But is this really a problem?

Decreasing token velocity in response to this “problem” appears inappropriate. For dividend-paying stocks, it indeed makes sense for the value of the stock to be proportional to the cash flows (and thereby reflect such growth in customers and service demand as in our previous example). However, tokens are not stocks, they do not pay dividends, and their value should not grow directly with growth in demand.

Coins buy privileges to access the services of a platform, not the platform itself. So it makes sense that their value will fluctuate with real-time dynamics of supply/ and demand for the platform’s services.

As we already see from the simple example discussed previously, AppCoin’s value should, in fact, grow with growth in instantaneous demand. As evident, this is harder to achieve than mere growth in overall product consumption and is one of key tradeoffs in considering a crypto-funding model vs. a stock model. Coin holders do not directly benefit monetarily from an increase in consumption (since they are not entitled to any dividends). Therefore, the consumption growth must be significant enough to raise the overall instantaneous coin demand for the token to have meaningful rise in its exchange rate. If it is likely that many consumers will ask for the platform’s services at the same time and continue to return with high frequency to procure services, then there is a good reason to believe instantaneous demand for AppCoins will grow and to therefore invest in it.

There is a second way that the token can organically increase in value as well. If the quality of the underlying services provided increases/the target consumer base is diversified (i.e. higher product differentiation), then the fiat value of the provided services increases. AppCoinCompany, in that case, should increase its price (in AppCoins) to reflect its evolved product quality under the competitive market. For instance, x customers may now require 2y coins instead of y to procure AppCoinCompany’s services, thereby increasing instantaneous demand for the coin (without necessarily increase in customers) and hence the coin value.