Category: Tokens

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Should you go for utility or security token for your ICO project?

Categories Blockchain, Cryptocurrency, ICOs, Tokens, Utility Tokens, Security Tokens, Securities

Should you go for utility or security token for your ICO project?

In 2017, the traditional method of startup fundraising (using VC methodology) was completely revolutionised. A boom in the creation of ICOs saw literally hundreds of companies turning their attention to the blockchain and creating a digital currency born in the form of an invest-able token. This manner of crowdfunding which has seen unprecedented levels of increased popularity has found its wings clipped by regulators and authorities who have picked up on a few worrying issues. Authorities such as the SEC have taken an in-depth look at the tokens being produced by ICOs and have decided that the majority of them could be classified as a security.

This classification does not, however, apply to all tokens and some that are being developed off the blockchain can be considered as utility tokens.

There are, of course, more than two types of token such as equity, work, share-like, and asset-backed but it is important to focus on the two types – the utility and the security. By understanding the difference between these two types of token each ICO can choose a more suitable regulatory pathway.

Securities token

By the end of July 2017, the SEC dealt a big blow to the ICO world by declaring that DAO (Decentralized Autonomous Organization) tokens were securities and were therefore subject to federal securities laws. It was never the intention of token creators for them to be considered as securities but as the companies that issue these tokens, often increase in value over time, the token begins to perform as a security.

The Chairman of SEC, Jay Clayton added that “Prospective purchasers are being sold on the potential for tokens to increase in value, with the ability to lock in those increases by reselling the tokens on a secondary market or to otherwise profit from the tokens based on the efforts of others. These are key hallmarks of a security and a securities offering.”

But to decide whether a token should be classed as a security, one can put it through the Howey Test. The test seeks to find if a token has the following attributes; does it offer the chance to invest money and then to share in the profits of an enterprise managed and partly owned by respondents, and does the scheme involve investing money in a common enterprise with profits that come only from the efforts of others. As most ICO tokens fall into these categories, as such they fall under the jurisdiction of the US federal law.

Utility Tokens

The other popular type of token is a utility token and it serves a role where security tokens are resulting from the company receiving unwanted attention from securities regulators. In short, a utility token can be defined as representing future access to a company’s product or service. The defining feature of a utility token is that it is not designed as an investment, but rather as an IOU (I owe you) of sorts for future use. If utility tokens are structured properly, this means that they cannot be considered as a security token and therefore cannot be governed by federal laws.

There are already some very successful utility tokens on the market such as the ones issued through Civic. Civic has created 1 billion utility tokens that offer access to identity verification services in a decentralized and token-based system. These tokens each represent a unit of account for the Civic network and the more the network grows, the more utilities the token is worth.

Out of 226 ICOs, only 20 of the tokens issued are actually used for the running of the applicable networks and are therefore utility tokens. Another example of a company that uses utility tokens is Storj. These tokens allow the holder to use space on their network and the token crowd-sale in 2015 raised over half a million dollars.

Shawn Wilkinson explains:

“For many companies, utility appears to be an afterthought, but for a token to be successfully adopted into the community, it is the most critical component. With the amount of tokens on the market today, and new ones being launched every day, it’s clear there is a bubble, though the size of it might be debatable. When the market slows, the tokens that have no utility will ultimately not have any value at all.”

Another way of explaining how a utility token works is by describing it as a coupon for the company and the services that it provides. For example, a retailer accepting pre-orders of a video game that has not yet been released. This kind of token differs from the usual ICO token that most people are used to and whilst it cannot be applied to every company, it is perfect for some. There have already been instances where utility tokens have replaced the role of a security token and have therefore allowed the blockchain solution to fulfill its primary goal – an example being Filecoin which raised an impressive $52 million.

Utility over Security

Whilst on paper, choosing a utility token over a security token might seem easy enough, there is more to it than that. If a company is unable to find a place in any categorization for their token, then it will become a securities token but if the token can be placed in them, it makes sense no avoid it being a security and having to negate a regulatory minefield. The first step is to decide whether it is fungible or non-fungible.

Utility fungible and non-fungible tokens

These are tokens that can be interchanged for another token. The fact that it is fungible means that the goods, service, token, or asset is interchanged with another that has an equal value. Gold is often considered as an example of a fungible asset as one ounce of gold, whether in coin, ingots, or dust form is still worth the same amount of money.

A voter token is another example of a situation where both blockchain and tokens can be utilized without the need for a native security-style token. These governance tokens allow those that are using the network to vote and a utility token is sufficient for this purpose. Similarly, membership tokens are also considered to be fungible utility tokens due to the fact that the token is only being used to access the platform and utilize the services.

