The year 2017 was a remarkable year for crypto. The industry grew, projects emerged, and the number of ICO’s skyrocketed. In 2018, we see this trend change as many projects from 2017 have failed due to taking the money and running or slowly fading into obscurity.

In this article, I want to offer you a new perspective on why Security Token Offerings are often a better means to raise capital for your decentralized project than “traditional” Utility Token Offerings.

Security Token Offerings are on the rise — my goal is to give you an insight into how these developments and ambitions to create Decentralized Autonomous Organizations can shape real world strategies, like ours at VMC.

Utility Tokens are Airlines Miles

Having investors and traders speculate with the value of a token that has the purpose to fuel transactions in a (decentralized) network is not a good idea in most cases.

Utility tokens are — except for the fact that they are tradeable — similar to coupons or airlines miles that people can use to obtain a product or service. To have people speculate with the value of that coupon is problematic.

Here is why:

Imagine an airline company (let’s use KLM).

KLM issues equity for people to invest and benefit from their business success .

for people to invest and benefit from their business . KLM issues Airmiles to create a loyal customer base and for people to use their services.

Now, imagine you would like to invest in KLM and you could choose between those two products.

Investing in their Airmiles, means you would assume that the prices of the Air Miles increase as the company grows and makes more profit. However, the prices of Air Miles are not linked to KLM’s profit or turnover. Airmiles are something people can exchange for a service (flying in most cases). In fact, speculating with the value of KLM’s Airmiles would not benefit the service or the client’s experience as fluctuating prices could cost the passengers, or KLM, a lot of money.

Imagine you receive Airmiles worth 400€ at a certain point in time. You are happy, since your dream flight costs 350€. The Airmiles would allow you to take your dream flight and you would even end up keeping 50€ of Airmiles — Yay!

Three weeks later, you decide you want to use your Airmiles to take your dreamflight, but you find out that your Airmiles are worth only 180€ now.

This is an example whereby the passenger is disadvantaged. (Similarly, KLM could be the disadvantaged party).