Crypto Investing #12 – What Is A Proxy Token Or A Proxy Cryptocurrency Coin?

This is Tai Zen here broadcasting out of the Long Island Rail Road and I’m heading from Long Island to Penn Station, and probably going to go hang out, chill out at Times Square, get something to eat. I don’t know if you guys can see that or not. But in this video, I wanted to talk to you guys about what is a proxy ten, or a proxy coin.

Now let’s break this down real quick guys. The word proxy simply means to…I think the legal definition of proxy means to give power or authority to someone else, so a proxy ten, or a proxy coin, is a situation where you give your power or authority of a coin, of a cryptocurrency over to something else.

I’ll give you guys an example so you guys know what I mean. Usually what happens is when you have a popular ICO – initial coin offering and if you don’t know what initial coin offering or ICO is, make sure you check out one of my videos about “What is an ICO?” or “What is an initial coin offering?”, and I’ll explain more about it.

What happens is after you buy into an ICO, like the Ethereum ICO, or the Augur ICO, or the Lisk.io. So what happens after you get in the ICO like for example with Lisk that just happened a few weeks ago, there’re a lot of people that are anxious to trade it already, the cryptocurrency has not been distributed yet, there are people out there that want to trade it already and there are people that anxious to unload the ICO coins that they have that haven’t been distributed to the market yet.

There are exchanges such as Gatecoin, and such as a YoBit.net, the “yo” in the “yoyo, “bit” as in “Bitcoin” where they will create what’s called a proxy token, and what that means is that they create a proxy token. So for example, I’ll use myself and my buddy, my friend Leonfu.com as an example.

Let’s say we each have 100 Lisk cryptocurrency coins, that means that we have 200, and there are people out there who missed the ICO or who did not have the money to get in or who did not know about it and they want to buy it earlier before it even comes on the market.

So Gatecoin or in this case, YoBit.net, what they’ll do is they will create these proxy tokens and they’ll ask us to send them the private keys and the passphrases or passwords for the hundred Links that we own, and what happens is when we send it to them, they’re going to take the real Lisks which we just have the passphrase to it, it has not been distributed to us yet and they’ll hold on to that passphrase.

Now they have control of the Lisk that I own. As they hold it they’re going to create a proxy that represents the Lisk that I own and what they’ll do is they will put it out in the market and if you want to buy it or if you want to sell it, then you can take that and you can buy those proxy tokens that represent the real cryptocurrency, the real Lisk coin that I own.

So now you may ask “Tai, why would you take your Lisk coins and let some exchange borrow it?”. Well, there are several reasons. One is that they can pay me a fee or an interest for loaning them the Lisk that I bought during the ICO, which is not available on the market yet.

So let’s say that you the viewer who listen to this, you decide to go to YoBit and you buy those proxy coins, what happens is whatever you buy and sell it for, the day that Maxen Oliver and the Lisk team make it available to the market and they distribute the Lisk out, the exchange will take that real Lisk and they will send it to you because you already paid for it, you bought the proxy token.

Now for me, they will turn around and give me the Bitcoin that they owe me, or plus the interest and whatever else that we agreed on, it’s a win-win for everyone. I get to sell my Lisk before it comes from the market, and you get to buy the Lisk that you missed out on at a lower price. It’s going to be higher than what the ICO price is, but it’s still lower than when it opens for trading on the first day. That’s what it is.

The other thing to it is that, if you decide that you want to trade it or whatever, you can do it, you can trade those proxy Lisks coins that are on YoBit.net. Now, so you get to get it at a lower price than what it’s going to be when it opens up for trading and I get to sell my Lisk coins earlier before they even come on the market. So then the exchanges keep all the transaction fees.

Now the question that you may be asking yourself is “What is the risk involved?” Obviously, there’s got to be some kind of risk involved? And the risk that is involved is that when I give the exchange my ICO tokens, my ICO coins from Lisk, I risk them running off with it, or I risk that they get hacked and I lose all my original ICO coins from Lisk. So that’s the risk that’s on my side.

The other risk that’s involved is that you buy those proxy Lisk coins from YoBit, before you receive them, they can get hacked and go out of business, and so you risk paying a higher price than the ICO price and the exchange gets hacked and you lose all your coins and they never deliver it to you, or they receive it and they don’t deliver at all.

Now on the exchange side the risk that they take is that they get the coins… Anytime there’s money involved there’s going to be a bunch of hackers trying to hack it, and the risk that I see that the exchange takes is that when they get hacked they lose their credibility.

The other risk that is involved with the exchange during this whole proxy coin business, is that there’s very low liquidity or there may not be enough business for them to make a profit off of the transaction cost and the middleman fees or it’s just not worth their time because there are not enough people trading it.

Right now Lisk has not been on the market yet, so whenever people go to trade it on… I think it’s already trading at $1.7 per Lisk, if that’s the case, you got to keep in mind that the ICO price was only 7 cents so if you can sell your ICO coins on YoBit.net for $1.7, then you just made a bunch of money. I think like 2400% return or 24x or something like that. It’s a big monstrous return.

So there’s going to be a lot of people that they’re not greedy, they don’t care if they can get 10x 20x returns for their money, they’re going to go ahead and do it. So that’s the opportunity that’s available. So I just wanted to share with you guys in case you guys hear, this the same thing happened with Ethereum when it first came out in July of 2014.

When it came out they tried to create a proxy Ethereum coin that everybody started trading and then that way it gave everyone an idea of how much the Ethers were worth when they started trading. So if you trade stocks or you trade in the futures market, trading the proxy coins would be the equivalent of trading the pre-market or the post-market stocks, that would be the closest thing.

So thanks for watching this video guys, I hope that this video helped explain to you guys what is a proxy token or a proxy coin in the world of cryptocurrency investing. And if you guys like these types of videos, give me a thumbs up if you guys don’t like it give me a thumbs down.

Like always, be sure to subscribe to my channel and I’ll give you guys more information as I learn more about it and do research on it. Thanks for watching this video guys and I will see you guys in the next video.

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