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Orichal Co-Founders Talk Securities, Blockchain and the Death of Utility Tokens

Comments by CHRIS KIM and SCOTT SIU, Co-founders of Orichal

SCOTT SIU

Blockchain has helped to create a new asset class. Utility tokens open an opportunity to invest in very early stage projects, but it’s very volatile. Are you going to find the next Facebook? Maybe. But a lot of these utility tokens are probably going to go away. There’s nothing backing a utility token.

Security tokens are different – They’re connected to asset backed investments. That could be the next phase, and it’s going to be huge for the industry. It’s all about giving access to investment to a new generation, new audience – people who’ve never had access to Private Equity or Angel investment before. And vice versa, if I am a company who’s trying to do a reverse ICO or an STO, this allows me to get access to funding and supporters. Sometimes Security tokens are asset backed, it gives investors more confidence, and provides a different valuation. It’s a type of asset that’s going to be more attractive, more comfortable for investors, and more aligned with what we see in the stock market.

When STOs get more formalised, there will be more regulation around it, which will be helpful. It opens up a new market, and investors would be able to choose. Currently, institutional players are not coming in due to the lack of certainty in the market, the lack of custodians, and the immaturity of the infrastructure overall. We are still waiting for these things to develop for the institutions to come. This will bring a big change.

“It’s all about giving access to investment to a new generation”

CHRIS KIM

There’s a reason why utility tokens are dying. You do an ICO, you raise capital, and then, what you’re supposed to do with that capital is build a company, an infrastructure, so that your utility token actually has a utility. The problem is that, because of the lack of regulation, a lot of ICOs are taking the money, and spending it elsewhere. And because there’s no regulation, there’s no way to stop these people, like you would with a traditional IPO. So, from now, I think, security tokens will be a thing. However, once the regulation is there, and there are certain measures to control utility tokens, then all these utility tokens that are raising capital will create an actual infrastructure and survive. After all, the purpose of raising money through blockchain, is to raise it on an idea. If they had the money to build the infrastructure already, they would go to VCs. I think one or two years from now utility tokens should be trading just as fine as security tokens.

There’s a lot of ‘utility’ tokens out there that should be securities. But they hire a law firm, and they give them a utility opinion, even though at their core they’re a security. So it’s all going to be about regulation. From my perspective, it should differ from country to country. But in Korea, going forward, there are going to be set standards for doing an ICO, similar to an IPO, such as X amount of initial capital, X amount of employees etc., so they are going to be classified as the same at some point. 

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