Premined cryptocurrencies are tokens that don’t need to be mined from the blockchain. The concept is a little more complicated than this, but, ultimately for the purposes of this article that’s about as much as you need to know.
An index fund by Morgan Creek Capital Management has been established, it transpires that now, any cryptos with more than a 30% premine have been excluded from the fund because of the potential problems this could cause. This therefore includes cryptocurrencies such as Ripple’s XRP, Tron’s TRX, Stellars XLM and Neo’s, NEO.
According to Cryptobriefing:
“Morgan Creek Capital Management has more than $1.5 billion in assets, so its Digital Asset Management Fund is significant. As is the decision to exclude any cryptocurrency with more than a 30% premine. That’s bad news for Ripple, which essentially premined all 100 billion XRP tokens. That’s a problem for the likes of Morgan Creek.”
“Tron took the same approach and premined 100 billion TRX coins. Founder and CEO Justin Sun is rumored to hold billions of coins. NEO issued 100 million tokens at the start and there will be no mining process, which is a simpler version of the same issue as far as the Digital Asset Index Fund is concerned.”
Why are premined coins an issue?
Simply put, with so many ‘tokens’ in circulation from these projects, it can cause exchanges big problems when they are listed, causing huge price changes and altering the markets. It’s this ‘manipulation’ that can be avoided by simply just excluding these premined projects. Moreover, the risk deepens when you look at how much control investors have over these sorts of coins with regards to potential ‘pump and dump’ schemes. According to Cryptobriefing:
“It doesn’t take a huge leap of logic to see that 62 billion XRP or TRX coins hitting the exchanges could massacre the price. While it might seem counter-productive for a company to sabotage its own product, it could happen. If the coins are at an all-time high and major holders simply want to cash out, that could have a real impact on the coin’s price and progress. This kind of dump could also come from the outside. The risk, for the Morgan Creek analysts, clearly outweighs any potential rewards.”
Is this a problem for these tokens?
Potentially, although as it stands the problem is only very limited. XRP and co aren’t going to miss out too much from this, it does add another hump in the road for these sorts of crypto projects, projects that often struggle when it comes to being recognised by larger institutions and finance focused funds.