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To Token or Not to Token: The Future of Fundraising

The most exciting wave of innovative blockchain startups goes hand in hand with the ongoing buzz about token investment. This revolutionary technology is believed to become commonplace in the near future. Hence, risk capital investors have nothing left but be open up to investing in decentralized business models. This article provides a better understanding of admirable, if not particularly mind-blowing token opportunities in the crypto space.

To Token or Not to Token: The Future of Fundraising


A year ago, blockchain technology development formed a completely new approach to business valuation, assets, and funding. Previously only a fairly large enterprise with absolute transparency, in full compliance with often excessive international requirements, could count on entering the market for serious loans through distribution securities. Today, thanks to the new phenomenon that is the tokenization of assets, this is available to almost everyone.

If you are about to run a blockchain project you probably already know that the ICO model is now considered less relevant or much more demanding than it was several years ago. We all remember these insane success stories of how ICO exploded, starting from nothing and soon becoming a multibillion-dollar market. But the cold hard truth here is that one in two ICOs failed in the second quarter — and those that succeeded suffered huge losses. That’s not exaggerated doom and gloom either. What’s more, a tremendous amount of scams not only impacted the exchange rates of major digital assets, but it also deprived worthwhile and promising projects of funding. Today, having a great website, a solid white paper, and a few veterans on board is not enough to make a big ICO splash.

People must take the biggest shots to make the biggest gains; that’s why they forgo the usual routes of raising capital during the journey of building and scaling their business. Here comes the alternative way of valid fundraising (especially for long-term goals and direction) like tokens. When classifying tokens, we would like to highlight the security and utility token. While each of these funding instruments has a ton of advantages, the biggest one is bringing what investors haven’t seen yet, but probably need — ease of use. And this is just a drop in the bucket. So keeping all this in mind, let’s aim to answer the simple question: will token investment become the future utopia?

Security Tokens to the Rescue

When searching for security tokens on YouTube, you’ll see something like: “Why security tokens and why now? Are security tokens the next big thing?”

Clearing through the hype, it’s hard to give a precise definition of what a security token is right now, and then people mix them up with traditional securities. Fair enough; these are quite alike, but there are some differences. Tokens with security provide a strong technological upgrade and the power to transform different corners of the finance sector.

Translating into plain English, they represent a “share” of an underlying asset, such as a company, real estate, or gold based on the blockchain. To drive the point home, fundraising through the STO is often cheaper than traditional methods, such as venture capital or IPO. The key distinction primarily lies in the framework and preparation of the sale. Meanwhile, the normative requirements are met, the issuance speed is increased, and it is possible to target a wider circle of prospective investors.

How Come Security Tokens Are Emerging as an Investor’s Best Bet:

Here are the advantages of choosing an upgraded and highly regulated digital version of traditional securities as the next investment vehicle.

  • Greater liquidity — Security tokens can facilitate liquidity in previously illiquid markets. That is a very confusing sentence to understand, but at the same time it is incredibly powerful, so it is something that we must get our heads around. The digital version of securities allows for increased liquidity due to the frictionless transfer and the potential for the elimination of intermediates.
  • Reduced charges — The transfer of fractional interests is promised to be done in the most cost-efficient manner possible.
  • Intrinsic value — Providing ownership to virtual or physical assets: company property or its shares, the share of the profit of the issuing company, credit commitments, dividend payments.
  • Business flexibility — STOs have provided investors with greater trading opportunities and flexibility.
  • Transparency — Fanatically overused, this word has become a marketing tool that persuades consumers to trust the seller. The cutthroat nature of the corporate world seems to demand that transparency becomes a principle of theory rather than a practicality. But when it comes to security tokens, they ensure immediate, across-the-board transparency. It’s almost impossible for your business to be shorted, even with a small number of influential investors.
  • Regulations are “baked in” from the start — Since security tokens are heavily regulated, the chances of these being a scam are negligible.

How App Tokens can Change the Platform Landscape

How App Tokens can Change the Platform Landscape

This essential tool for crowdfunding purposes is something that promises the use of a new product or service introduced to the marketplace. Think of them as a gateway; they enable people with access to a network to have their voices heard within the ecosystem through voting. These quantified units of services are, thus, a more liquid medium of exchange. With transparency in mind, they improve user participation and synthesize the community, symbolizing the predefined terms set by a project. For instance: BioCoin, SIA, Steemit, Augur, etc.

