The cryptocurrency token landscape is continuously evolving. Regulatory frameworks are looming in major economies like the United States, where the ecosystem is currently defined by regulatory ambiguity. The future introduction and adoption of security tokens will only further the need for more regulatory clarity.
Cryptocurrency tokens involve different standards, implementations, and designs. Game theory dynamics play a vital role in their sustainability and have led to a new field pegged “Cryptoeconomics.”
Sara Technologies continually seeks to understand and adapt to the changing token economy. We know its potential as part of the movement towards broader cryptocurrency adoption and are here to help you build the tokens and ecosystems that your business or ICO needs.
ICO and Token Regulatory Environment
The current regulatory environment surrounding cryptocurrency tokens varies between countries and is largely unclear. After adopting blockchain-friendly regulations for companies and exchanges, nations such as Malta have emerged as leaders in the space.
The SEC has made some high-profile statements regarding Bitcoin, utility tokens, and security tokens in the US. However, there is no official policy or regulation on various cryptocurrency tokens yet. The SEC has also denied several Bitcoin ETF proposals, further contributing to mainstream adoption and institutional entrance into the cryptocurrency markets.
That being said, tokens and their subsequent token economies are wide-ranging and have distinct differences. To better understand them, we can classify tokens into 2 basic categories:
- Utility Tokens
- Security Tokens
Utility tokens make up the vast majority of cryptocurrency tokens today — typically launched through an ICO — and most of them are ERC-20 tokens built on Ethereum. Security tokens have some fascinating potential as they are expected to become an accessible means of tokenizing traditional financial assets.
Utility tokens are essentially access tokens (similar in concept to API keys) to platforms that would not otherwise have been able to raise funds outside of an ICO issuing the token. They are specifically designed to function as a utility on the platform to subvert registering as Cyber Security Services with the SEC.
A notable example of a utility token platform is Filecoin — which raised $200 million in 1 hour — whose token is used for access and decentralized data storage purchasing on the platform, which is based on IPFS.
Utility tokens need to have sustainable token models (economics) to function successfully over the long term. This has led to a new field of “cryptoeconomics” that is really just about aligning economic and game theory incentives.
Regarding the regulation of utility tokens, the SEC has been pretty clear that many utility tokens are scams or should have registered as securities. More than 46% of ICOs in 2017 had failed by February of 2018, and many were blatant exit scams.
The market for utility tokens is consistently changing, and the revelation that sustainable token models are needed is becoming well-established. Many poorly implemented ICOs will continue to fail, and the platforms with better technology and use cases will begin to emerge from the rest.
Security tokens are a more novel asset class with an entirely different use case than utility tokens. They are specifically tailored to be regulatory compliant as securities under current US regulations. While there is still no definitive regulation surrounding security tokens from the US Government, Coinbase provides a useful table for analyzing the likelihood of a token being considered a security.
Security tokens will open the door for institutional investors to enter cryptocurrency markets. Not only will certain existing securities and fungible assets be converted into security tokens, but these tokens will offer substantial benefits compared to current financial securities. Specifically, they will allow secondary market access to the securities, adding increased liquidity to cryptocurrency markets and adding 24/7 access to securities for mainstream investors.
Implementing regulatory-compliant security tokens will be complicated. However, some significant strides have already been made on that front, including Polymath’s ST-20 standard that builds on top of the ERC-20 standard. The bulk of cryptocurrency tokens available today are ERC-20 tokens, and ST-20 allows program compliant code as part of a token.
The future regulation and adoption of security tokens — among some other aspects — is seen as the doorway to institutional investment entering the cryptocurrency markets. Subsequent effects from this will lead to increased mainstream awareness and acceptance of cryptocurrencies. The impact of security tokens has enormous potential but comes with some heavy qualifiers, such as the future regulatory ecosystem and how they are specifically implemented.
Sara Technologies and Token Implementations
At Sara Technologies, we see security tokens launching the cryptocurrency markets into mainstream acceptance. We are aware of and continually seek to learn more about potential regulations surrounding both security and utility tokens. We know how to implement various types of tokens and their sustainable token models as we’ve done them before successfully.
Our goal is to provide you with the best support and expertise, and blockchain development to build a token and sustainable ecosystem for its development. The future Internet will be built on blockchain networks and their incentive-driven token models.
We are focused on building regulatory-compliant tokens and incorporating the most innovative technologies into our designs. The evolving landscape of the new token economy is complex and challenging to stay on top of. Our token solutions can help you launch the optimal ICO for your platform that retains users and becomes a part of the future token economy.
Contact us to find out more!
Oakland, CA (510)768–7101
San Diego, CA (HQ) (858)848–1748
Albuquerque, NM (505)814–0011
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