Everybody and their grandparents seemed to be making big money off cryptocurrency in 2017. Total market cap of cryptocurrencies skyrocketed during the year, from $17.7 billion in January to $572.9 billion by the end of December.
It’s like all you had to do was throw money in the game and you were set, right?
That’s partially true. But, as you can see from the sharp declines and bear market in 2018, you can’t just ‘ride the wave’.
As a Financial Times article suggests, what happened in 2017 and early 2018 was the “biggest speculative boom since the dotcom fever.”
Yet it’s worth noting that speculation has always occurred with emerging technologies. This is nothing new.
What matters most for the crypto industry now is creating real-world value and offering supporters an investment backed by real-world assets or company performance. Utility tokens don’t offer this at present.
This is why security tokens like XRES are the future. Let’s explore why:
Security tokens bring value to the forefront
While there were plenty of winners during the 2017-early 2018 boom, much of the gains weren’t backed by real-world value being generated.
Sure, there has been an impressive amount of technological progress and growing interest and use across the world. However, the boom has been largely driven by speculation (so far).
For cryptocurrencies and blockchain projects, it’s easy to get stuck looking at the drop in the value of Bitcoin from nearly $20K per coin in early 2018 to just over $6K later in the year. It’s vital to block out the noise, though.
Security tokens present blockchain projects the opportunity to capture and deliver real-world value to their investors. As the Liechtenstein Cryptoassets Exchange, a blockchain ecosystem for professional investors, attests:
“Security tokens constitute an investment contract of real-world value, meaning that speculation over the token’s value concerns the underlying asset, not the token itself. This is a welcome relief from the utility tokens, where the value is extremely hard to assess.”
So, while a bear market isn’t reason to celebrate, it’s caused us to start considering value and how a sustainable future can be built in the crypto industry. This is why security tokens like XRES have become all the buzz.
Security tokens place importance on investors
Without investors, there’s no capital to progress. And we won’t be able to transform industries with blockchain solutions.
At XResearch, we believe security tokens represent a chance to provide investors with better financial incentives than what’s currently offered with utility tokens (the current main token class). That’s because, while utility tokens certainly have use cases, they aren’t investor-focused.
After all, utility tokens are network-based and, in many ways, are similar to the internal rewards systems customers enjoy with retailers, airlines, and other consumer-based businesses. As Argon Group, an investment bank with a focus on digital finance, writes, utility tokens serve as “access to a product or service,” and can be best compared to things like a software license or gift card.
So, in short, utility tokens have use on their native platforms, and their value depends mostly on how many people use and accept the coins. Utility tokens aren’t tied to a physical asset or company in the way security tokens are. The problem with this is that, as the Liechtenstein Cryptoassets Exchange states, it can be hard to determine what the actual price and market cap should be.
Now, let’s compare that to security tokens like XRES. Distributed, a news and research firm covering the blockchain space, states that security tokens, being backed by assets like commodities and equity, “seek to combine the traditional benefits of these types of backed assets with the efficiency of blockchain-powered cryptocurrencies.”
For XResearch, token-holders enjoy certain benefits that you see in similar forms in the traditional stock market. For example, as our whitepaper describes, all token-holders will have fractional interest in the equity of XResearch. In aggregate, all XRES token holders will own 5% equity in XResearch (details of that ownership stake are to be announced later).
Since XRES tokens represent an equity stake in XResearch, their value is much easier to assess, as it’s linked to company performance. That means analysts and traders can use traditional metrics, such as income statement data, to determine token price.
Security tokens like XRES are necessary for cryptocurrency and the blockchain ecosystem to move forward
Utility tokens differ from security tokens mainly because they’re tools and not investments, as a NewsBTC piece asserts. Their value may rise or fall based on the usage of the product or service. The main point of utility tokens is to enable a network to function (this is key to remember).
The thing is that the US Securities and Exchange Commission (SEC), along with other regulatory bodies, are on the lookout for security tokens that falsely package themselves as utility tokens. As an article in The Hill notes, many projects have “not made any sense” when describing why they’re a utility token, as the use-case they claim is “weak at best and fraudulent at worst.”
Why have projects been doing this?
The honest answer is probably this: To avoid regulation that comes with security tokens. While that may seem like a smart play to get things running, misrepresentation as a utility token when it’s really a security is dangerous. Companies that do this aren’t providing their supporters or themselves with proper legal protection, and that’s tremendously risky.
Additionally, there are plenty of projects with utility tokens that do actually fuel their network. Token misrepresented as being utility tokens stain their name.
For instance, FileCoin is a utility token that’s essential to powering the project’s decentralized data storage network. Coins like these absolutely have an important place in cryptocurrency, but their future is jeopardized when fellow projects sell utility tokens to raise money but are actually securities.
What’s needed is a legit way for supporters to invest in projects. Enter security tokens.
Security tokens offer the crypto industry an investment vehicle where the value is tied to the success of the connected project. As Tal Elyashiv, co-founder of the security token firm SPiCE Venture Capital, says, security tokens are “a fungible, negotiable financial instrument that holds some type of monetary value,” usually giving the holder some economic rights like equity, a future revenue stream, interest paid, dividends, etc.
Moreover, security tokens are compliant with regulatory bodies, such as the SEC. With security tokens, traders are given transparency into business operations and financial data. This makes it easier to determine accurate, realistic prices.
Security tokens fill an important role that utility tokens can’t, just as utility tokens do what security tokens can’t (enable a network to run). With two token classes, supporters can understand more clearly what they’re buying and what it should be used for. This will create a more sustainable future for crypto.
Why security tokens like XRES are the way forward
Laimonas Noreika, CEO of Desico, a decentralized platform for STOs and security tokens, points out that “tokenized securities are bridging the gap between traditional financial markets and crypto markets because they are aligned with everyone’s interest. Regulators want to protect the investors, investors want their assets tradable, and crowds from all over the world want to invest in the most promising startups at an early stage.”
The importance of security tokens can’t be ignored. Projects should embrace security tokens. It makes sense legally and is the best way to provide value to investors.
For XResearch investors, the XRES security token offers many benefits to both a utility token and traditional stock or equity offering. For example, XRES token-holders get the following:
- Affordable investing: Trading is cheaper because smart contracts remove intermediaries.
- 24/7 worldwide access: Security tokens can be traded at any time across multiple exchanges. Also, they democratize ownership, giving anyone in the world a chance to profit from fractional interest in a company or asset.
- Better trading and use flexibility: Trade XRES tokens on a preferred exchange. Trade with peers. Use XRES to make subscribe to content on the XResearch decentralized investment research platform. You don’t have those options on Wall Street.
- Quicker execution: Being an ERC-20 token, transactions with XRES occur seamlessly on the Ethereum blockchain.
- SEC compliance: Compliance with the SEC means your investment carries much, much less legal risk. That’s reason to breathe a sigh of relief.
- Visibility: XRES transactions can be traced on sites like etherscan.io, offering transparency you don’t get with traditional stocks.
- Fractional interest: Security tokens give you fractional interest in an asset or company. Finally, blockchain investors can reap the benefits of actual ownership.
Without a doubt, the future in crypto is with security tokens like XRES. They offer the transparency, liquidity, accessibility, and decentralization investors throughout the world need and deserve.
Join the security token revolution
Let’s discuss how security tokens like XRES can bring a brighter, more profitable future for all of us in the crypto world.