Some blockchain enthusiasts credit user tokens as an essential piece of the puzzle to take the cryptocurrency boom to unprecedented heights while the true value lies in the privilege to utilize the cryptocurrency networks and give the user certain voting rights within the ecosystem.

The core benefits:

  • Setting up incentives
  • Lower fees
  • Kickstarting network effects

Setting Up Incentives

The desired end goal of all business owners is to generate more investment income while the users aim to pay less for more. How can you align the self-interests of two (or multiple) parties that are dynamically opposed to each other? This question has no clear answer, so the players stick to the status quo and the root problems won’t get solved. Luckily, there are tradeoffs between the ecosystem’s participants, and this is where the most interesting experiments are taking place on the cutting-edge model.

User tokens create an ideal situation where everyone comes out a winner, promising the greater alignment of incentives between the platform backer and market participants, as well as managing supply and demand.

The first user can get income only if the price goes up. The price is tied to network usage, which is connected with the fundamental value of the platform for its users. As a result, the whole process is all about providing excellent customer service. This type of tokens can align material stimulation as well as offset the costs associated with organizing multiple parties around a single technical standard.

Lower Charges

Traditional trading floors monetize via transaction fees, the so-called “rake”. What the heck is a “rake”, right? Well, rake is a software task management tool used to handle administrative commands and tasks. But tokenization allows the devs and backers of the platform to give a new form of compensation a try: token value appreciation. Now and then it could displace rake in general. The bright example is Wemark with close to a 0% commission on stock photos with the tokenized model. Not bad, huh?

Kickstarting Networking Effects

The major privilege lies in the low rake leading to higher usage and driving more powerful network effects. An awful lot of tokenized systems are organized for the building of communities with powerful network effects in mind, providing participants with greater value. This trend is going to change the way many startups make a profit.

Brand New Problems

Tokenization is a promising option for small businesses to implement. However, before you decide on it, you must find the potential pitfalls that can be encountered along the journey.

From Uncertainty to Regulatory Clarity

When uncertainty looms, it’s natural to want to retract—to shrink back from the previous, well-thought-out plans—. It’s normal to want to play it safe “just in case.” Unfortunately, the decentralized technology industry has been plagued by regulatory uncertainty, especially considering the fact that blockchain-based platforms are de facto decentralized. While regulatory issues loom over the token space like a dark cloud, another drawback of the token model is that it opens a large window of opportunity for crime, money laundering, and illegal transactions.

When it comes to legal uncertainty, it puts token issuers into a dangerous position, because if they fail to comply with the appropriate rules and regulations, they might be held liable for violations of the law. Sad but true, regulatory uncertainties continue to prohibit the successful widespread adoption of utility tokens. How to determine if the securities are subjected to specific disclosure and registration requirements? The Howey Test is the answer.


The potentially critical differentiating characteristic that distinguishes it from debt, equity or other securities is utility. A genuine utility token is extremely rare and allows you to get rid of public regulations and fees. Obviously, a good deal of devs are desperate to use that name even if it has nothing to do with reality.


Before everyone can safely conduct a significant amount of transactions through cryptocurrency markets, the liquidity problem must be resolved. Liquidity is the number of assets that the market allows you to buy and sell at stable prices. Low liquidity leads to an unstable market, resulting in a sharp price change.

Closing Thoughts

Down the road, we are more than confident that all startups will be divided into 3 categories: classic venture capital companies, token-funded startups, and hybrids. The last category deserves special attention. In our humble opinion, the synergy of venture business and token sales is a trend that will become more talked about. Lately, new tools are emerging for investors, combining the advantages of VC and token sales. Some of them offer clients “tokenized” financial instruments that are tied to high-yield venture investments, which makes it easier for representatives of the venture business to enter the crypto space.

Network businesses that are difficult to expand and monetize will benefit most from the upcoming tokenization. It will create an entire economy around the product, where customers can pay for the service provided with tokens, and the founders can plan, change, and support the resulting business.

At the extreme end, we would like to mention that surviving and aiming to be unique has its fair share of challenges. If not taken care of, these issues could bring about serious repercussions.

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Tozex is a crypto asset platform which allows to manage token sale, investment and trading in the same ecosystem. #blockchain #token #crypto #eth