Category: Utility Tokens

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The inevitability of security tokens

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

The inevitability of security tokens

Over the last couple of years, we have seen the emergence of the token economy and since then it is marching on at an incredible rate, despite the regulatory and technical hurdles that have been cast in their way. Without getting unnecessarily over complicated, we can break down blockchain issued tokens into three distinct types.

Utility token

A utility token is the most organic type of token for a blockchain-based system as they provide the function of using the blockchain that they operate on. From a legal point of view, they can truly be considered as a digital product rather than as security and the issuance of this kind of token is not subject to as many issues. A utility token is usually integrated into the digital product and can offer some functionality within the product ecosystem.

Backed token

Another type of token is called a “backed” token. These are digital currencies that are backed by fiat currency or a commodity. These are somewhere between a utility token and a security token, in the same way that a traditional commodity instrument and currency cannot exactly be considered as a security.

Equity token

The most controversial and complicated type of token is a security or equity token. These tokens are backed by an equity or profit in a business that does not even have to be related to blockchain. Throughout most global jurisdictions, these type of instruments are regulated by the Securities commissions with the most famous being the US SEC which provides very stringent reporting and compliance rules.

When it comes to the regulatory perspective, issuing utility tokens is the least complex whilst security tokens are the most complicated. This is why blockchain entrepreneurs are attempting to avoid securities laws by attaching some utility function to their ICO token and gaining a legal opinion that it is not a security. In the majority of cases, it does not bode well for businesses when they try to avoid the scrutiny of the SEC.

Stakeholders need to understand that not every ICO token can be a utility token as some projects quite clearly require a security-based token. A good example of this projects is that promise a buy-back of their tokens which essentially qualifies them as a security. It is reasonable to assume that eventually, all markets will use blockchain technology regardless of the nature of the instruments in question. This means that the emergence and development of security tokens are inevitable, despite all of the present legal complications.

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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What is the difference between utility tokens and equity tokens?

Categories Blockchain, Cryptocurrency, ICOs, Utility Tokens, Security Tokens, Equity Tokens, IPO

What is the difference between utility tokens and equity tokens?

Initial Coin Offerings (ICOs) are revolutionising the way that businesses and startups go about early seed fundraising. It seems that they also have the potential to completely revamp the mainstream investment ecosystem as well. By using ICOs, a startup can raise funds by issuing tokens on a blockchain such as Ethereum and then selling them to investors.

Like cryptocurrencies, these tokens are completely tradable as well as fungible and they are unique in the way that their value is derived from something like company equity or access to a service, not as a store of value. There are two main types of ICO token, an equity token and utility token, but what is the difference between the two?

Equity Tokens

An equity token falls into a subcategory of security tokens that represents the ownership of an asset such as company stock or even debt. By using blockchain technology and smart contracts, a start-up can avoid the traditional IPO route and instead issue shares over the blockchain. This also means that a lender could create tokens that represent the debt owed by a particular company which would allow loans to be bought and sold as a part of a high-liquidity environment.

Many investors believe that equity tokens could somehow become the main type of ICO token but the SEC in the U.S has given an indication that equity tokens are subject to federal securities regulations. This means that few startups will be equipped with the necessary means to issue tokens that comply with all of the applicable federal regulations. This means that investors should consider not contributing to an equity token ICO unless they have the legal status of the project on good authority.

Utility Tokens

A utility token can also be referred to as an app coin or a user token and it allows users to gain future access to a service or product. Through utility tokens, an ICO startup is able to raise capital to fund the ongoing development of its blockchain projects. Users are also able to purchase future access to the services, often at a discount of the finished product price.

A good example of a utility token is the Basic Attention Token (BAT). It functions as a medium of exchange between users, advertisers, and publishers which gives browser user compensation for hosting the ads as well as viewing them.

A utility token is not designed as an investment but that doesn’t mean that people will not invest in them in the hope that the value of the token will increase as time passes. Fluctuation in the prices of utility tokens can be compared to the prices of sports tickets which are prone to increase as one of the teams wins a significant number of games and becomes a forerunner for the championship.

Whilst both equity and utility token prices are prone to fluctuation, the main differences between the two are that equity tokens enable the holder to ownership rights, whilst utility tokens function as a coupon and do not provide the holder with an ownership stake in the company.

At E&S we can help you decide which type of token is perfect for your ICO and guide you through all of the legal and regulatory implications. Don’t leave it up to chance, contact us on [email protected] today to find out more.

