Differences between Utility tokens and Security tokens

Colin Baseman

Tokens have come a long way from just an idea in some small corner of the world web to a reliable and popular way of funding a project. Two types of assets are in a spotlight right now: Utility and Security. We suggest reading the articles "What are Utility-tokens?"and"What are Security-tokens?" - you will get detailed information about these investment instruments in there.

The main differences between security and Utility tokens

The main difference between assets is the purpose of their issuance. Security tokens are focused on attracting investments. The way assets are used is not fundamental. Utility tokens are issued primarily to gain access to blockchain features.

Bitcoin was designed to fight the monopoly of Central Banks on the issue of funds and act as a powerful alternative to fiat money. The White Paper does not specify plans for profit; it contains only the technical features and principles of the system.

Marketing and target audience

Projects that offer Utility tokens aim to attract potential users of blockchain or its elements. They take part in lectures, conferences, as well as report about themselves in the specialized media. An example is the startup TradeLens. Logistics conferences and specialized magazines were used to promote it. The platform accelerates cargo transportation up to 40%. 

Security tokens projects are promoted in a different way: issuers focus on return on investment rather than blockchain functionality. The target audience is accredited investors and business angels. To obtain the status of the first in the United States, you must meet the following requirements:

  • the value of net assets-more than a million dollars;
  • The Executive, General or ordinary Director of the project is the one providing securities;
  • annual personal income from 200 000 dollars, family-from 300 000 dollars. 

Business angels stand for rich people who invest money in start-up projects. They receive a share in these projects as an exchange for their investment. Their support is often not limited to finance, they help in the development and implementation of the company's strategy.

Ownership 

Utility tokens represent only a digital ''key" by means of which blockchain mechanisms are implemented: smart-contract, application, payment gateway. They do not grant ownership. Usually used only for ICO. 

Security tokens holders are entitled to:

  • physical or digital asset: cash, natural resources, real estate;
  • participation in business management;
  • receiving dividends;
  • credit obligations to the token holder.

 Regulatory authorities make investing in  Security tokens a more reliable option. Such as in case business fails, they get compensations.

Utility and Security tokens are not two peas in a pod, because they are shaped to fit different molds. They serve different purposes and are used by different types of users. Security tokens are the perfect solution for investors. Large investors can make an especially big profit based on it. Utility tokens can serve as a stepping stone to increase capital, but their main goal lies in obtaining blockchain-services. Why not acquire both of these types of assets and gain experience in their use?