Composite Tokens: Accepting Most ICOs As Securities Helps Future Of Blockchain
This year has been a wild and perplexing ride for blockchain enthusiasts. After record highs at the beginning of the year, markets crashed and have stagnated ever since, leaving investors uncertain. The entire token market seems to be holding its collective breath, eagerly waiting for some specifics on the impending government regulations. A cold summer and fall have made holding more and more difficult, and the prospect of buying new tokens nearly unthinkable.
Nobody has felt the impact of stagnation more than projects running, or planning to run an ICO. Numerous scams and regulation issues have destabilized the entire market, leaving startups with revolutionary blockchain-based solutions in unfortunate positions. Companies are sitting on solid business plans and impressive infrastructures, but can’t attract enough token buyers to launch their systems as planned. This is bad for blockchain advancement, and bad for tech innovation as a whole, as it prevents game-changing solutions from reaching their full potential. However, as in any industry facing obstacles, projects selling their cryptocurrencies are adapting their models to bring their vital solutions to life.
When a company launches a token, there is always a crucial decision to make: Is it a utility or security token? Industry leaders like Joseph Lubin, founder of ConsenSys, have insisted their tokens are not securities, arguing that they are either alternative money systems or utility tokens. Positioning tokens as money systems or utility tokens puts them, some believe, outside of security regulations. And as long as the token operates only as an access key, a discount, or a private club membership, this may be true. Until suddenly it starts acting, at least in part, as a security.
While tokens positioned as currencies, like Bitcoin and Ether, can successfully argue that they are indeed an alternative method of payments, ICOs may have a harder time, as some projects have been known to lure their backers with promises of profit sharing and rising value. This problem has resulted in token sales being banned in certain jurisdictions, which in turn cooled down the excitement for new token solutions.
To address this issue, the next wave of ICOs are looking to utilize the composite token model – that is, issue tokens that provide both blockchain utility and features of legally compliant securities.
The composite token model has the potential to fuel the next wave of innovation in the crypto market, providing vital utility that allows for sophisticated, new decentralized networks to function while incentivizing investment in the networks themselves. Why choose between functionality and investment when one token can offer both? This new conceptualization of what a token can be redefines the idea of investment, physically driving the network that will hopefully, because of its utility, increase in value. The composite token model allows for both companies and buyers to have their cake and eat it too.
Bringing tokens into compliance with security regulations is key to reigniting the ICO market and fostering continued blockchain innovation. Tokens are essential to new blockchain technologies and will only become more important as proof-of-stake protocols are further developed. Ensuring that tokens have features of legally compliant securities will dissipate the uncertainty that has loomed over the crypto market for months and help companies attract capital and build out networks to create a truly sustainable and profitable blockchain ecosystem.