In our last article, we already explained the difference between coins and tokens. We also went into detail on the topic of ICOs. In this article, we will look at the different forms of tokens and also discuss the new trend in the blockchain industry: The Security Token Offering (STO).
Utility Token – Voucher without securities
In the last article, we took a closer look at the potential as well as the dangers of classic ICOs. ICOs are capital collections in which the investors receive so-called utility tokens in return. These grant the token holder access to the associated platform and can offer additional further benefits. For example, utility tokens can be used as a means of payment within the network or be associated with voting rights. However, according to the US Securities and Exchange Commission (SEC), utility tokens may not include a financial incentive such as the payment of a dividend.
Security Token – Trade company shares on the Blockchain
Security tokens, on the other hand, are quite different. Profit-sharing and dividends can be combined with tokens of this type. In terms of the basic model, security tokens correspond to classic securities such as shares and may also be advertised as such. Because of this, security tokens are regulated similarly to traditional securities. Before a security token may be issued, a securities prospectus must be prepared and the approval of the competent supervisory authority must be obtained. Thus, tokens of this type have very great similarities to traditional shares.
To the point: the difference between Utility Token and Security Token
Utility tokens fulfil a specific purpose or service within a network. A promise of profit, such as the distribution of dividends, may not be attached to utility tokens. Security tokens, on the other hand, are regulated capital investments that are allowed to offer their token holders the prospect of profit sharing.