Utility tokens provide users with access to a product or service with no expectation of profit and are unregulated. Security tokens are used as an investment and are regulated by the SEC.
Part 1 of a multi-part series breaking down the details behind tokenomics.
Meet Tatiana Koffman. She is a securities attorney who found her way into the crypto and security token world after working with DNA Fund. She later helped form a VC fund for the group Linkin Park. Tatiana explains how security tokens can help transform the financial industry and more in this expert interview with Security Token Academy’s Director of Programming, Adam Chapnick.
Florian Krueger and Florian Bollen present at CC Forum Queen Elizabeth II Conference Centre London.
The Craft Coin Company aims to create a future where small and medium-sized companies have access to alternative funding mechanisms. This allows them to grow sustainably, ultimately growing in a way that benefits the people, our planet and the profitability of their venture.
The inaugural coin, The Craft Beer Coin (CBC), went live in 2019 and is a transactional, asset-backed digital currency that enables fresh local beer purchase via the holders’ smartphone. A coin is always underwritten by a fresh pint of craft beer.
Their ‘asset backed’ Craft Coins are designed as currencies that enable digital business ecospheres to leverage modern distributed ledger technologies.
‘Asset backed’ means that the coins are not ‘stores of value’ like Bitcoin, but rather are backed by and facilitate transactions around real products and services with a value understood by everyone: a pint of craft beer. Future craft coin offerings will underpin foods and other craft products, helping to create and distribute quality sustainable products with foundations built around modern digital coins and currencies.
This guide outlines many of the factors that make up a token’s value. This part introduces how the token is minted, where it’s built, what type of tokens have more value and a brief intro to utility and security tokens.
Security Token Offerings (STOs), like ICOs, are fundraising tools. However, they have certain regulations which hold the token issuers accountable for their actions. Unlike the regular utility tokens, STOs generate “security tokens” which are real-time digital assets that operate within legal boundaries.
Benefits Provided by STOs
There are three main advantages:
- Superior liquidity options
- Reduced cost against IPOs
- Segmented ownership
Superior Liquidity Options
Fully licensed exchange platforms will now soon be available for security token trading. This will significantly increase trading confidence because of the added credibility. Since a real-world asset can be represented via security tokens, it will enable investors to liquidate security tokens against any product.
Reduced Costs vs. IPOs
In the non-crypto world, only a handful of companies go public because that transition requires a lot of money in the first place. As such, investors have the option of buying the shares of a very few companies.
However, STOs can be started right away since they are a lot cheaper than public companies. They reduce costs by completely removing the middlemen. Also, having more STOs will allow more people to invest in the shares of more companies.
Security tokens will make high-priced assets a lot more accessible for the common man. Security tokens can easily segment an asset into smaller sub-divisions making it possible for an investor to own a fraction of the asset instead of the complete product.
Conclusion: Security Tokens Explained
STOs may become the preferred mode of crowd-funding in the near future. They are a lot more regulated and secure than ICOs while being a lot cheaper than IPOs. STOs also have the potential of opening up asset-ownership to a wide variety of people.
A token represents a security or utility that a company has and they usually give it away to their investors during a public sale called ICO (Initial Coin Offering), in the case of utility tokens, and STO (Security Token Offerings), in the case of security tokens.
While utility and security tokens might seem similar on the surface, there’s actually some pretty complex differences behind them. Are they regulated or unregulated? Who can they be sold to? What is the purpose of the token? All of these questions can decided what is or isn’t a utility token. What about the Howey Test?
In 1946, the Supreme Court handled a monumental case. The case was SEC vs Howey which would lay down the foundation for the, now infamous Howey Test. The case was about establishing a test of whether a particular arrangement involves an investment contract or not.
The SEC and Swiss Financial Market Supervisory Authority (FINMA) have broken down tokens into two broad categories:
- Utility Tokens
- Security Tokens
Because most of the ICOs are investment opportunities in the company itself, most tokens qualify as securities. However, if the token doesn’t qualify according to the Howey test, then it classifies as utility tokens. These tokens simply provide users with a product and/or service. Think of them like gateway tokens.
In this panel at the Malta A.I. & Blockchain Summit, token economics is discussed. The panelists are: Sebastian Markowsky – GP Bullhound; Godwin Schembri – KnowMeNow; Wei Zhou – Binance; Sarah Olsen – Gemini; moderated by Olga Finkel – WH Partners;
Olsen discusses the importance of a stable coin and the challenge of regulation.
Schembri talks about security tokens.
Markowsky talks about what type of tokenization is attractive to investors and getting the incentives right. He advocates an interlinked multi-token model for the purpose of utility and security/investment.
Zhou talks about the “Binance Effect,” which he describes as contributing to the perception that a token is premium, since Binance only lists 3% of the tokens that apply. He emphasizes the need for clarity in regulation.
This discussion was part of the Tokenomics & Crypto Conference.