Planning to invest in a crypto token sale? If you are an active crypto investor in the crypto market, you must have heard of terms such as Utility tokens, crypto coins, and equity tokens and must be well acquainted with these concepts. However, the case is different for the new entrants in the market as they may find these terminologies a bit complicated. Thus, this article is mainly for beginners, where, among other things, we will discuss the difference between Utility tokens and equity tokens (Utility Tokens vs. Equity Tokens). To start this journey, let us first understand what equity tokens are, followed by a look at the utility tokens examples.
As we proceed further, this article will also cover topics including equity tokens, examples of equity tokens, and Utility Tokens vs. Equity Tokens.
Utility token meaning?
A utility token, mostly issued during an Initial Coin Offering (ICO), is a special kind of cryptographic asset used primarily to raise the funding required to develop a cryptocurrency project. Utility tokens are speculative and behave more like promotional tools for the issuers. They provide token holders with privileged services and are not seen as investments.
During the initial stages, it is usually seen that the price of utility tokens is static, and crypto investors can buy them in diverse cryptocurrencies and even fiat currencies. Once purchased, these utility tokens are stored in a crypto wallet that is associated with a buyer and can be used to access services offered by the blockchain project. Additionally, utility tokens do not represent any ownership stake of a crypto investor in the company they are investing in. Instead, they allow the holder to trade (purchase or sell) the underlying tokens on a preferential basis.
The value of utility tokens generally changes depending on the demand for the project. It can yield profits for the acquirer of the token if the project reaches its intended purpose with reasonable success. The primary understanding is that they are not investment products and can lose value entirely at the holder’s expense.
Utility token examples
Some examples of Utility token include – Funfair, Basic Attention Token, Brickblock, Timicoin, and Sirin Labs Token. Golem (GNT) is another utility token example. This token aims to create an economic system that enables individuals to rent their computing power. In this way, those interested could use said computing power to perform various tasks, thanks to a decentralized network.
What is an equity token?
Equity tokens are a subset of security tokens, representing equity in an underlying asset, mostly a company’s stock, where all the terms and conditions are recorded on the blockchain.
An equity token reflects ownership in an underlying asset, usually the shares of a company. Equity tokens offer a horde of benefits to those who hold them, making them appropriate for crypto investors who would want to participate in the decision-making process of the issuing company.
Equity tokens are regulated by the laws of the country where the issuer is based and guarantees legal protection for its crypto investors. Equity tokens issued via the equity token offering process entitle voting rights to the token holders on matters of the issuing company through the blockchain. Thus, they facilitate a crypto investor’s control of the company in proportion to their holdings.
Equity Token holders have the right to receive a share of the profits as dividends, and the token value is generally not connected to its demand in the crypto market but, instead, to the issuing company’s performance.
Some examples of equity tokens are BFToken, Neufund, Document, and Enegra (EGX).
Utility Tokens Vs Equity Tokens: Key Differences
Crypto Investors who are familiar with equity investing see equity tokens as an extension of the same process as ICOs; on the other hand, those with a greater riskier appetite can consider plonking their capital on the utility tokens.
- One glaring difference between utility and equity tokens is that utility token is not regulated since they facilitate access to a service rather than providing a specific investment in an asset or company, unlike equity tokens. Equity tokens represent ownership and are regulated by the securities laws of the country where the issuing company is based.
- For those willing to know if utility tokens can be traded, the correct answer is that they are the same as equity tokens in this aspect and can be traded on various exchanges.
- Coming to whether you should invest in utility tokens, it should be remembered that the money that you put into a utility token should be weighed against the prospects of the service offered by the issuing company and the probable rise in its demand to generate returns for token holders.
- In contrast, since equity tokens are regulated and issued by firms already in business and provide token holders with voting rights, it seems more tactful to invest in equity tokens for novice crypto investors. This is also because equity tokens are an extension of equity shares on the conventional stock market and are an easy concept for anyone to understand.
- Besides, in the market, greater risks often come with greater rewards. Thus, if you trust the possibilities of a blockchain project such as XRP and want to make early gains, investing in a utility token ICO and riding the demand wave to get handsome returns in the process can be fruitful.
Risks With Utility Tokens?
However, since utility tokens involve a higher risk, it is always advisable to read all the terms and conditions prior to investing money. Understanding the applicable fees imposed on redemption or trading of these tokens on exchanges is also recommended.