If you already hold tokens, I am pretty sure you must have at least once fret over the volatility of cryptocurrencies and the sudden unpredictable swings in the market. Besides, there is always the risk of investing in fraudulent projects. And as if this was not enough, in came another element to add to the muddle – the type of tokens to confide in.
Why the Discussion on Tokens Today
Digital tokens are quickly changing how organizations around the world are redefining their business model. They have redefined how equity is conceptualized. The implication is huge and will, hopefully, change the way businesses will raise capital in the future. I am inferring ICO here.
Cryptocurrency tokens surfaced in 2017 and showed great promise. But, we are concerned more with the battle between the two token types, namely Securities Token and Utility Token. For those who are oblivious to the difference between the two, it is regulations that separate them from each other. And that is where a sense of assurance steps in to empower Securities Token.
Essentially, Securities tokens are regulated by federal security laws and involve paperwork. This is because they offer investors a direct means to invest in a company’s share. Think of buying shares of a company’s stock. On the contrary, Utility tokens provide access to a product or service. This explains why they are termed Utility tokens in the first place. These are not restricted by regulations and laws.
Upon initial introduction, with fewer entry barriers and lack of documentation, investing in utilities tokens might seem the preferred way to go. But there is more to it. We have just scratched the surface. The story underneath is a tad murky which is why it is all the more important to understand the forthcoming situation.
The Current Scenario
Almost every cryptocurrency you can think of today is a utility coin. They have launched ICO campaigns with most people buying tokens as an investment. This, more or less, makes them a security. They are violating the securities laws. In the times to come, there will be massive enforcement initiatives to curb the practice.
Securities Token are the Future
Since most utility ICOs are currently offering tokens under the veil of securities, it would be safe to assume that, with awareness, investors will constrict their investments in utility tokens. The fact that securities tokens are necessarily required to abide by regulatory laws makes them a safer option with lower chances of bearing losses.
Besides, more and more companies will make their transition to securities tokens because issuing securities tokens through an ICO is a lot cheaper and easier.
Another reason for the speculated growth of securities tokens is the fact that it will have credible investors backing the project. There are criteria that one needs to fulfill to be able to buy securities tokens:
- Your annual income must be greater $200,000
- If you are married, your annual income must exceed $300,000 with a consistent 2-year track record
- Your net assets must exceed a total of $1 million; this excludes your primary residence
As of now, most companies are avoiding to label their tokens as securities due to lack of a proper structure in place. Classifying their tokens as securities would bring them under the purview of several regulations and impose trading restrictions. But the scenario is changing rapidly.
The months to come will see the launch of several platforms for security tokens to facilitate maximum compliance. Also, expect multiple token exchange platforms that offer investors quick liquidity to launch in the coming days.
The stage is set. It is only a matter of time until these players step in to create a formidable infrastructure for securities tokens.
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