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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 revolutionized. A boom in the launching 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 utility 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  raised over half a million dollars in 2015.

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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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.


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

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The digital crowdfunding campaigns sink – the popularity of security tokens surges

Categories Blockchain, Cryptocurrency, ICOs, Utility Tokens, Security Tokens, STO, DLT

The digital crowdfunding campaigns sink – the popularity of security tokens surges

After a regulatory crackdown on digital crowdfunding campaigns, the value of the international ICO market has dropped significantly. As a result, investors are being driven towards a new type of crypto investment vehicle; security tokens.

ICO fever decreases

At the end of 2017 and the beginning of 2018, the popularity of ICOs reached an all-time high, but with many investors left disappointed with an increasing number of ICO failures, this interest began to drop. Claims were unsubstantiated, pricing was unrealistic, and some just disappeared with clients and investors money  to be never seen again. Global ICO funding has decreased massively due to confusion around the stances of global regulators, with many being shut down due to offering tokens that were categorized as a security.

The problem with investing in an ICO is that it can be difficult to know what type of ICO token is being used; is it a utility or security token? A utility token is a tool, not an investment, whereas a security token is an investment in a specific project or company. If a particular token can be considered as a token under securities laws, then it will find itself subjected to a range of specific rules and criteria as specified by various regulatory agencies.

The US and Security Tokens

In the US, a recent ruling by a District Court Judge stated that ICO offerings fall under securities laws and that as such, unless the token on offer is without a doubt a utility token, it must be considered as a security token.

The ruling was the result of a case brought against Maksim Zaxlavskiy who had offered and ICO to investors with the promise that the tokens were backed by diamonds and real estate. The federal prosecution deemed that this meant the tokens were a security and that Zaslavskiy had offered investors a totally unregulated securities product.

The judge noted:

“Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called…”

It seems now that regulated security products will become the next big thing for crypto investors, in part due to their regulatory compliance and the big potential for gains.

CEO of Desico, Laimonas Norekika, who is also about to offer retail investors the chance to invest in registered security products said:

“Tokenized securities are bridging the gap between traditional financial markets and crypto markets because they are aligned with everyone’s interest. Regulators want to protect the investors, investors want their assets tradable, and crowds from all over the world want to invest in the most promising startups at an early stage.”

Anthony Pompliano, the founder of Morgan Creek Digital Assets also stated that he believes that security tokens should be considered as digital assets and as such should be subject to federal regulations.

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

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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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Why security tokens are set to dominate?

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

Why security tokens are set to dominate?

When it comes to ICOs, 2018 was off to a great start but the increase in regulatory attention has caused the industry to slow down over the last couple of months. This has resulted in many investors and issuers to reconsider their position and to opt for the issuance of compliant security tokens instead.

Back in 2017 when the ICO market really found its feet, issuers paid little to no attention to the regulatory status of their product, it had lasted until the SEC became aware of what was going on. From there, they and other national regulatory bodies started to issue stern warnings on compliance and the protection of investors.

The rise of the utility token

As ICO startups began to become aware that their product may be in breach of local securities laws. They began to insist that they were actually ‘utility tokens’ as a way of trying to circumvent the law. By creating elaborate token use cases, they hoped that their product would be distanced from regulatory scrutiny. This was then swiftly tackled by the Chairman of the SEC, Jay Clayton who stated in December 2017:

“Certain market professionals have attempted to highlight utility characteristics of their proposed initial coin offerings in an effort to claim that their proposed tokens or coins are not securities. Many of these assertions appear to elevate form over substance. Merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security. Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law.” 

For ICOs that have since chosen to persevere with the utility route, the consequences of being found to have a token that can be retrospectively classified as a security by the SEC are severe. They include large fines, orders to return all funds raised, and finally, criminal prosecution.

Fully compliant platform

Due to this, many serious startups are looking to do things the proper way and are doing so through a fully compliant security token platform.

For now, it is expected that the issuance of security tokens will be limited to wholesale and accredited investors as the compliance costs that are associated with extending the offer to retail investors are too high for many to bear. To offer securities to accredited investors is much cheaper, as well as being exempted from many registration requirements laid out in the US Securities Act.

