The days of Utility Tokens are fast coming to an end. Security Tokens are on their way with the US Securities & Exchange Commission set to treat all tokens equally. This is not scaremongering. It is not even news. It is fact.
So, how will the introduction of Security Tokens affect the crypto industry, issuers and investors.
Starting with the crypto industry, migration to a more regulated environment will take time but there is excellent precedent - Securities markets, after all, have been around for five centuries! The framework already exist in most countries, and adopting another instrument is nothing new, nor should it be too difficult.
For issuers, there will be more paperwork, more compliance and more disclosure; something more substantive than just a Whitepaper. This is a positive move because investors purchase tokens to make money. They speculate. And anything that involves speculation, be it buying property, stocks, art, wine, land or anything else, invariably requires sellers to provide extensive information. Token issuers will need to follow suit if their offerings are to be viewed as credible.
For investors, the changes will be most advantageous. Admittedly, there will be more to read and digest, but a well written plan, preferably based upon an existing product or business, clear use of funds, financial projections, risk analysis and other typical investment-type information will make for easier and better informed decision-making. No longer will investors have to rely solely on 'Teams' or, worse still, on ICO Rating Agencies, whose assessment of the viability of a business is not always strictly objective, impartial or conducive to identifying possible scams.
As the industry matures, it is not inconceivable to think that companies like Moody's, Zacks or Standard & Poor's will enter the fray. Access to top drawer analysis will be key to investors making smarter decisions.
The major advantage of Security Tokens, however, is that holders' returns are not purely dependent on market price movements; they also earn dividends similar to stocks. With Security Tokens, gains or losses through price movements remain the same: if tokens go up in price, you win; if they fall, you lose. However, there is an incremental revenue stream through dividends that is independent of price movements and driven by the performance of the underlying business.
Another benefit is risk diversification. One of the golden rules of investing is not to “put all of your eggs in one basket.” Taking on too much risk is one of the quickest ways to derail a long-term financial plan. Security Tokens will allow holders to mitigate risk, whilst providing an opportunity to increase expected returns and avoid periodic exposure to large losses caused by high levels of price volatility.
In the case of CryptoMillionsLotto's CML Tokens, dividend streams are based on revenues so that they are generated irrespective of the company's profitability. Investors cannot earn anything comparable holding Utility Tokens or cryptocurrency.
ICOs offering Security Tokens are already gaining a strong foothold with the term 'Security Token Offering' creeping into more and more crypto forums.
Be prepared to hear much more about them.