Pre-mined Coins an Issue for Index Funds
An index fund by Morgan Creek Capital Management decided to exclude any cryptos that have a 30% premine due to the potential issues they pose. This consequently means that the cryptocurrencies such as Ripple (XRP), Tron(TRX), Stellar(XLM) and NEO are also excluded.
Pre-mined cryptocurrencies are tokens do not require blockchain mining. A premine is when a developer allots a number of coins to a certain address before making available the source code to the open community. This is supposedly done to pay for certain features such as exchange listings and for the development of core features.
Regarding the fund’s reasoning for the coins’ exclusion, Cryptobriefing said the following:
“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.”
Seeing as there are so many crypto assets in circulation from ICO projects, it can generate big issues for exchanges when they are listed, which determine massive price fluctuations that alter the markets. This type of ‘manipulation’ which can be avoided by just leaving out the projects that are premined. Also, the risk increases if you take into account how much control these investors have over these tokens when it comes ‘pump and dump’ schemes.
“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.” = – stated Cryptobriefing.
In spite of this exclusion, this will not be much of a problem for XRP and the other major coins, but rather for those crypto projects that struggle to gain recognition and funding.