Types of tokens⚖️
Very often unqualified investors buy tokens that do not add value to the invested project, and sometimes do not even fit into the business model🚫 In this case, the founders and early buyers are the only winners.
Although the tokenization of a business is sometimes disputable, the question of determining the type of token and its price seems more fundamental and important. Let’s learn more about this ⏬
There is no uniform classification of tokens today. However, SEC in the USA 🇺🇸 and FINMA in Switzerland 🇨🇭 offer the solution for this problem.
Both organizations divide tokens into 2 categories:
- security tokens;
- utility tokens.
Another category that can be distinguished is called Payment tokens. This type has its own blockchain and is often regarded as a means of payment.
SEC and FINMA have one important difference♻️: while SEC focuses on comparing tokens with securities, FINMA focuses on the economic functions of tokens.
Each of the 3 types of tokens has its own key features.
➖Security token (SEC) & Asset token (FINMA)
Tokens are assets that participate in real business, companies, income, or give the right to pay dividends or interest. In terms of their economic function, tokens are similar to stocks, bonds or derivatives.
➖Utility token (SEC) & Utility token (FINMA)
Provide access to goods and services that the project will launch in the future. Also, tokens can be used as a type of discount or premium access to the goods and project services.
➖Cryptocurrencies (SEC) & Payment tokens (FINMA)
Tokens do not have any additional functions and are not associated with other projects. Their task is to obtain inner value meant for making purchases, sales and other financial transactions, along with traditional currencies (dollar, euro).
💡"Utility tokens" are used in more than 95% of projects, and sometimes they are given absolutely absurd functions. This is a consequence of legal restrictions.
“Security token” is generally regarded as a relatively safe type of token🔐 for investors. However, it complicates the ICO and requires KYC / AML procedures. For example, FINMA applies the same rules to tokens as to other securities (stocks, bonds, etc.).
⚠️By the way, the type of token can be changed during the development of the project or due to SAFT agreements. Ziliqa, Seele and Credits all issued ERC-20 tokens in the early stages of development and later set out to replace them with their own cryptocurrencies.
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