A Dual Token Structure of Utility and Security Tokens
Leveraging the best of both token worlds
Written by MintHealth CEO Samir Damani and Chief Strategy Officer Jerry Gross
The Emergence of Crypto-Securities
In 2017,[1] ICOs took the world by storm[2]. These ICOs have been predominantly tokens with utilitarian value and have raised over $4 Billion with an estimated market potential of $524 Billion[3]. In the process, they have disrupted the entrenched Venture Capital industry. However, in just one short year, we have seen the sun-setting of the ICO as we came to know them.
We are now experiencing the dawn of new era for funding Blockchain startups via a more stable, regulated vehicle known as the Security Token. This new vehicle is already attracting the kind of institutional capital required for the transformational change that Blockchain companies today are poised to deliver. While the security token sets a higher bar for both companies and investors seeking to invest in our technology future, it also mitigates the speculative mania and get rich quick “pump and dump” schemes that have hurt industry growth over the short term.
Herein, we outline a novel dual token structure where the utilitarian aspects of a token can be maintained to drive novel Blockchain-based business models, with security token holders benefitting from long term dividends of utility token sales, ownership in a company’s technology, and the liquidity offered by the security token exchanges set to go live later this year. Additionally, we describe in further detail the rationale behind the dual token structure, and illustrate a use case of such a structure with MintHealth — a decentralized healthcare platform that aligns stakeholders around patient empowerment for the purpose of combating the global epidemics in chronic disease and its associated skyrocketing costs.
ICOs As We Knew Them
As Crypto-Currencies[4] became commoditized last year through broader adoption[5], the rise of Crypto-Commodities[6] and Crypto-Utilities[7] were used to crowdfund protocols, networks, and services. Although it may not appear to be the case, the emergence of Blockchain with its CryptoAsset “killer apps” are following a predictable path of evolution along the Technology Hype Cycle[8] leading to the inevitable dominance of Crypto-Securities — a more stable investment and trading vehicle for companies trying to transform large entrenched industries.
Technology driven disruptions always emerge through a triggering event [9]. Although it may never be confirmed, the 2008 Financial Crisis appears to have been the trigger event for Bitcoin through the publishing of Satoshi’s peer-to-peer trustless concept in his/her/their whitepaper, which later a prototype, the Genesis Block was created. Just as when the Internet was triggered in the 1970’s, as news of Bitcoin emerged and infrastructure was built to support it, we entered a period of “inflated expectations” where early adopters, such as centralized exchanges, implemented fragile and unregulated trading platforms, both successfully and in some cases, with disastrous results due to large scale thefts and scams.
These emerging markets also experienced unprecedented wealth creation (and depletion), feverish speculation, dramatic volatility, market manipulation, unpredictable access and liquidity which caught the attention of National Governments, Taxing Authorities, Regulators and Institutional Investors. While there are compelling and regulatory compliant use cases for Utility tokens when their focus is solely on their use and not as a tradeable asset, ICO’s and unregulated centralized trading platforms in their current form have Investors disillusioned and wary.
A New Asset Class is Born
These combinations of “learnings” are the primary triggers for the emergence of Crypto-Securities. Crypto-Securities, also known as security tokens, are designed to overcome current challenges by tokenizing securities tradeable on the Blockchain, where the main use-case, is the anticipation of future profits in the form of dividends, revenue share and/or price appreciation. Security tokens that are regulatory compliant are cheaper and more efficient than conducting an ICO using utility tokens[10]. The underlying superhighways for trading security tokens has been underway for some time now by a number of visionary companies that saw this new trend emerging. Some notable companies include tZERO, Bancor, Polymath, Templum, among many others.
The Best of Both Tokens
Industry analysts and leaders predict that 25% ($20 Trillion) of the existing global equity market of $80 Trillion will be security tokens in the next 3 to 5 years, driven primarily by the massive influx of institutional capital[11]. At MintHealth we are leveraging the benefits that are inherent in both types of tokens by creating a two-token structure, whereby the tokens will be linked in a way that enables stakeholders to participate in the growth of the MintHealth Blockchain ecosystem, while capitalizing on the projected growth and regulatory compliant nature of security tokens.
MintHealth Vidamints™ (VIDA)[12] will operate as the rewards and incentive system on the MintHealth platform where Patients will earn VIDA as a reward for completing healthy activities. Patients will then be able to redeem VIDA for rewards in a similar fashion to frequent flier miles or other loyalty program point systems. In this case, the purchaser of the Vidamints will be insurance companies, corporate wellness programs, and any other entity that takes on the financial risk in caring for patients with diseases like obesity, diabetes, hypertension, among many other preventable chronic conditions. The VIDA token will not be used for capital raising. It will be a loyalty/utility token that is sold at a fixed price and will be tracked and transparent via the Blockchain.
MintHealth Tokens (MHST)[13] will be a security token offered through a Regulation D private sale process. MintHealth is also exploring opportunities to offer MHST through regulatory compliant sale(s) via the JOBS Act exemptions. The MHST token will entitle holders to i) a 10% royalty percentage of revenues generated through the sale of VIDA by MintHealth and ii) equity ownership in MintHealth. This structure provides a unique balance of participation in ecosystem growth and an equity ownership stake in MintHealth as a company.
Given the regulatory, government, tax, and other market implications covered here, we believe a dual token structure will provide the financial support for long term visions of transformation in a safe and compliant manner for all parties involved.
Most importantly, we are insulating the purchaser of goods and services and business models enabled by the utility token from the mania and volatility that has been rampant due to speculators and short term investors.
To learn more about MintHealth and how we are transforming Healthcare https://www.minthealth.io/
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[1] Definition: CryptoAssets are the native asset of Blockchain. Currently they include Crypto-Currencies, Crypto-Commodities, Crypto-Utilities and Crypto-Securities.
[2] Definition: Initial Coin Offering.
[3] Source: McKinsey Consulting, 2018- Total illiquid VC capital under management.
[4] Source: Burniske & Tatar, CryptoAssets, 2018- Crypto-Currencies defined as a means of exchange, store of value and a unit of account.
[5] Note: CoinMarketCap: Cryptocurrency market capitalization in 2017 had a range of $50B to $795M, https://coinmarketcap.com/charts/
[6] Source: Burniske & Tatar, CryptoAssets, 2018- Crypto-Commodities defined as a raw digital material or building block (e.g. compute power, storage capacity and network bandwidth) that serve as inputs into finished digital products and services.
[7] Definition: Crypto-Utilities defined as “finished” digital products and services that are designed as enablers not as investments (e.g. Media, Social, Marketplaces, Exchanges, E-Commerce.
[8] Source: Gartner Group https://www.gartner.com/technology/research/methodologies/hype-cycle.jsp
[9] Source: Gartner Group Research & Consulting, 2018.
[10] Source: ICO Alert- https://blog.icoalert.com/why-security-token-offerings-could-be-the-next-big-crypto-megatrend-3072d544a796
[11] Source: Cryptovest, https://cryptovest.com/news/are-security-tokens-key-to-tapping-a-multi-trillion-dollar-industry/
[12] Source: MintHealth Token structure- https://www.minthealth.io/wp-content/uploads/2018/03/Team-and-Token.pdf
[13] Source: MintHealth Token structure- https://www.minthealth.io/wp-content/uploads/2018/03/Team-and-Token.pdf