A non-fungible token is one that is used to determine the ownership of a token or digital asset, such as CryptoKitties. A number of ICOs clearly fit into the above categories rather than that of a non-fungible securities token, so why have many decided on a native securities-style token which leads to regulatory pressure?

The definition and beyond

The very definition of security token and utility token were created before the advance of the blockchain era. Founder of Fusion and creator of QTUM Dejun Qian states that tokens are still a really new idea and they are something that should be defined on a case by case basis.

“The reason people try to figure out if token is a security or a utility is because people are thinking which laws the token needs to be compliant with. When people say that the token is a utility, it means that the token is designed and embedded in the Blockchain infrastructure. Naturally, it can then serve as a very important part in the Blockchain. It is very creative and can then also provide a lot of different opportunities for the Blockchain.”

According to Qian, we should move past the security vs utility point of view: “On the other side, there is the token which is regarded as a security. We have current laws covering the securities industry, and there are a lot of things we need to comply with, so people think about it in a similar way. I think we need to put more effort on the utility side, and even something else far beyond only security vs. utility. Because from my perspective, tokens are neither security or utility, it is a new thing and we cannot put a new thing in an existing framework, to determine what it is.”

Interested in ICOs Legislation in Malta? Contact us directly on +356 20103020 or by email at [email protected] to find out more.

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Artists bringing virtual currencies to life

Categories Blockchain, Cryptocurrency, ICOs, Technology, Bitcoin, Tokens, Market, Art

Artists bringing Virtual Currencies to life

Many artists globally, are starting to look at cryptocurrency as inspiration for their work, hoping that it will help increase the popularity of the industry.

Crypto – Art

‘Stealing the Contents of This Wallet Is a Crime’ by Kevin Abosch’s is a well-known example of Crypto – Art. The leader piece was part of ‘I AM A COIN’, the project during which Abosch created 10 million ERC-20 ‘IAMA’ coins.

Many of his and similar pieces sold out quickly and at high prices. Robert Indiana, the artist who created ‘LOVE cryptograffiti’, recently sold one of his serigraphs. His revolutionary art was bought by crypto-connoisseur Mike Novogratz at an auction for $8,000.

Meanwhile, another cryptograffiti was sold at a separate auction for the value of $33,000, and was named the ‘Terrible Store of Value’. This work was intended as a response to JP Morgan’s Jamie Dimon statement ‘Bitcoin is a terrible store of value’ in January 2014.

Later on, several auctions were organised during HODL in May 2018, where a painting by Terry Cook was sold as well. Terry, a well-known UK-based painter works only with cryptocurrency symbols. He believes that it is ‘natural that art and blockchain technology intersect’.

Cryptocurrency Graffiti

Whilst some art pieces connected to cryptocurrency are being sold at high prices, a lot of artists choose to show their talent for free. Last February an Instagram user posted a work of graffiti showing Bitcoin bringing power to the people. This work was also seen as a threat to the existing banking system.

At this moment, it seems that this art is getting its own admirers as well. Pascal ‘PBOY’ Boyart has received more than $1,000 in digital currency from fans after painting QR codes on his street murals. This code invited admirers to send him BTC. Currently, Boyart is part of an upcoming artists’ celebration paying homage to Bitcoins’ 10th birthday.

E&S Group is a leading corporate & law firm offering various services with regards to ICOs. Feel free to contact us directly on +356 20103020 or by email at [email protected] to find out how E&S can help you in ‘making things happen’.

For more information click the link.

 

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Centralised and decentralised exchanges – what is the difference?

Categories Blockchain, Cryptocurrency, Technology, Cryptocurrency Exchange, Tokens, Wallet, Market, Market Cap, Exchanges, DLT, FIAT

Centralised and decentralised exchanges – what is the difference?

In the world of cryptocurrency, there are two different and very distinct types of exchange, a centralised and a decentralised ones. But what is the difference between the two?

A cryptocurrency exchange is an online platform where digital currencies are traded or exchanged for other digital currencies or even fiat currencies. Both types of exchange are similar in the way that they both facilitate the buying and selling of cryptocurrencies but both suffer from different complications as well as enjoying different benefits.

What is a centralised exchange?

A centralised exchange is one of the most common types of crypto exchange and it allows the user to buy and sell cryptocurrencies with fiat currencies, as well as buying cryptocurrencies with other cryptocurrencies. The majority of these exchanges accepts payments via debit or credit card, as well as bank and wire transfer.

