Recently, security tokens started attracting more and more attention, both from investors and from startups. Why will they become the apparent favorites in the coming years? The advantages of security tokens and how they will be used in the future will be discussed in the following article.
Utility tokens are user tokens or application coins representing future access to a company’s product or service. The defining characteristic of these tokens is that they are not intended for investment.
When creating utility tokens, a startup can sell “digital coupons” for its service, just as, for example, electronics retailers accept pre-orders for video games.
If the token is a tradable asset, it is classified as a security token and becomes in line with securities. Failure to use such tokens as securities may lead to penalties from regulatory authorities.
Many industry observers believe that major companies will once issue shares through ICOs, instead of or in addition to traditional public offerings.
Decline of the Era of Utility Tokens
2017 was marked by, in addition to ICO boomers and a huge number of blockchain projects, extensive use of utility tokens. Unlike security tokens, which the SEC equates to securities, utility tokens do not need a complicated legal procedure for processing. Their issuance during the ICO allowed startups to easily and quickly conduct crowdfunding campaigns. Investors liked the anonymity and the absence of barriers to the conversion of cryptocurrencies.
Thus, the year 2018 was a turning point for the cryptocurrency market. During this time, there have been two serious reductions in the price of Bitcoin. At the same time, many countries have defined the legal status of a digital currency and have adopted laws regulating their circulation. This made it possible to attract institutional investors to the ICO and increase the credibility of the project goals.
At the beginning of 2018, many people realized that the market was changing and there would no longer be “easy investments,” so it was necessary to “seize the moment.” All of this caused a phenomenal number of ICOs in the first half of the year, most of which were unsuccessful, which was also mentioned as a sign of a decline in the cryptocurrency market. Despite the fact that this period was a record for the volume of funds attracted through the ICOs, one cannot but notice a decrease in investor confidence in coins, tokens, and blockchain projects.
Interestingly, in recent years, many large crypto exchanges have not added any new cryptocurrencies at all. Other exchangers, most often the not very popular ones, are ready to accept any tokens, but for a fee. The listing price starts at about 10 Bitcoins. Others do not charge listing fees, at least officially, but because of the legislation governing the handling of securities, they require that the status of the token be legally certified. Not to mention that the listing requires registration of a legal entity and compliance with many other formalities depending on the country in which the project is registered.
What to Expect in the Future
The general trend is that, apparently, the number of utility tokens on the market will decrease, and in the future, we should expect a boom of security tokens.
“With ICO’s being used for pump and dump schemes with no path to redemption, it is becoming increasingly difficult for investors to establish trust and invest in any cryptocurrency project,” complains one Bitcointalk user under the name Tosyn2.
In addition, according to a number of projects, issuing security tokens during an ICO is much more honest for investors, because in this case, investors can count on long term return on investment. On the other hand, the loss of interest in utility tokens may be due to the fact that most of the blockchain projects, where these tokens were supposed to work, turned out to be simply useless and unnecessary. Simply put, this comes from a general disappointment in blockchain and the possibilities of using it in the real world. In other words, if a number of blockchain problems are finally resolved, utility tokens will again be in demand.