What it means
The idea behind Kin was to build an economy in which app developers and users could trade value with one another without relying on advertising alone. Users might earn tokens for taking part in an app, and developers could use the tokens to pay for services or reward activity.
The aim was to create a currency for everyday digital interactions. Kin was launched through an initial coin offering, in which a company sells new tokens to the public to raise money.
It first ran on the Ethereum network and was later moved to another blockchain to reduce transaction costs and speed up transfers. A foundation was created to promote the token and support developers who used it.
The sale drew the attention of the United States securities regulator, which argued that the tokens were securities and should have been registered. A court later agreed with the regulator, and the case became one of the better-known examples of how existing securities law applies to token sales.
The result has been cited by companies planning similar fundraising. For a finance professional, Kin is helpful as a case study in token economics.
The value of such a token depends on real usage and on how many tokens exist, not simply on enthusiasm. If apps use it heavily, demand can rise, but if usage fades the price may fall, because holders have little reason to keep it.
Accounting treatment of crypto assets varies by jurisdiction and standard. Companies that hold tokens need to consider how to measure them, whether to test them for impairment, and what to disclose.
Prices can be extremely volatile, so any holdings should be valued at a stated date and with a clear source. It is wise to be careful with any statements about price or market value in the future.
Cryptocurrencies can lose most of their value, and some projects fail completely. This entry is for explanation only and does not suggest that anyone should buy or sell the token.
In practice
Real-world examples.
Example
A mobile game developer integrates a token reward system so players earn small amounts for completing tasks. The developer receives tokens as a share of in-app spending. The finance team records the receipts at their fair value on the day they are received.
Example
A lawyer advising a start-up on a token sale studies the Kin case. She explains to the founders why selling tokens to the public can fall under securities law. The company decides to take legal advice before launching.
Example
A university finance class compares tokens with traditional shares and loyalty points. Students estimate how changes in usage might affect token value. They conclude that the price depends heavily on the number of active users.
Formula
Calculation
Value of holding = number of tokens x price per token.
Suppose a developer is paid in 25,000,000 Kin tokens at a hypothetical price of $0.00004 per token. The value is 25,000,000 x 0.00004 = $1,000. If the price doubled to $0.00008, the value would be 25,000,000 x 0.00008 = $2,000, and if it halved to $0.00002 it would be 25,000,000 x 0.00002 = $500. The number of tokens is fixed in this example, so every change in value comes from the price alone.Case study
Seen in the real world.
Pixel Harbour Studios is an illustrative, fictional app developer that agreed to accept a Kin-style token as payment for in-app rewards. Its first batch of 10,000,000 tokens was worth $1,000 when it was received.
Over the next quarter the price fell by 40%, and the finance manager recorded the holding at $600. She also noted in the accounts that the token was volatile and that the company intended to convert it to dollars each month.
The illustrative lesson was that the studio treated the tokens as a payment method, not as an investment. By converting them quickly, it limited the effect of price swings on its profit.
Watch out
Common mistakes.
- Assuming a token has value simply because it exists, when its worth depends on real use and demand.
- Ignoring regulation, when a token sale can fall under securities rules in some countries.
- Quoting an old token price as current, when crypto prices can change sharply within hours.
Questions
People also ask.
What is Kin used for?
It was designed as a currency for rewards and payments inside apps and services, so that users and developers could exchange value.
Who created it?
It was created by the team behind the messaging company Kik, and a separate foundation was later set up to support its use.
Why is it relevant to finance?
The token's launch and legal dispute are widely used to illustrate how token sales are treated under securities law and how crypto assets are valued.
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