03-BlogPost_Security vs. Utility Tokens_11.01

Security vs. Utility Tokens

By:  TAGS: , , DATE: 11/05/2018

Our previous post defined security tokens and explored several uses cases for “securitizing” various investments. We explained that security tokens are backed by real-world assets that are tangibly valuable. This makes the asset more liquid because it provides a building owner, art dealer, or classic car purveyor with access to capital while still retaining ownership of the tangible “thing.” While utility tokens are typically offered with an ICO and might grow in value, but can become worthless. But the differences between these two types of tokens is a little more complex.

 

Before digging deeper into a security vs. utility comparison, it’s helpful to first define a “token” to provide some needed context. In the simplest form, a token is an asset or some unit of value that is offered/issued by a company. This issuance is usually done through an initial coin offering (ICO), similar to the familiar initial public offering, or IPO. Instead of stock received in an IPO, an investor receives a token that corresponds to a set monetary value. Security tokens are offered as security token offerings (STOs), another category of investing where security tokens are exchanged for fractional asset ownership. So why are tokens not considered “coins?” Coins have a payment-related use case and their own blockchain, while tokens are secondary assets that do not run on their own blockchain.

 

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