When we call it a centralised exchange, we mean that third parties assist with conducting the transactions that take place on it, whilst all daily operations are supervised by an organisation. They are similar in type to a traditional stock exchanges but deal with crypto and fiat rather than stocks.

Benefits of a centralised exchange include the simplicity of use as well as extreme accessibility. In case if something goes wrong on the exchange, the fact that it is operated by an organisation means that it takes all the responsibility. Another benefit is the high level of trading volume which means that these type of exchanges are not considered as volatile.

Disadvantages include the fact that they are susceptible to hackers because when crypto is bought on a centralised exchange, the users don’t actually own the coins and therefore are not in possession of the funds private keys. As in February of this year, there have been more than 30 crypto exchange hacks that have resulted in a loss of almost a million of Bitcoins.

What is a decentralised exchange?

A decentralised exchange doesn’t rely on a third party to hold the cryptocurrencies which makes it much quicker to conduct a transaction than on a centralised one. Those that opt for a decentralised exchange, trade their assets in a P2P manner automatically.

This type of exchange has seen a big increase in popularity over the last six months due to the fact that they are less susceptible to hackers. Another bonus is that these exchanges do not require any personal information to conduct a trade meaning data-hungry hackers are less likely to strike.

But of course, there are some limitations. For example, they tend to be more difficult and complicated to use than centralised exchanges, particularly for beginners. Decentralised exchanges also have a limited level of functionality when compared to their centralised counterparts, as well as a lower trading volume.

E&S Group is a leading corporate & law firm offering various services with regards to ICOs. Feel free to contact us directly on +356 20103020 or by email at [email protected] to find out how E&S can help you in ‘making things happen’.

For more information click the link.

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$1 Trillion of VC investments to become liquid through tokenisation

Categories Cryptocurrency, ICOs, Tokenomics, Tokens, Investment, Cryptoeconomics, Venture Capital

$1 Trillion of VC investments to become liquid through tokenisation

Institutional and large capital investors are increasingly looking at the crypto market as a way of finding new investment opportunities, as well as solving issues they are facing in traditional markets.

Take venture funds for example; investors have to commit their investments to sit in a startup for between 3-7 years, and an estimated $1 trillion is currently held in such a manner, with no room for movement. This results in a situation where profitability is reduced as well as the overall efficiency of their holding. Of course, if the project is successful, the investor is set to receive excess profit but there is never a guarantee of the project meeting the yield expectations, let alone getting back the funds that were invested in it.

Venture capitalists are always treading a fine line because if the project fails they lose everything they invested, but just the fact that they are investing for long periods of time means that they miss out on other opportunities to generate revenue.

A study was conducted by Cambridge Associates that looked at the performance of 27,000 venture startups over the last 20 years. It was found that the amount of venture projects that returned less or the actual amount of invested capital never exceeded 60%. So let us consider that out of the $1 trillion of investments, 60% will return the amount invested in seven years, this could take $600 billion away from the global economy.

The tokenisation of venture projects could offer a solution to issues surrounding liquidity, as well as reducing the risk of investors and making VC assets more attractive. Security tokens can offer investors a range of financial right such as dividends, equity, a share in profits, voting rights, and buy-back rights. These transactions can be completed over the blockchain and crypto investors would be able to gain access via depositories or wallets that are registered in a decentralised ledger.

This development of tokenised venture assets is already well under way and one company, VNX Exchange in collaboration with ADDCAPITAL are planning to issue tokens for $20 to finance venture products. They will also be used to create high yield projects, allow early venture capital withdrawal, and greatly expand the range of qualified venture investors that have the possibility of investing.

It is believed that such new dynamics would have an extremely positive impact on the development of startups, change the culture of investing and fundraising for entrepreneurs, and significantly boost the global economy.

If you have any questions in relation to ICOs, please contact us on [email protected]

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Why our world needs tokenomics?

Categories Economy, Blockchain, Cryptocurrency, Regulatory, ICOs, Technology, Trading, Tokenomics, Tokens, Market, Market Cap, Cryptoeconomics

Why our world needs tokenomics?

There is no doubt that blockchain technology is going to pay a pretty big part in our future. Blockchain has the capacity to unlock a previously untapped economy of trust and it also has the potential to completely revolutionise many sectors from finance to healthcare and everything in between. But before it can reach its full potential, there is one extremely important thing missing: an established and well thought out theory of tokenomics.

Moving forward with blockchain technology and its implementation will require a significant increase in the advancement of tokenomics analysis. We are currently in the midst of a truly unchartered territory – governments and regulatory authorities don’t have a clue what is happening and even those involved directly in the industry are lacking clarity and certainty. Whilst the concept of tokenomics has been around for centuries, there is not much knowledge on artificial economies such as the of crypto world. One way that token economies can be analysed more closely is through the use of agent-based modelling, but there is still a lot of work to do.

