So, one thing I’ve been talking a lot about lately is STOs, or Security Token Offerings. I think there’s a lot of promise, but I want to ask another question today: Is there a place for utility tokens in an STO world? Will they survive?
So, for those unaware, STOs represent tokenized equity in a company (think stock), whereas utility tokens are digital vouchers for a network — think arcade tokens.
Because utility tokens are supposed to be strictly used for “utility”, i.e., used in the network, they’re not supposed to be treated as investment vehicles, at least according to securities law.
For example, you wouldn’t speculate on the price of arcade tokens, right?
But yet, the cryptocurrency market and the ICO boom was exactly that. Utility tokens that in a lot of cases had no utility except to be speculative investments.
So, we’re in a transition period. Clearly, the model had promise, but it was broken. I see STOs are the potential solution, but there are those who disagree with that.
Regardless, now that we’ve moved past the ICO boom and bust, what’s next for utility tokens?
Well, let’s look at the state of them.
Obviously, 2017 was a great year for Utility Tokens as they raised more than $5 billion through ICOs.
Even though the bear market was in full swing, 2018 performed even better when looking at the amounts raised in ICOs. But, the hype was dead by summer and ICOs have slowed way down.
It shouldn’t be that much of a surprise, but we learned that 78% projects conducting an ICO in 2017 turned out to be scams and another 7% failed or went out of business. Not a good look.
The remaining 15% that are still out there . . For now.
Even less of those actually have working services. And those actually making money? A paltry few.
Despite some great marketing and hype, it seems many simply oversold themselves and overpromised. Many are lacking good user experiences or are truly competitive to their centralized counterparts.
But, I’m not here to give a eulogy.
I could have probably said the same thing in 2001 regarding the Dot-Com era web companies.
I think, at the very heart of things, the solution for that bubble burst and recovery is the exact same, more or less, that we’ll need to see for utility tokens.
Dot Com web companies over-promised and under-delivered. And yet, here we are today.
People don’t look back at that period with disgust or anger — they see it as the birth of something great, the Internet we share today.
I think price corrupted utility tokens, and if there’s to be actual utility and usage of utility tokens, then price needs to be a minimized factor.
It goes without saying that so long as the primary reason to trade fiat for a Utility Token is entirely driven by the motivation to sell it at a higher price, then there is no fundamental reason to use it for utility.
In order for it to be part of a sustainable business, such as using it to access any provided services, price needs to be a secondary factor to the actual utility of the token.
And, I think we’ll get there.
STOs will actually be good for Utility Tokens, not their death. STOs can serve as the fundraising vehicle they’re meant to be, whereas the utility tokens can serve as the lifeblood a micro-economy or network that they’re meant to be.
Once crypto becomes more usable and ubiquitous, and we transition from speculative value to more utility value, then utility tokens will make a comeback.
Not in price, but in utility.