Utility vs. Security Tokens — What You Should Know Before You Invest

in blockchain •  last year  (edited)


Blockchain technology has enabled something called the “tokenization of business models.” This feature of the emerging technology has enabled it to disrupt almost every industry on the planet. The immutable, distributed and decentralised ledger, which forms the backbone of crypto tokens, is helping solve some of the biggest issues plaguing our world, by providing transparency, security and paperless recording of events and transactions.
Mobile game aggregator, Sgame Pro™, is also launching its own token in an ICO scheduled for September 2018. The SGM utility token aims to overcome the challenges that the online gaming industry is currently facing, both for publishers and gamers. But what is a utility token and how does it differ from a security token? The answer to these questions is necessary for anyone wanting to invest in the blockchain space.

Security Tokens

In financial markets, a security is a term used to denote any class of tradable asset. In the crypto world as well, tokens that included in this category hold promise of future returns or revenue sharing. According to the US Supreme Court’s Howey Test, for a token to be listed as a security, it must fulfill two main conditions: expectation of future price appreciation versus a certain use and, secondly, the control by a single issuer or a network.
Initially, when ICOs came into being, there was no distinction between various types of tokens. However, over time, regulatory bodies, such as the US SEC, started listing these tokens in the financial securities class, thereby eligible for federal regulations.
ICOs were and still remain a good way to raise capital for tech startups. Problems arise when companies start issuing tokens with tenuous use cases, when they are in fact security tokens in disguise. That not only incurs the wrath of regulatory bodies like the SEC, but also jeopardizes the money of uninformed investors.

Utility Tokens

Utility tokens, on the other hand, represent future access to a company’s products or services. Since they are not designed as investments, they are usually exempt from the laws that govern securities. It is these utility tokens that are enabling re-inventions of entire business models.
In the case of Sgame Pro™, the SGM or Sgame coin, an ERC-20 standard utility token, will enable players to buy and trade digital assets on the gaming platform. SGM tokens will be the sole mode of transaction on the platform. Players will get rewarded by publishers for investing time and effort in their games, in return providing publishers a platform for easy promotion of games.
Influencers will also be able to benefit from the tokens, based on a referral-system, which will be applicable even if the leads do not turn out to be future players. Merchants, on the other hand, will be able to showcase their goods online, without bearing huge costs of online advertising.
As the very concept of spending fiat money is being done away with here, player engagement rates are expected to rise. The concept of ownership of digital goods, which is a growing area of concern in the gaming ecosystem, will also be taken care of with the distributed ledger recording ownership and digital assets having the ability to be used across games on the platform.

To know more about this project and its upcoming ICO, visit sgamepro.io and follow on Facebook, Twitter, Instagram and LinkedIn.

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