economics” for abbreviating the previous knowledge base and handing a guide to the economics to the next generations, have imagined how the supply was driven by desires and emotions? He assumed that the economy would function effectively in the perfect world where markets are transparent.

We’ve created an infographic to better explain this idea to you:

free markets

Nowadays, blockchain technologies execute the assumption and unlock the power of the free market will.

Prices sealed in a ledger

Economic theoreticians referred to the ideal world, meaning that each of them agreed on the model that postulates market forces to be the most efficient. Nonetheless, the market needed a technical solution to track prices and verify transactions autonomously. This distributed ledger technology, namely the blockchain, would certainly satisfy the assumptions made by prominent scholars.

It took almost 400 years after the theory was published and proved to find and start implementing practical solutions. The blockchain is now used as a technological solution to address the main problem of applying the model of the ideal world that economic experts have been dreaming of.

Dreams come true

ICO platforms provide startups with opportunities to develop their own currencies and raise funds. Every month, the average amount of funds raised on Ethereum surpasses $3 million.

EOS, an ICO project, is at the top of the list of the most-funded projects with a total investment of $4 billion, followed by Telegram Open Network with almost  $2 billion. Raising funds from early seeds with low barriers, leaving the potential to make money for investors, is what the traditional economy didn’t have the capacity to develop and maintain.

blockchain market

The very idea of auctions (to set prices according to the desire to possess the product) is being redesigned with the blockchain. These days, the distributed repository protocol registers each operation in a transparent and verifiable way that is ensured by internal tokens covering the transaction costs.

Crypto exchanges are now performing the role that was designated to traditional financial exchanges but failed to be implemented. The market and investors have been demanding transparent transactions to monitor and verify data. As the first commodity exchange delivered agricultural products and other raw materials, crypto exchanges have unlocked the potential of specific goods for the first time.

Meeting worldwide demand

Across the globe, governments are restraining the pharma market from free trade. As a result, pharmaceuticals are traded on the black markets without licences. On the darknet, the price of 1g CBD varies from $93 to $150. To get these trades out of the black market, blockchain technologies are entering the game, bringing the equilibrium back to the market equation.

A lack of transparency and extra regulations doesn’t let the market accelerate to a full pace that results in the extra producer surplus, leaving the demand with increased prices unsatisfied. The consumer demand is followed by medical cannabis derivatives for medical purposes and studies. Introducing a voucher token issued on a bottle of 10ml 3% CBD Full Spectrum Oil  to facilitate trade volumes, the company CBDoken could meet worldwide demand.

In 2016, Switzerland reported an export surplus over CHF 45 billion for pharmaceutical products. According to Eurostat, pharmaceuticals exports have been steadily growing more than imports. With all tariffs and taxes calculated, the trade balance grew from EUR 22 billion in 2002 to EUR 80 billion in 2017.

On CBDoken, the price on contracts is to be traded on crypto exchanges in order to meet supply and demand available in real time, leaving the industry with the amount of investments needed. If 1,000 (CBDF) tokens circulate on the market, 1,000 bottles of CBD Full Spectrum Oil is in storage to be redeemed at any time through the website. CBDoken provides the infrastructure and handles CBDF distribution via DHL for international shipping for a 1 euro flat rate for packaging and shipments to all countries. Local regulations of the CBD market are fully within the traders’ responsibility. With the direct distribution chain, CBDoken is expected to trade CBD products at a price close to production costs.

The crypto-economic model baked by the tokenization process satisfies all of the prerequisites set by the economic theoreticians who didn’t have a chance to test and support their ideas with MVPs and historical data. Free markets are now facilitating industries with new investment inflows , whereas market players bring innovative technologies to the table. In 2018, over $6 billion was invested in tech projects via crypto platforms, and this number is not final.

The ideal world is now real

The role of a government is to act as a watchman, keeping an eye out and educating the community. Governments are now implementing blockchain services into their operation workflow that expands that potential. Asian crypto markets imposed limitations on trade volumes that made the prices volatile.

crypto economy

The crypto equilibrium is set for the digital economy to function as the ideal world was modeled by its ancestors. The system is supposed to work properly if the crypto equilibrium is to be maintained. The response of the government might ruin the equation or support it with new prerequisites. Nevertheless, a free market is the one that takes the results of the equation and raises it to the nth power.

All materials on this site are for informational purposes only. None of the material should be interpreted as investment advice.

SAY WHAT YOU THINK

Related