Premined crypto assets such as Ripple XRP, Tron TRX, and Stellar XLM may cause difficulties for index funds.
Premined digital currencies are individual tokens that are not mined from a blockchain-based network. The process is more complex in reality, but that’s all you need to know now.
An SEC-authorized investment advisor company, Morgan Creek Capital Management, has recently released an index fund. According to the company, all cryptocurrencies that are over 30% premined have been removed from the fund on the grounds that they could create many difficulties. Some of the assets are Ripple’s XRP, Tron’s TRX, Stellars XLM and Neo’s NEO.
As reported by 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.”
Moreover:
“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.”
How do these coins influence the market?
The more premined crypto tokens are in circulation, the more the crypto market becomes unbalanced. The investment management service indicated that such crypto projects could lead to significant price changes on the crypto market. The company pointed out that with the elimination of these tokens, price manipulation is avoided.
“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,” reported Cryptobriefing.
Even so, the issue is not too significant at the global level. For example, XRP will not have much to lose overall. The elimination of these crypto tokens adds only some hindrances to their development without limiting them.