Too often utility tokens have no real utility. Is 2.0 utility token the solution to create useful tokens worth investing in?
As Bill Clinton stated at the Ripple 2018 annual convention, “Blockchain Has Staggering Possibilities”. Still at early stages it is obvious we haven’t yet exploited the full potential of this technology. The disorder and frenzy around utility tokens have brought lessons that enable us to draw some guidelines for the future of cryptocurrencies. With proper audit, it is possible to spot a 2.0 utility token from a useless one. We provide in this article a 10 point check list intended for ICO projects and investors to respect in order to characterize a token as a 2.0 Utility.
Once again the crypto-sphere is showing its immaturity. Some commentators who last year were saying that utility tokens have a great and prosperous future, are now claiming that utility tokens are dead. Let’s be reasonable and rational. Utility tokens will be adopted, it is just that most of projects built by amateurs will disappear or not succeed in raising funds. In fact, the investors in the future will make better audit concerning the value of the token and hopefully invest less emotionally.
The market hype around cryptocurrencies starting in December 2017 and the continuous crash over the year 2018 is a reflection of the lack of real use cases of most tokens. Once the bull market was over, token holders were left with impulsive acquisitions of tokens and started to make “a posteriori” audits on projects, asking themselves what are the real applications of these tokens in their wallet. It is unfortunately too late. When the illusion faded away, investors started to understand that in most cases, those tokens had no other meaning than to raise funds for business models that were not even always achievable.
The problem most utility tokens have:
- No natural mechanism to increase the value of the tokens.
- No real use case: it was simply an idea that cannot be realized.
- No intrinsic value: the Ecosystem has not invested in tangible assets.
- No adoption: they are not adapted to the targeted market.
- No decision-power: the founders and core team take the decisions without the opinion of the token holders.
- No liquidity: the market cap will never reach an acceptable amount.
The 5 pillars of Blockchain
But still 2.0 utility tokens have a bright future because most business models cannot work without Blockchain. The use of a cryptocurrency is often the only mean to get those benefits:
- real use case (the most important)
- easy to trade
- cheaper transaction costs
- faster transaction
- more transparent/secure
In case a project doesn’t need most of those advantages in order to be successful, it means, the integration of a Blockchain Protocol is not necessary. Tokens and Blockchain technology are different but they work together.
10 characteristics of 2.0 utility tokens
Those 10 points applied to your token provide a check list for your due diligence, to see if the token would be acceptable as a 2.0 utility token and not just a token that is created to raise funds.
Always it is good to bear in mind that the most important utility tokens must have a REAL USE CASE which provide tangible advantages and should be created at the beginning for the sole purpose of supporting a specific sector with a strong industry to back the value of your token. This doesn’t exempt investors to look at other multiple aspects of the Ecosystem protocols such as the presence of a beta platform or a strong team with expertise related to the project.
With the misuse of ICO investors funds, the idea of having DAICO that is Decentralized autonomous organizations based ICO, have become trendy . DAICO has been promoted by Ethereum Co-Founder “Vitalik Buterin” with the idea of delegating a certain amount of decision power rights to the people investing in the Eco-system. The principle philosophy behind the DAICO is to engage the people in participating in the Eco-system with a control over the assets but also a monitoring of the use of the funds raised.
1.Gives the right to enter and use the services in the Ecosystem.
2. Carries mechanisms to prevent the token price from dropping on exchanges.
3. They are payment tokens used in a specific sector and adopted as such.
4. The token has a comprehensible, attainable and real use case which is integrated into an efficient protocol.
5. Enhanced Decentralized Autonomous Organizations
6. The token provides some Rewards for its users.
7. The token has a strong community, reputation and adoption.
8. They benefit from a first moving advantage on their sector.
9. The token has a fixed supply amount.
10. Can potentially be accepted in all Ecosystems.
Respecting most 10 attributes above, the token price will increase naturally.
Benefits pegged to the token
The most important is incentivizing the users and holders of the token. Once the benefits of holding the tokens are clear, people will hold the tokens longer. Here are few means of encouraging people to keep their tokens.
- Commissions rewards on adopting the business model. For example, provide a bonus reward (same as “miles” for airlines) for adopters using the services of the platform regularly.
- Use for payment and get the benefits of using the services offered by the platform. Provide access to a wide array of services a lower cost.
- To reward people for holding the tokens that are protected by some sort of secondary rate on the platform (only to use its services) that is different from the price on exchanges.
Real vs Useless Initial Coin Offerings
Understanding those attributes are important in order to distinguish a true utility with sound applications from a useless one. In some sectors, the introduction of a utility token is not necessary. For some Ecosystems it would rather be more advantageous to use an existing token that has already enough liquidities. But the attraction of gaining fast access to funds has pushed many CEOs to launch ICOs taking the risk of harming the reputation of their project.
Lately, we have noticed many projects having the price of their token down to 90% of their value in the first days after hitting the exchanges, just because it has been used as a simple speculation instrument. As result, the number of ICOs are continuing to drop while in the coming months, only true utility tokens should prevail.
Number of ICOs since the beginning
As a matter of fact, the amateur investors are leaving the ICO space to experts looking for longer term business models with real use case and strong advantages. Currently on average, there are not more than 300 ICOs being launched per month (in September 279) where at the peak of 2018 (January), it was more than 2000. This figure should continue to decrease slightly, especially if this long bear market continues. They will leave the space open to quality projects that have been created by real experts and built after months of work and analysis with some proof of feasibility like for instance a working beta platform.
