2017 was a crazy year in cryptocurrency with digital tokens raising an estimated 5.6 billion dollars. In 2018 ICO’s are still booming even though it has turned into the year of either trying to comply with US regulation or deciding to completely avoiding it all together. According to a report by PwC Switzerland, between January and May 2018, ICO volume was already twice as much as it was during the entire year of 2017.
“In total, 537 ICOs with a total volume of more than $13.7 billion have been registered since the beginning of the year. In comparison, in 2017 there were a total of 552 ICOs with a volume of just over $7.0 billion. Also, the average size of an ICO has almost doubled from $12.8 million to over $25.5 million since last year. “
Security or Utility Tokens?
The majority of tokens released in 2017 claimed to be utility tokens to avoid any friction with the SEC but in fact, they were actually security tokens.
“Implementation bar is higher for Utility tokens than Security tokens. You can hire lawyers and go the Security route, but you can’t hire users to get to Utility. You need to earn them and keep them. The Security token test is a legal one. The Utility token test is market-driven.” William Mougayar, @wmougayar
Utility tokens are also named as app tokens, reward tokens or user tokens. These tokens are usually issued by companies to fund the development of their project, against the services or product they are offering. The value of a utility token is measured against the future utilization value of their concept.
If Starbucks were to offer a reward token and buyers would receive a SIGNIFICANT discount towards purchases – I would consider going through the crypto gymnastics of downloading a digital wallet, uploading my everyday currency after bank verification and buy the token. Do you know why I would buy their token? There is a Starbucks within a mile of my house in any direction and I drink Starbucks every day. I would get use out of it because I live in the Starbucks ecosystem.
If AMAZON were to offer a token and holding the token would result in huge discounts, exclusive offers and the token could be used for payment of goods, etc, I would consider buying their token. Why? Cause they sell practically everything, everywhere at any time of the day which means, potentially, a good use case. I am a prime member and can pay with my credit card without downloading a wallet and all those other additional steps required to buy cryptocurrency. I would get use out of it because I am in the Amazon ecosystem.
There are some great use cases for utility tokens (gaming, rewards, software use, etc) but if your eyes start to glaze over with confusion listening to someone’s token structure and how it works – or if they have to show you a detailed diagram of their token ecosystem for it to make sense, or if they make interesting (too good to be true) claims you are probably looking at a shitcoin or a shit token.
According to Manzo Porelli on Urban Dictionary a shitcoin or shit coin is “A cryptocurrency with no utility or unique features.” And according to bustapost, also on Urban Dictionary, the proper use of the term in a sentence “See that guy over there in the refrigerator box? Lost everything in the shitcoin crash of 2018.”
Many projects need economies of scale for the project to succeed, meaning they need the real world to adopt them, and at the end of the day the end user does not care, for the most part, if you are a decentralized app or even built on the blockchain. What does that have to do with the price of my coffee? Is Kim Kardashian using it (Kim K receiving a Bitcoin at a poker event does not count)? Does it offer me something unique or a cost cutting value (AMAZON) that something already in existence doesn’t already give me without having to take my US dollars, open a digital wallet, buy a new crypto currency and, after bank verifications, etc can finally access the product?
To clarify – security tokens are not necessarily better to invest in than utility tokens or vice versa. Research is pivotal in any investment decision and you should not invest if you can’t afford to loose it all.
Security tokens are generally backed by a real asset such as equity, shares of a limited partnership company, or commodities. Security tokens holders can be granted ownership rights or shares of the company. Security tokens have been evolved to empower traditional initial public offerings (IPOs) on top of blockchain technology. Security tokens are also subject to federal regulation.
Security tokens are used to pay dividends, share profits, pay interest or invest in other tokens or assets to generate profits for the token holders. These are tradable financial instruments with monetary value. Public Equity, Private Equity, Real Estate, Managed Funds, Exchange Traded Funds, Bonds are the common examples of security tokens.
What most people outside the cryptocurrency industry hear when they hear news regarding crypto usually has to do with hackings and how millions of dollars’ worth of crypto can just disappear never to be recovered or they hear of the high number of ‘projects’ that have raised millions of dollars and then the projects just fizzled away. This is why many in the industry are excited about security tokens and the regulation around them. They feel STO’s will help legitimize the industry.
The power of the blockchain and the digitization of securities will provide much needed change to the industry and give innovators, traditional investors and growth companies alike a whole new avenue of wealth creation and thereby change how the world of finance is democratized.
There is a lot of benefit in merging current stock/financial markets with the crypto world via security tokens including increased liquidity as tokens can be sold and traded internationally and projects can attract a larger pool of investors globally.
Security tokens can be real estate, funds, hotels, licensing, restaurant chains, etc. It will be interesting to see what tokenizes over the next year. Here are a few examples of what is on or what is coming to the market:
BlockEstate is taking the best elements of a traditional private fund structure and merging them with Blockchain technology. They “will use predictive analytics to manage and invest that capital in a carefully selected portfolio of market sectors with the goal of maximizing returns providing investors access to the real estate market through tokenized shares in the BlockEstate Alpha Fund.
Corl uses an automated and AI driven revenue sharing model to connect venture capitalists with start-ups. Corl’s has created a model that leverages the blockchain and uses AI to review applicants and make sound investments. Corl believes that its model benefits the investor and the start-up. The use of automation and AI allow Corl to expedite traditional venture capital funding and offer entrepreneurs fairly priced growth capital without giving up equity or control. By using a revenue sharing model, entrepreneurs are incentivized to perform well, which ultimately benefits all parties involved.
CODINGFLY – China & Canada
CodingFly is a global IT developer ecosystem that supplies commercial institutions with demonstrable high-quality IT solutions without the high cost of infrastructure while protecting the intellectual property rights of the developer. A unique “technological economic society” beneficial to all participants.
The CodingFly platform is built around/for technicians and is oriented to products, research and development, testing and other fields. On the basis of guaranteeing the quantity and quality of projects, it enriches platform functions, builds a growth system, and attracts programmers to stay. In addition, it attracts project parties through high-quality output and service.
Designed to serve the future “technological economic society”, Codingfly-based products and main chains can even help some developing countries build a new generation of IT technology infrastructure in the future. CodingFly expects to have more than 20 million participating users in the sector, activating hundreds of billions of intellectual assets. (Currently in private sale – token sale set for 2019)
Are there any token offerings you are looking forward to hitting the market?
**I am not a financial expert and do not suggest anyone invest in the mentioned security token offerings without doing proper research and seeking proper financial advice. Do not invest any money that you cannot afford to lose as the cryptocurrency market is volatile. **
I do not know anyone at BlockEstate or Corl. I do know some of the Canadian team members of Codingfly but have not received any compensation from Codingfly or any team members to date. The opinions are completely my own based on my experience.*
Check out my details on my BlockDelta profile.