Why study token economics?

Firstly, because tokenomics is extremely important. With the advent of blockchain technology, we are seeing more and more startups move towards using market business models. These models facilitate the incentivisation of users to make them more proactive in their day to day life. For example, a government could incentivise users to pay their taxes over the blockchain network. A retail company could offer discounts if clients use the blockchain to make their payments. Knowing and understanding how best to create and promote rewards through a particular economy requires a proper understanding of tokenomics models.

Also, token economies can also fall foul of all the problems that traditional economies have. For example, inflation, volatility, and crashes are all issues that can affect the long-term viability of a blockchain based business. Token economies do make it possible, however, to automatically collect data on transactions which can then be used to calculate metrics such as the total traded volume or the velocity. The tokenomics research community has a lot of work to do when it comes to being able to utilize the unique opportunities that are offered by the blockchain. By doing this they will be able to better understand how to solve some of the presented challenges.

The issue of token pricing

Some of the other issues that are at the forefront of the challenges faced by the sector include understanding token pricing. There is no definitive answer on how tokens should be priced, or how many should be issued. There is also much work needed when it comes to the equation of exchange that is used to help derive valuations for cryptocurrencies, some of which can be used to provide a better understanding of token pricing for ICOs. The problem is that at the moment, there is no proper model around this topic and until there is, the sector will struggle to find its feet.

Long-term viability

Many ICOs that have been launched made use of a model where tokens are disposed of as they are used up. This means that as the number of tokens decreases, supply becomes limited and the price goes up. Whilst this is attractive to investors and speculators, it doesn’t give much information or hope for the long-term viability of the token.

Controlling speculation

Unfounded speculation has caused untold amounts of damage to the crypto-economy, but it can also be one of the driving force behind the popularity surge of cryptocurrencies. Speculating and trading are not bad things per se, rather it is when they get out of control and result in market crashes similar to the one that we saw in January. Control needs to be exerted so that speculation is allowed, but does not wield power that can see a market decimated in days.

The economics of the future

Blockchain is not going anywhere anytime soon and it is becoming clearer that it is set to become an integral part of our lives. ICOs have raised an astonishing $6.5bn to date, but without a proper tokenomics model, many are sadly destined to fail. As ICOs mature, the same is required by tokenomics and understanding topics such as the ones mentioned above is an integral part of blockchains long-term success.

 

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A Half Year Report on virtual currencies in 2018

Categories Blockchain, Cryptocurrency, Regulatory, ICOs, Malta, ICO Legal Service, Law, The Blockchain Island, DLT Regulation, Smart Contracts, E&S Group, Technology, Trading, Cryptocurrency Exchange, Tokenomics, Regulation, Tokens, Binance, Utility Tokens, Security Tokens, DLT

A Half Year Report on virtual currencies in 2018

2018 has been an interesting year for crypto with colossal crashes, much-needed market adjustments, and of course, the emergence of a large number of new tokens and cryptocurrencies. Along with significant advances in regulation and legal frameworks that seek to understand, support, and protect those stakeholders operating within this new industry, there is no doubt that the rest of 2018 is going to be just as, if not more exciting as the previous six months.

Mid-January Market Crash

If you were holding Bitcoin in December 2017, you probably couldn’t believe your luck. As the value of a single Bitcoin headed towards $20k, a mad rush to invest ensued and predictions on where the price may head reached stratospheric new heights. Then on January 16th 2018, Bitcoin investors woke up to a nasty shock. The value of their coins had dropped by 15% and this news had a knock-on effect on the value of all other altcoins, causing a huge slump in the value of the market. The excitement and hype that had surrounded cryptocurrencies just a few days before, disappeared just like the profits of those who invested in it.

As prices continued to fall, investors started to panic. They started selling their coins in an effort to nip their losses in the bud and the moniker “Black Tuesday” was coined. Some crypto-coins saw losses of up to 40% and it seemed like many naysayers predictions were coming true and that the bubble had finally burst. Some voices remained steadfastly optimistic however and maintained that price slumps were common in all markets, not just the crypto one. After such an exponential increase in value, it was naturally expected that the market would correct itself because after every meteoric rise comes to a reverse-swing of the pendulum that needs to be ridden out – January was exactly that. As prices are now more stable it is hoped that they will increase at a steady rate, signalling a new era of market stability and maturity.