Different utility tokens comparison table
Reward Utility Token
Pundi X is a transaction facilitator, that is currently shipping thousands of machines worldwide for easing the use of cryptocurrencies for payment.
Pundi X will offer token incentives to the best worldwide retailers that encourage their clients to use their token. Besides, clients will get free NPXS tokens and will have the capacity to recover it for future purchases. Redeemable estimation of NPXS token will be based on the present market cost.
Application Utility Token
The project’s CEO claims to make agricultural land transaction as easy as buying a car. Providing a Trade Back rate on the Fieldcoin platform stabilizing its price during bear markets, combined with strong agricultural land and farm management use cases, Fieldcoin is creating the 1st all in one utility payment token holding most characteristics of the 2.0 utility tokens.
Among the incentives of paying with Fieldcoin tokens are the bonuses (like airline “miles”) for members using regularly the platform regularly but also lifting some commissions on transactions and crowdfunding. The token value is protected by the Ecosystem’s fund allocations of physical land properties. Moreover, Fieldcoin Eco-system will create decentralized and autonomous organizations where people will make decisions concerning the future of their community. To be part or those, the condition is owning LANDS (ERC721 tokens) they have acquired with their Fieldcoin (ERC20) token.
In a nutshell, Fieldcoin interconnects a specific sector from the real economy with a dedicated non-bank peer-to-peer cashless technology; unlike most other blockchain projects that create a derivative hi-tech layer to complement mainstream financial technologies, but lack providing some real tangible solutions in our socioeconomic relations.
Burn and Mint Mechanism Backed Token
Magna Numeris is a multi-services IOS and Android based platform project that aims to solve problems of security, liquidity, high fees and increase the necessary infrastructure to encourage adoption.
The MGN Token serves many different functions within the ecosystem including; platform membership, payment fees, and network governance.
The platform also rewards users with the MGN token during the transaction process much like your standard fidelity points system. Magna is implementing a unique ‘Burn and Mint’ mechanism within the blockchain to decrease token volatility and eventually reach a price equilibrium which reflects the platform usage and price.
Smart Contracts Utility Token
The 1st utility token with a strong adoption was certainly Ethereum with the revolution operated by the Smart Contracts. Very largely adopted, many open source platforms can be used with the Ethereum Token. Since, the ICO model hasn’t changed much excepted some hurdles on the way like KYC requirements.
Currently experiencing scalability issues, Ethereum gather around the project the strongest Blockchain developers to cope with the problem. A migration towards a 2.0 Ethereum blockchain is the likely to be the outcome. Meanwhile, Stellar, Eos, Neo, Waves, Tezos are among the other projects that are competing with Ethereum to create Smart Contract platforms.
E-commerce Payment and Reward Token
KartBlock is a Dapp Digital Token used in a wallet that will serve crypto and fiat modules through its iOS and Android versions. KartBlock also provides the underlying blockchain technology for its e-commerce marketplace platform 27Avenue. KartBlock Tokens have a wide variety of adoption mechanisms in the day to day life, the tokens can be used for general payments and transactions on the Mobile Wallet, E-commerce purchases and whole array of rewards and loyalty programs created using the tokens.
The two separate architectures centralized, and decentralized, have enabled complete transparency in the business and full control of Data and analytics in the hands of the merchants. The gamified earn mechanism gives a new dimension in the tokenomics and sustains the ecosystem with steady flow of tokens.
Investment Access Token
While the BrickBlock (BBT) token main purpose was raising money through the BrickBlock ICO, the BBT is also creating another token called the Access Token that is used by broker and fund managers to list fund projects and pay the fees of the platform. In other words, the BrickBlock Token (BBT) function to create a 2nd token that has a platform access and payment use case. In practice, the 1st token lacks targeting the characteristics of a 2.0 utility token but the 2nd token created from the 1st one holds some of those attributes. Moreover, a 3rd token is created for the exchange of real assets. It is promoted as the best way “to gain access to a global investor pool and raise capital for your project quicker and cheaper than ever before”.
- Brickblock tokens (crowd-distributed through ICO and to founders)
- Access tokens needed to list a fund or an asset ie to access to Brickblock system
- Asset-backed tokens for the economic representation of the asset
This coin has been used to distribute value by many actors of the Blockchain like youtubers providing an incentive to their followers who participate in some kind of action. Launched as a joke in 2013, it has been since used mainly for donations of different projects. The reason behind the achievement of its use case might be the high amount of tokens in circulation combined with a low price per token and an immense community. 116,571,397,150 DOGE have been created. Although it is not the best token, it is the huge kindness and sentiment from its community that makes it a successful coin.
And what about Bitcoin?
Bitcoin is not considered as a utility token (even if it bears some its attributes). Is Bitcoin the 1st token with intrinsic value? A store of value? A payment token?
Main advantages of the Bitcoin:
- 1st moving advantage
- Large adoption
- Strong reputation
- Fixed money supply
- Transaction immutability
This review shall not be considered as a financial advice. It only provides theoretical insight analysis and guidance for a better understanding of Utility Tokens.