Written by CEO & Founder of Ternion, RUDOLF MEDVEDEV
In the last year, we have witnessed a boom in the startups that had relied on ICOs as their primary source of funding. As fintech solutions become more conventional and regulatory agencies are expanding the legal frame to account for them, more investors and CEOs wonder about token economics and the possibilities of digitalisation of other industries, such as gold and real estate.
Security or utility tokens?
Utility tokens provide users with special promotions, discounts and access to the future product or service. Think about a library card: it gives you access to the books and allows you to access them online, but at the same time you cannot keep or buy them. Security tokens, on the other hand, offer their holders investment interest in a company, including a right to benefit from profits or rise in the company’s value.
Utility tokens have become fetishised by ICOs, and they are considered to be an easier and more appealing alternative to security tokens. However, security tokens have more guidelines and rules surrounding them, and that means that they are subject to legal regulations from day one. That puts the onus on the people behind the ICOs: it makes them more responsible for their actions, it gives them more guidance on conducting crowd sales and gives them proper motivation. Investors also feel safer and are more likely to invest in security tokens knowing that there are guidelines, regulations and a burden of responsibility that lies on another party.
When purchasing security tokens, people understand what they can get in return, as ROI is the main reason why private investors and VC funds invest in startups.
What about gold and real estate?
The current state of digitalisation of the gold and real estate industries is in the stage of staggering development, and it needs more time to mature. The success depends on the exponential advancement in other fintech areas, such as crypto-to-fiat trading and efficient exchange of all digital assets. Once we can see a rapid and efficient development in the crypto trading area, then we are likely to see digitalisation in other areas, such as the gold industry and REITs (Real Estate Investment Trusts). For instance, one can trade bonds of a real estate investment trust and offer the dividends on them using a dividend token approach (a security token).
Although this a great idea in theory, in reality, there are no current examples that can be used to support its feasibility. Nonetheless, the more efficient and conventional crypto trading becomes, the higher the chances that not only real estate and gold, but the future itself will be digitalised.
Is crowdfunding dying out?
Unfortunately, crowdfunding is becoming less popular, due to the rapid inflow of different ICOs that we have witnessed recently. Supply of ICOs outnumbered the demand for them and many investors got burned when they contributed to crowdfunding. Now that the market has calmed down, we can see that investors are more selective and careful about investing, and there are fewer crowd sales. Currently, we can observe a rise in private sale rounds tailored specifically for VC funds.
Investors and CEOs become more diligent and rely on the legal framework when conducting or participating in crowd sales. Security tokens have the potential to outclass utility tokens. The bar has been set high for the newcomers, thus allowing only credible players and future-worthy projects to get through.