Types of tokens
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This article was first published by ICOscoring on Medium

Securities Exchange Commission (SEC) – USA and Financial Market Supervisory Authority (FINMA) – Switzerland broadly categorizes tokens as per below:

Security tokens — this type is to some extent similar to securities.
Utility tokens — this type gives its holders the access to services provided by the project.
Payment tokens — this type has its own Blockchain and is often considered as a mean of payment.

Know-your-tokens

Key features of each token

Security token (SEC) / Asset token (FINMA): This category of tokens represents assets such as participation in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives.

Utility token (SEC) / Utility token (FINMA): This category provides access to the goods & services that the project will launch in the future. Also, they can be used as a type of discount or premium access to the goods & services of the project.

Cryptocurrencies (SEC)/Payment tokens (FINMA): Usually, the tokens of this category have no further functions or links to other development projects. Speaking broadly, cryptocurrencies purpose is to be items of inherent value (similar, for instance, to cash or gold) that are designed to enable purchases, sales, and other financial transactions, They are intended to provide many of the same functions as long-established currencies such as the U.S. dollar, euro or Japanese yen but do not have the backing of a government or other body.

Depending on the type of token, organizers and participants of an ICO might have different rights and responsibilities. It is worth noticing that the safest type of token for investors is ‘security token‘. However, this type of token makes ICO more complicated and requires KYC/AML procedures. For instance, FINMA considers these tokens as a type of security and applies the same rules to them as for other securities (stocks, bonds, etc).

Important points to note for investors:

  • It is necessary to analyze the type of token and the economy behind it when making investment decisions.
  • It is a must to always remember that the price of the token is based on the basic principles of economics, such as the law of demand and fair value.
  • It is always advisable to understand the base value of token and its current and potential price in case all the targets are reached.

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Jeff Zylstra, is the senior crypto broker at Caleb and Brown to guide new and seasoned investors.

Call Jeff on +61 413 342 200 or Contact Us to discuss further.