The cryptocurrency market boom in recent years has elevated the importance of ICOs and capital across the world. This has given rise to new digital assets solely created for daily use as an alternative to fiat currencies. Techies, geeks and individuals initially used these digitized currencies and, are now slowly entering the mainstream market. However, there has been a lack of interest from institutional investors due to non-compliance with SEC and other significant regulations.
The fundamentals of the token model are valuable and powerful. They allow communities to protect themselves, their economics and enhance their systems using blockchain technologies in a way that was previously wholly impossible. There is a big advantage of using utility and security tokens. In this article we will give a quick introduction to both, explain the main differences and identify which token system is better to utilize.
Startups and companies are now looking into other ways of raising capital. Instead of creating a utility token, many new companies are creating security tokens (STO). A security token is a share of the company. A utility token, on the other hand, is nothing more than a piece used in a company’s ecosystem as they can give access to a specific service or product platform.It should be noted that utility tokens are predominantly an organization distinction and not a legal one. Many argue that security tokens will be the future and breakthrough during 2019.
This is the trending chart where we can see the evident growth from month to month.
Even Nasdaq wrote:
“If 2017 marked the emergence of initial coin offerings and 2018 has been the year of regulatory uncertainty around those ICOs. Then 2019 will belong to the security token. So far, security token offerings make up only a relatively small percentage of ICOs. But that will soon change. Security tokens, not utility coins, will attract significant amounts of Wall Street money next year.”
Security tokens are Crypto tokens that pass the Howey Test. These tokens usually derive value from a tradable external asset. Security tokens are subject to federal securities and regulations and hence deemed as Securitized tokens. Security Token Offering is built to increase the investors’ trust to invest in various projects.
As the ICO industry keeps getting more impactful, many organizations are gaining their investor’s confidence by offering more security tokens through Security Tokens Offering.These offerings, however, are regulated by regulatory bodies and carefully monitors the transactions and revise the auditing process to ensure no fraudulent activities are happening. In this way, these are more secure than traditional ICOs.
Alright, so let’s see how these two tokens differentiate.
The Howey test is used to determine whether things that don’t look like securities can be deemed securities.
There are three criteria to the test:
1. There is an investment of money
2. The investment comes with an expectation of profit
3. This expectation of profit derives mostly from the efforts of others
Now, we at the LOTEO entity understand the cryptocurrency market development in the last years. That is why we have created the ecosystem combining the best of the both tokens, utility and security as well. The goal is to build a unique ecosystem for the users and follow all the needed regulations.
The tokens structure is simple, and there are two tokens: the Loteo Security token (LOTES) and the Loteo Utility token (LOTEU).
LOTES is a security token which is meant to be sold in the private funding round to accredited contributors from venture capital funds. The token grants owners an opportunity to profit from being a part of a lottery without playing in the amount 20% of each total price value. The LOTES are locked for 15 months. The LOTES token also has a governing function, meaning any significant change has to be achieved by consensus.
LOTEU is a utility token that will be used only for marketing purposes. For example, you can double the chance of winning the lottery. For more specifications and understandings, please feel free to read our whitepaper.
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