Furthermore, the benefits to issuers of Security Tokens are vast. They include:

  • Investors having a right to the share of profits;
  • Investors having the right to vote;
  • Investors having the right to liquidation proceeds;
  • A 24/7 365 marketplace — online exchanges providing around-the-clock liquidity;
  • Fractional ownership — attracting a deeper pool of investors in secondary markets;
  • Faster transactions — settlements in seconds instead of days;
  • Lower cost of liquidity — fewer middlemen equating to lower fees and operating costs;
  • Dynamic updates — Security Tokens are update-able and smart;
  • The potential to tokenize multiple organizational assets — offer a range of tokens to better align with investor strategies. For example, growth, stable return, conservative or aggressive.

Whilst it is unlikely that Security Tokens will replace listed equity markets anytime soon, they are likely to become an option for issuers who are looking for a greater level of international exposure in an ever-growing market.


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

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

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She (256) will help women enter the world of virtual currencies

Categories Blockchain, Cryptocurrency, ICOs, Technology, Payments, Tokens, Wallet, Utility Tokens, Security Tokens, Woman

She (256) will help women enter the world of virtual currencies

She(256) is a new scheme that is focussed on helping to encourage women to enter the cryptocurrency job market. The aim of the programme is to enable female students to benefit from the guidance of crypto OG, as well as to provide invaluable technical and business experience.

A University of California and Berkeley-led initiative, She(256) will present a chance for students and early-career young adults to learn from each other through serving as guides and allies.

The world of cryptocurrency, particularly when it comes to those being employed within it, is a somewhat male-dominated industry. Each woman that takes part in the programme will be assigned with a well-known and knowledgeable crypto expert as a mentor who will guide them through making their way into the sector.

Jill Carson tweeted about the project:

“Dear men of crypto, I would love to see many of you sign up to be She(256) mentors too! Many of you have been the most important mentors and influences in my career. It matters more than you know when you support your female colleagues,” 

Finding direction and career opportunities within the space can be daunting for many, especially when such a gender disparity exists. Through the use of mentors, young, professional women can identify areas of interest and seek out new career opportunities that they may not have been able to observe before.

Guidelines of the programme include connecting with the mentor via phone or in person 1-3 times a month, as well as maintaining regular contact via email. She(65) will also organise meet-ups and networking events where they can meet other like-minded individuals within the field. Mentorships run officially for a period of a year, but communication is encouraged even after the official programme has finished.


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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Digital currencies are the only digital asset used in the market

Categories Blockchain, Cryptocurrency, ICOs, Smart Contracts, Technology, Bitcoin, Utility Tokens, Security Tokens, Exchanges, DLT

Digital currencies are the only digital asset used in the market

Whilst there are various different types of digital asset, it seems that only digital currencies are able to be used at the moment. At first glance the two might seem one and the same, upon deeper inspection, one can see that they do in fact differ quite substantially.

A definite distinction can be made between digital assets and currencies because there are very few currencies that can be considered as such in terms of the literal meaning of the word. Instead, it is better to put digital assets into categories such as utility tokens, Bitcoin, and security tokens.

The confusion comes when some, such as BTC can be considered as both a payment instrument and a payment network which functions in a completely decentralised manner. Utility tokens are likened to the fuel that powers a service or software, and Ethereum based smart-contracts are different yet again. Security tokens, however, are considered as digital securities that can be likened to a share in a company or the right to future profits from a project. These tokens are the most complex when it comes to regulatory compliance as they can sometimes fall under the same rules as a company IPO.

Due to such regulatory uncertainty, it makes sense that currency-like digital assets are the most useful despite their currently volatile nature in the markets. Many are now considering BTC as a good long-term investment and more and more people and institutions are accepting it as a means of payment.

“Technical stability plays a particularly important role. Priority is given to security and resistance to external influence through conservative technological development … With fees amounting to just a few pennies, Bitcoin can bring significant benefits in terms of costs in the field of international trade, where traditional payment transactions can incur very high transaction fees.”

Of course, as with everything, there is a drawback. Considering the amount of hype surrounding the world of blockchain and crypto, there are of course a number of tricksters and scammers operating amongst legitimate organisations. This is due in part to the high level of failure when it comes to security and utility tokens- even in the case of “above the board” projects.

One could argue however that this is to be expected in what is still the infancy of the technology. The importance of BTC from a sociological, technical, and economic point of view cannot and should not be ignored as features like smart contracts and the tokenisation of products and assets will have a huge impact on business in the future.

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

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