TRON Makes a Name for Itself

Since January of this year, TRON has experienced a steady increase in value. Despite a few issues, mainly caused by the crypto price-crash, it seemed to have found its niche which suggests a bright future for both the platform and its cryptocurrency.

TRON is a decentralised, blockchain-based, protocol project that functions as a content distribution platform for the digital entertainment industry. Whilst the platform itself is yet to go live the TRX coin is gaining significant traction.

Created by Justin Sun in 2017, the concept behind it is to establish a global network of free entertainment content which allows creators to publish, store and distribute their own content without the need for an intermediary. Whilst its value per coin was only $0.30 in January, it is expected to hit $1 by the end of 2018.

Its main selling point is that it is not just another cryptocurrency. It has a platform that solves a problem and offers functionality to a range of users and publishers. Over the last year, TRON has increased in value by 1.39% making it one of the top crypto coins in terms of growth, making it one to keep your eye on as we progress through 2018.

The Unexpected Rise of Litecoin

Many have dismissed Litecoin as “the poor man’s Bitcoin” but despite this, its popularity has increased drastically over the past few months. It was initially launched via an open-source client on GitHub in 2011, a sort of spin-off of the original Bitcoin Core client, but it offered much lower block generation times, a higher number of coins, a modified GUI, and a different hashing algorithm.

In 2013 it experienced a big surge in value and by May 2017 it had secured a spot as one of the Top 5 global cryptocurrencies in terms of its market cap. Now accepted by a wide range of online retailers, its adoption is increasing and many are seeing it as a better alternative to the rather bloated and over-inflated Bitcoin.

12 and even 6 months ago, blockchain was not something that was widely understood but as we progress to the end of 2018, it is expected that we will see a dramatic uptake of blockchain integration across a diverse range of sectors. Following in the footsteps of IBM, Microsoft, and Maersk, even smaller SMEs are likely to be interested in harnessing its potential.

Litecoin is predicted to peak at a value of over $600 per coin by the end of 2018 and there is no doubt that it has huge potential. Negating many of the issues that are faced by Bitcoin users, it presents a practical, simplified and completely viable alternative to the crypto-giant.

Malta Takes the Lead in Industry Regulation

In the last 12 months, it has seen cryptocurrency, blockchain and ICOs negate a minefield of regulatory and legal issues. Problems around its classification, AML and KYC regulations, and the reluctance of many banking institutions to support the burgeoning technology has resulted in many setbacks for the crypto world but that is all set to change.

The island of Malta has long been a hub for digital technologies and it is well known for its iGaming, Finserv and Fintech industries that when combined, account for around half of the country`s GDP. Then, in March 2018 the Government announced the drafting of three new bills that would seek to provide legal and regulatory clarification on DLT, crypto, and ICOs. These bills are the Virtual Financial Assets Bill which would provide a regulatory framework for ICOs and virtual currencies, the Malta Digital Innovation Authority Bill and the Technology Arrangements and Services Bill which will oversee companies that operate within the market, as well as providing a much-needed guidance and clarification.

This makes Malta the first jurisdiction in the EU, and the world to create a comprehensive legal framework that not only protects all stakeholders including operators and investors, but also supports the growth and development of the industry. By ensuring explicit legal clarification as well as adherence to AML and KYC regulations. This means that the industry will receive a much-needed confidence boost and will help to increase the  level of public trust in this new market sector.

Binance Relocates to Malta

As a result of Malta’s decision to support cryptocurrencies and related industries, an exciting announcement came just a few days later. Binance is the largest cryptocurrency exchange in the world and commands 10% of the global trading volume as well as having a market capitalistion of $1.3billion at the time of writing. Its founder Changpeng Zhao started Binance in July 2017 and in just a couple of short months, it has grown to be the market leader.

Following the introduction of restrictive laws in Japan and China regarding cryptocurrencies and exchanges, Binance was on the look out for a more welcoming and flexible home. On March 23rd, Binance announced their move to Malta and the crypto community rejoiced. Such a vote of confidence is a big deal for the small EU country and it is expected that such a move will encourage many other companies and startups to follow suit.

The Blockchain Boom

This time last year, most people had heard of the blockchain but only in the context of it being intrinsically linked to Bitcoin. Now, the technology has broken away from just monetary uses and has earned a lot of attention for its potential. In the last few months, more and more use cases have come to prominence at blockchain has found uses in industries such as logistics, healthcare, politics, real estate, and even crypto-powered beer vending machines. It has also been tipped to completely revolutionize the way we vote, as well as provide microloans to SMEs in developing countries and to solve the energy crisis in third world countries.

