TOKEN REDENOMINATION
Redenomination often occurs in our traditional currency like the naira notes, dollar, euro, pounds etc. Redenomination is actually the taking out of old bank notes from circulation or pegging the value against the new note that has been created.
This is often done whenever there is an inflation in the old note or devaluation of the currency as well or when a country wisheds to join another country in using their currency, this is done so as to maontain a balance in their economy and prevent it from further devaluation.
So in a nutshell redenomination is the setting of a country's currency to a new standard which is the new currency created due to the reasons I stated above.
Whenever a new currency has been created it has a new value and the old currency is exchanged for the new one, for example in Zimbabwe in the year 2006 there was a redenomination where the exchange rate was a thousand of the old notes to get 1 new Zimbabwe dollar.
This also happens in cryptocurrency alot where there is a redenomination in a certain token. When there is a surge in the price of the token to an extent that alot of people can't afford it and the buying and selling power of the token has reduced drastically then the developers of the token can decide to recreate the token so the price of the token reduce so more investors can come into the project.
Also if there is a devaluation in the price of the token which is making the token worthless the developers can create a new one and do an exchange where some certain unit is equivalent to the new token created.
The difference between a fiat redenomination and a token redenomination is that it is easier for a token to be recreated and pegged to a value unlike the fiat that can't be easily regulated just like the case of Zimbabwe they were only able to effect the change after 9 years of trying. Another difference is that for redenomination to take place in fiat it usually makes lower note very useless and makes one use a ton of notes to buy just an egg unlike for TOKEN where it is because the token is expensive for people to get and an average investor can't afford it.
ADVANTAGES AND DISADVANTAGES OF TOKEN REDENOMINATION
ADVANTAGES
1. Redenomination brings about investors:
The increase in price of the token would have chased potential average buyers from investing in the project and it will be just for the elites. A token redenomination will bring in more investors because of the success of the first one and alot of people would want to enter the project.
2. There is a rise in the market capitalization:
the more the investors in a project the more the market capitalization. When there is an increase in the market cap, this makes investors believe that the project is a good one. Market cap is calculated by the multiplication of the trading volume and the price of Asset. Therefore token redenomination makes the market cap increase as there will be more trading of the token.
3. Project Growth:
the token redenomination will cause am increase in the growth of the project as more investors will come in due to the success of the previous project and everyone loves a successful project so this will attract more investors. There will also be fear of missing out which will make the project news go round.
4. Token liquidity increases:
liquidity of a token is the value at which the token can be exchanged with other token when there are more investors and most especially average investors who trade regularly this increase the liquidity of the project.
DISADVANTAGEs
Most times the token doesn't do as expected and might end up been abandoned by existing investors.
Some conditions attached to exchanging to the new token might not be favourable for existing users which makes them loose their token and money.
If an investor doesn't hear of the redenomination and the date for the exchange of token closes then the investor will be at loss.
Do all cryptocurrency projects need to do Token Redenomination?
It is not essential for all crypto to go a token redenomination only when there is a surge in price that new investors can't go into the project or there is a problem which is limiting the growth of the token and it's making the value worthless, then a token redenomination can be done.
Even as BTC went up as high as $60000 there wasn't a token redenomination, except there is an underlying issue which is hindering the growth of a token then there is no need for a token redenomination.
POLKADOT
POLKADOT also known as DOT is the unit of currency used on the polkadot network that most people use while interacting with the system. Before the token redenomination which took place on 21 August on block #1_248_328. The smallest unit of account on the polkadot system is called a Planck, just like Satoshi is to Bitcoin that is how a Planck means to DOT.
Before the redenomination of DOT the token was denominated as 1^12 Planck's which after the redenomination it was denominated as 1^10 Planck's.
The redenomination was voted by DOT holders community, which were given four options
Change the denomination by a factor of Ten
Change the denomination by a factor of One hundred
Change the denomination by a factor of one thousand
Do no change the denomination at all.
After two weeks of voting the end result was to change the denomination by a factor of one hundred.
The effect of this redenomination is that the number of DOT smallest unit will increase by a factor of 100 and the planck remains constant. The Dot balance for all holders I'll be increased by a factor of hundred automatically. The number of planck won't change but the denomination alone. So if for example a holder has 1 DOT by the end of the redenomination he or she will have 100 DOT unit with the same price.
The operation of exchange of the token to the new redenomination is done automatically, all holders will receive the token according to their holdings.
POLKADOT REVIEW
POLKADOT is a platform which aim is to allow different blockchains to send messages and value with trust and sharing unique features with high security. It is very scalable and a multi chain technology.
It has a current price of $30.46 with a trading volume of $2,852,642,563 it's initial circulating supply before redenomination was 10 million but it's now 1 billion after redenomination. It also has a total supply of 11 million initially but now 1.1 billion.
POLKADOT has been a fast rising token with all time low of $2.70 as at Aug 2020 with an all time high of $49.35 at May 2021.
The token is a good investment due to its use case which it integrates all blockchains to use and also another reason to invest in it is because it is currently under valued and the community is large withs a good market cap.