A security token is a digital asset that is acquired for the purpose of making a profit in the future. With the rise of security token liquidity, blockchain related people have asked AssetRush which tokens are better, utility or security?

IS THE TOKEN SECURITY OR UTILITY?

Before looking into the pros and cons of both tokens, let us explain how to figure out whether you are dealing with a security or a utility token.

Ask yourself the following questions:

Will the token buyer expect revenue? Is the main function investment? Does the token holder profit from a third party? Is the money from the sale of an asset invested in the company?

If the answer to all questions is “yes”, then you’re probably dealing with a security token.

SECURITY VS UTILITY

Utility tokens are acquired exclusively for internal settlements, exchanges between users, fees for a provided the function, and so on. ICOs that produce utility tokens are great for retail traders and non-professional crypto enthusiasts, but they also create problems for investment funds and venture capitalists. When using a utility token, usually the buyer does not own any real asset, unlike the use of the security token.

In the case of security tokens, the buyer owns a share of what constitutes a token. In other words, the “investment” token is similar to financial securities (debt, equity securities, derivatives), but in digital form. This simplifies and speeds up trading as users are not trying to make any profit from the sale of these tokens. As a drawback, unlike traditional securities which have exchanges and brokers established around the world, users can’t simply call up their brokers. STOs require users to create their own tokens as well as a platform to manage their sale. STO (Security Token Offering) provides security for investors, as it complies with legal regulations, which make the STO more legitimate for investments in the modern world. It minimizes opportunities for fraud and is less subject to legal problems.

As you can see, security and utility tokens have their own pros and cons. So, why not have the best of both worlds by implementing the two-token ICO?!

THE DUAL TOKEN STRUCTURE AS A UNION OF BOTH TOKEN TYPES

Howard Marks has proposed a two-token ICO in the RATE (Real Agreement for Tokens and Equity). He states that this model “allows a company to issue two tokens, one as equity, represented by the capital table of the company and issued in accordance with securities laws. The second token is offered to the investors as a perk.” In this statement “perk” could be described a the utility token delivered via airdrop.

This model helps raise capital with the help of security tokens and issues tokens meant to be used within the network (utility tokens).

LISTING SECURITY AND UTILITY TOKENS ON EXCHANGES

Almost every cryptocurrency exchange accepts utility tokens. However, if you represent security tokens, there is no need to worry as exchanges likke LATOKEN, Coindeal, HitBTC can easily list your project. If you have questions about listing on exchanges/websites or need some assistance in promoting your project, AssetRush would be happy to answer all questions, just drop us a line :)