 

E&S Group is a leading corporate & law firm offering various services with regards to ICOs. Feel free to contact us directly on +356 20103020 or by email at [email protected] to find out how E&S can help you in ‘making things happen’.

For more information click the link.

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How crypto will run the venture capital show in the near future

Categories Blockchain, Cryptocurrency, ICOs, Tokens, Utility Tokens, Security Tokens, Ethereum, Exchanges, Venture Capital

How crypto will run the venture capital show in the near future

A future is being predicted by global venture capitalists is a future that will be run by cryptocurrencies and tokens. This future, however, needs a lot of work done before it can be truly realised. Regulations must be put in place, lines must be drawn, and steps must be taken to ensure that both coins and tokens are not categorised as securities.

Andreessen Horowitz, a venture capital firm is taking a leading position when it comes to spearheading these efforts. They have already formed a collaborative group consisting of lawyers and investors which has met with the SEC earlier in the year. If cryptocurrencies are going to be treated in the same way as securities it could significantly affect their value and this is something that must not happen. This group of stakeholders included Union Square Ventures and representatives from legal firms such as Perkins Coie, McDermott Will & Emery and Cooley along with Andreessen Horowitz, and its main goal is to create a crypto-investment fund.

The search for a safe harbour

The New York Times reported that regulators are looking for a “safe harbour” for some cryptocurrencies.

“We are seeing a watershed moment in which many firms in the digital asset community who may have been ignorant of the law — or poorly informed — are now coming to terms with the fact that they are subject to regulators,” lawyer Richard Levin claims.

Various entrepreneurs that have been involved in ICO processes have stated that as cryptocurrencies and tokens are being used as a means of payment, they should not be categorised as a security. The Chairman of the SEC, Jay Clayton believes the opposite to be right and states that every token must be registered as such.

If a cryptocurrency is to be treated as a security, there will be considerable paperwork involved and they will only be able to be traded on regulated exchanges. Bitcoins are produced on a daily basis and are not sourced from ICOs, unlike Ethereum which is solely responsible for all Ethers produced as a virtual currency. Lawyers from Andreessen Horowitz want Ethereum to be considered in the same way that Bitcoin is as the former has now been decentralised.

Union Square Ventures partner and venture capitalist, Fred Wilson has described the situation as a clear indication that crypto and tokens are still not fully understood. On the other side of the coin, the Coinbase CTO Balaji S. Srinivasan has noted that leaders such as Christine Lagarde and Larry Summers admit that these currencies deserve some merit and recognition.

The value of the token economy

This is where a staunch critic of Bitcoin, Warren Buffet just doesn’t get it. Wilson further explains that the value of the token economy lies on the token itself and not on the cash flow. Srinivasan envisages a future where entrepreneurs can create their own currencies:

“Blockchain is turning everybody into a venture capitalist. The internet will become the world’s biggest stock market. Where basically anyone in the world can put…money into crypto,” he added.

The safe harbour that is so sought after by lawyers would consist of three things: regulatory certainty, tokens not being categorised as a security, and clear ICO regulations in the future. Under the proposals, a token would only be able to be considered as a security if it meets some of the following criteria: a limitation of promotion, mandatory disclosure, detailed sales terms, token supply, and no equity rights involved.

 

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Token design for Digital Crowdfunding Campaign

Categories Blockchain, Cryptocurrency, ICOs, Technology, Tokenomics, Tokens, Cryptoeconomics

Token design for Digital Crowdfunding Campaign

One of the key concepts behind an Initial Coin Offering (ICO) is to use the blockchain as a way of bringing together a decentralised and self-contained mini investment economy. The token that is created and “sold” as a part of the ICO is the key access point into this ecosystem and removes any need for a third-party middleman. When it comes to designing a functional token, it is the most important part of the new system as this alone will decide the flow of payments and rewards to anyone that uses the system.

Cryptoeconomics

When developing an ICO, first of all, the creator must determine the cryptoeconomics that is behind the token. This should include the maximum number of tokens that will be created, the value of each token (usually based on BTC or ETH), any discounts for purchasing it early, and how the token will be distributed to backers, founders, developers, and other users. Consideration and careful planning must also be given to marketing, legal, and security processes and strategies.

The key to determining the tokenomics behind an ICO should begin with estimating the size of the digital ecosystem as well as exactly how users and contributors will engage the system. One should also consider the number of transitions that are expected to be made and enough tokens should be issued to not only run the core system but to allow system growth over time.

