Monday, January 12, 2015

Paycoin Honor Program Announced - $20 XPY "Guarantee"

Many cryptocurrency enthusiasts have been quite disappointed with the rise and fall of Paycoin prices. (Side note: I'm still unsure as to the proper spelling; is it Paycoin or PayCoin, Paybase or PayBase? I've seen Josh use both; at present, I think Paycoin and PayBase are correct, but I could be wrong.) While the cryptocurrency did hit $22+ when PayBase launched, the price then collapsed... then collapsed some more... and then settled in around $2.50-$5.00, depending on when you look. I should note that Bitcoin has also dropped in price of late, from $380 or so back in early December to a current price of $255-ish -- the lowest BTC has been priced since last March when a hack of an exchange caused a massive drop; otherwise it was November 2013 when we last saw sub-$250 prices.

Anyway, despite a general softness in all cryptocurrencies, Paycoin has been doing reasonably well for a new coin, all things considered. Yes, it spiked up to $22 and then dropped to $2.50, but considering the age of the coin the current market cap of $52 million or so still puts it in fourth place among all cryptocurrencies, not far behind Litecoin. Today, GAW/PayBase has announced that they plan to bring back the $20 floor, with a new proposal called the Paycoin Honor Program. You can read all the details there, but let me give you my take on things.

GAW doesn't object to some users selling off their XPY at $20 each and pocketing the earnings. The issue comes when a "whale" or institutional miner with 100K XPY decides to dump everything at once -- or even worse, when market manipulators continuously try to buy low and sell high on XPY. The result can be chaotic, and the only real beneficiaries are those manipulating the system. What GAW is proposing is to have anyone that wants to sell off XPY at $20 put their coins into a sort of escrow, and GAW will pay out at least $100,000 on the first of each month to buy off the XPY in the escrow.

There's a bit more going on than that, of course. First, the Paycoin Honor Program requires you to enroll during the month of February -- from Feb. 1 to March 2, 2015. If you're bad at math, that means none of this even starts until six weeks from now, so GAW basically gets a respite to work on other stuff. Once you've enrolled, as far as I can tell you put your XPY into escrow and they are locked away, to be paid out when your turn comes up. How GAW chooses to pay out is up to them, but presumably they won't be paying off everyone on a first come, first served basis -- e.g. if one person puts 100K XPY into escrow, everyone else would need to wait 20 months before they started getting paid.

Here's the real catch: if your XPY is locked up tight awaiting for GAW to buy them back, you're guaranteed to be paid at some point in the future, but in the meantime the price of XPY could potentially skyrocket. So let's say all the other features of PayBase come online and XPY goes up to $40. Well, you still get your $20 from escrow and GAW more or less pockets the difference. No complaining, of course -- you decided to take the "sure thing" and you got what you wanted (eventually). If XPY goes down in price, you end up making the "smart move", but I still feel GAW is in this for the long term and that's less likely IMO.

There's a ton of stuff GAW still needs to work on, e.g. the PayBase Debit Cards, PayBase Premier Accounts, perks, shopping, etc. Some of that stuff should be completed within the next 45-60 days, which means right around the first payments are scheduled to go out (I'm guessing April 1, since the Program says the $100K payments are made on the first of each month and the enrollment period ends on the second of March), XPY may already be doing well enough that you'd be having second thoughts.

Worst-case, if XPY were to die and GAW were buying them back (instead of declaring bankruptcy) it would require 100-200 months (!) to buy off all the XPY currently out in the wild. I don't think you can add more XPY after the Feb-Mar 2015 enrollment period, so this is really only for existing XPY, not for future coins (or stuff that's in HashStakers, Prime Controllers, etc.)

Wrapping up, some are calling this a "scheme", which is probably overly harsh. What it really looks like to me is a way to buy time and hopefully slowly increase the value of XPY. Today we saw a brief spike to roughly $6 with the news of the Paycoin Honor Program, but we're now back to $4. GAW ends up with a grace period extending all the way to April 1 before they have to pay even one disbursement of $20, and Josh has also gone on record multiple times saying that the price is going to rebound in a massive way once they get additional features implemented and working. So if you want out right now, GAW is offering to pay you off in 75 days, at which point you could very well be regretting the decision.

If you want my advice: don't put any more than about half of your XPY into the escrow -- hedge your bets if you must, but going "all in" is for gambling, not for investing. (Says the guy who basically went all in on Paycoin.) At worst, GAW will buy back 5000 XPY each month, so given my estimates of 500K to 1 million XPY being "in the wild" it could take a long time to get to bigger orders. GAW might even start with all the small guys (to build good will among the masses) and buy back everything less than 25 XPY or whatever, then pay off some percentage of everyone else. That's what I'd likely do if I were running the show, but we'll see.

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