Security vs Utility Tokens

A lot of ICOs (Initial Coin Offerings)

Anything that seems too good to be true probably is, and it looks like most ICOs are finally facing reality. The SEC has issued numerous subpoenas and at least from an outside perspective, the reasons seem fairly clear. Nearly EVERY SINGLE ICO to date has been an unregistered securities offering, posing under the guise of utility tokens. Most projects add a utility token as an afterthought.

What’s the future of assets?

Ultimately crypto assets will fall into different legal buckets depending on the nature of the project/team. These will likely include:

  1. tokenized securities (asset ownership, ie equity)
  2. tokenized real-world assets (real estate, art, gold, etc…)
  3. tokenized non-tangible assets (IP etc…)
  4. likely some form of utility tokens as well (likely API-Esque platform/app integrations).

What is a utility token?

If I told you I was starting an NBA team, building an arena, hiring a coach and recruiting players to come play for me and I only needed $100M, would you be interested? What if I told you you could buy a discount card (we plan on selling 1B for $0.1 each) to use on all tickets and concessions (food, drinks)?

What is a security token?

NOTE: Here is a brief refresher for those unfamiliar with securities.

Source: Electrek

Utility vs security tokens

While there are some contexts in which utility tokens make sense, most of what we see today is simply user-hostile tokens.

Why securities tokens are less risky?

In most countries, it is illegal to sell securities to non-accredited investors. This is done to protect the public from less scrupulous operators/offerings — ie scams. It boils down to barring individuals below a certain economic threshold from participating in high-risk securities investing (private company stock, crypto-assets/tokens, etc…).

Closing thoughts

I am bearish on crypto in the short term and incredibly bullish in the long run. Technology ultimately wins out and we rarely reverse course on innovation.


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