Creating a digital ecosystem

The token can and should be optimised to the full for a range of different goals. For example, whilst most ICOs issue tokens that allow the building of the system and running it on a basic level, creators should take a much longer view and price the value to facilitate an increase in the usage of the platform. One could also price the token to encourage developers to create a digital ecosystem that exists around the ICO.

It can be difficult to develop a plan for the entire life of the blockchain system, as predicting the future has never been an easy task. Due to this fact, many developers consider issuing another type of token at a later date that can provide users with a higher level of access to the digital ecosystem as it matures past a certain point.

Developers also have the option to create different types of token for the ICO which can give unique benefits to users. As the system continues to grow, new applications and higher value benefits can become available.

 

To learn more about ICO Legal Services in Malta please follow this link.

Contact us directly on +356 20103020 or by email at [email protected] to find out more.

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A guide to token usage, utility, and value

Categories Blockchain, Cryptocurrency, ICOs, Malta, E&S Group, Technology, Tokenomics, Tokens, Utility Tokens, Security Tokens, Data, Cryptoeconomics

A guide to token usage, utility, and value

There is no shortage of information available about cryptocurrencies, but there is very little in the way of defining exactly the type of tokens. When it comes to technical details about blockchain, the concept of a cryptocurrency coin is well understood; a programmable currency until that is linked to a blockchain and relates to smart contract logic in the context of a certain software application. But when it comes to the non-technical details, what is a token?

A token is another way of naming a privately issued currency. When we consider sovereign governments that issue currency, they do so with set terms and governance, directing how the economy functions with fiat currency as the medium of value. Then, we have the blockchain with new types of organisations who issue their own currency in the form of digital assets, otherwise known as cryptocurrency. These issuers are setting their own rules and terms around their operations and essentially creating new, self-sustainable micro-economies.

In other words, what was once the sole preserve of governments, is now in the hands of anyone that has the capability to create their own tokens.

A few years ago, no one was talking about ICOs or STOs, or even token models, and with much confusion still present around these phenomena, this article is designed to make things a little clearer.

Tokenomics vs Cryptoeconomics

At E&S Group, we believe that there is a difference between tokenomics and cryptoeconomics. When we talk about cryptoeconomics we refer to the incentive structures that are designed to facilitate the creation and subsequent transaction validation of a particular cryptocurrency. For example, the cryptoeconomics of Bitcoin is designed to give Bitcoin miners a reason to mine new BTC. These miners validate each Bitcoin transaction and then receive newly minted BTC as a reward for their efforts.

Individuals, businesses, and users of BTC then pay a transaction fee to the miners so that their transaction is included in the mining of the next block. This means that even when all BTC has been mined (something that is estimated to happen in 2140), miners of Bitcoin will still be incentivised to keep mining and validating transactions.

This is what we refer to as cryptoeconomics. Whilst it is quite similar to tokenomics in terms of the incentivisation of stakeholders to ensure specific behaviour, there are some differences between the two.

Tokenomics focusses specifically on the application layer of a token so that the goal of it is to ensure that a crypto-token is used within the ecosystem as intended.

This means that tokenomics is not just about the supply and transaction validation of a token, but more about the things that happen afterwards. When we consider tokenomics, we have to consider what the token is used for and what behaviour we are trying to elicit.

Having explained that tokenomics is not the same as cryptoeconomics, we must define exactly what tokenomics entails as depending on who you speak to, it can have different meanings. For some, the tokenomics of an ICO refers to certain token metrics including supply and the amount that is reserved for founders and advisors to the project. Others believe that tokenomics is a four-layer model that comprises of token functionality, token distribution, token workflow, and token governance.

Token use

A token must have a purpose, and during the ICO boom this was mainly to raise funds to the project, but now things are changing. Even if the main goal is to raise funds, the token still needs to have an additional, secondary purpose. Eventually, the aim is for investors to use the token and not just to invest in it for later speculation.

Whether the token is used to start an online platform, or whether it is to incentivise another kind of behaviour, it is of the utmost importance that the purpose of the token is clear. To be able to set up a long-term sustainable token, it needs to be designed with the tokens utility clearly set out, because if not, it will hurt the business.

Token Utilisation

A second part of the tokenomics is the way that the token will be utilised. Once you have established your purpose, clarification needs to be given as to whether the token will be used, when it will be used, and how it will be used. Consideration also needs to be given to how often it will be used and by whom. Just because you have a clear purpose for the token, does not mean that people will use it effectively, therefore you need to do token research to understand how the token will be used.

Token utilisation is as important as token value. For example, what happens when the token increases in value due to speculation? In such cases, users of the platform will be less likely to use it for its intended purpose and more likely to hold it so that they can cash in at a later date.

Token functionality

Programmable money is a term that has been used to describe cryptocurrency tokens but you also need to have an idea of what sort of functions the token will have.

For example, in the case of a security token offering, a company can issue its shares as a token, therefore, providing a financing mechanism for the company whilst also providing value for the shareholders. To be able to provide such value, the token needs to be structured in such a way that allows people with no tokens to vote and receive dividend payments. Functions such as dividend payments of voting are clear examples of functionalities that could be programmed into the token.

Token Distribution

Another aspect of tokenomics is the way that it is distributed. Often, ICO projects make mistakes in their token distribution by making it fixed that is issued at just one time moment.

If we look at fiat currencies, their supply is never fixed, instead, the central bank is able to print more money or a local bank can provide a loan. These are both means of creating money where previously there was none. From this, we can ascertain that a fixed token distribution is likely to have negative effects on its value, inflation, and of course, usage. For these reasons, it is incredibly important that special attention is paid to how the token is distributed, for example:

  • When will the token go into circulation?
  • When will it leave circulation?
  • How much will be released at first?
  • How do current and projected utilisation and value coexist?

Token Value

The value of the token is another important aspect of tokenomics. When a token is issued as a share or security, the value of the token should be clear and straightforward. For example, if a company is valued at $50 million, and 10 million equity tokens are made available, each token/share should be worth $5.

If a token doesn’t have a clear value, things can get a lot more complicated. If an issuer thinks that a token is worth X, the market may put it at a different value. This can become even more complicated when you want to enable users to exchange tokens for specific services. If the value of a token falls in the market, the price should be adjusted by the issuer.

Tokens that work in the long-run

Tokenomics has a lot of complicated and very different facets that include token purpose, utility, functionality, distribution, and supply. But there are many others that can be taken into consideration such as mechanism design, stakeholder interviews, and token governance, meaning the good token design is not as easy as some would believe.

Even if all of these things have been given consideration, the task is still not completed because to properly set up a tokenised business due attention to other parts of the business such as the token market, the business technical infrastructure, and the token and revenue model. This is not an easy task and it is one that requires the help and guidance of a professional.

E&S Group has solid experience in designing tokenomics infrastructures, as well as advising companies on all of the other important aspects of creating a successful project. For further information please send us an email on [email protected]

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The End for Fiat Currencies is Coming

Categories Blockchain, Cryptocurrency, ICOs, Bitcoin, Tokenomics, Tokens, Wallet, FIAT

The End for Fiat Currencies is Coming

Cryptocurrency has always been a hard concept to sell to the executives of the finance world with many key figures having drastically varying opinions on its validity. But it seems that something has changed, a small shift has taken place, and whilst they may not be ready to welcome it with open arms, they are at least acknowledging that the future is for crypto.

A new report by Greenwich Associates has indicated that as much as 70% of finance executives believe that cryptocurrency is not going anywhere, anytime soon. These positive change in attitude is welcome news at a time when the crypto industry is passing through a crucial time.

Wary of cryptocurrencies

As recently as a year ago, it seemed almost impossible that any financial executives were ever likely to consider Bitcoin in a positive light. Coins have been shunned by experts for a long time but this did nothing to stop the meteoric rise and widespread adoption of BTC and other coins. The report shows that even if executives aren’t convinced about digital money per se, they are interested in the technology that underpins it – an important step towards creating a viable and working ecosystem.

It seems that rather than outright dismissing cryptocurrency, executives in the finance sector are interested in exploring the new opportunities that it presents, with some even going as far as saying that crypto “is here to stay”.

Still a number of concerns

A total of 141 executives took part in the Greenwich Report and whilst the sample size may be small, the way of thinking behind it cannot be ignored. There are still a number of concerns around regulation of the sector, particularly in the US where the government is yet to take a stand on matters one way or the other, but this is expected to change in due course.

Other key findings of the report include several predicted areas of key growth including ETFs and making cryptocurrencies more accessible to banking institutions. Whilst neither of these things are in place at the moment, they are expected to be introduced within the next 12 months.

Bitcoin ETF

In particular, the possibility of a Bitcoin ETF will pay a huge part in the popularity of crypto both with members of the public and banks. So far the SEC has rejected all BTC ETF applications citing lack of regulation and market volatility as reasons behind its decision.

Another interesting development is the gradual increase in the offering of stablecoins. Financial execs have expressed a keen interest in this type of coins. The coins by Gemini and Paxos are a big step forward in this area, and such changes signal a greater industry shift and a sign of progress.

 

If you have any questions in relation to ICOs, please contact us on [email protected]

 

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