ICO 3.0 — towards a new asset class
There is a good reason retail chains do not issue loyalty points to raise funds, but issue stocks. A share of equity is and remains the most obvious way of returning value to investors. The value of company equity is based on actual business performance, the value of developed technology, the strength of the team — and not on whims of a chaotic crypto marketplace. A week ago most blockchain project tokens lost over 50% of their token market cap in the past few days while remaining equally valuable as a company.
Innovative blockchain startups defined their tokens as equity back in 2016. However, the tightening regulation based around securities law forced all crowdfunded blockchain startups into developing methods of combining value return with actual token utility. This can work for blockchain startups building platforms and protocols, but is by no means universal. Most of the tokens described in the whitepapers of 2017 were “Franken-tokens” — an artificial combo of value return with pure utility that mostly failed in achieving either.
It is obvious we need a new asset class: securites tokens that enable separating equity investing from utility tokens. This equity must be available to all, not subject to draconian securities regulation that seems to exist to make the rich get richer while preventing the participation of everyone else. Some countries already accept this reality — the proposed Russian legislation that would allow anyone to participate up to a certain amount seems a solid step towards the goal of the democratization of investing.
As the securities element is separated from the utility, utility tokens can be designed specifically for the utility a blockchain startup needs — to facilitate payments, incentivize behaviour, help attract new users, make users committed to adding long term value to a product and other kinds of business magic. The fact that pure utility tokens do not include an explicit value return mechanism does not make them valueless. On the contrary, worth can now be more clearly and more easily correlated to a blockchain startup’s success in growing their network of customers and users.
In addition, if a blockchain startup receives equity investment, the pure utility tokens could be airdropped to project supporters for free. The resulting tokens would be compliant with all legacy securities regulation worldwide. Additional benefits could include much simpler listing on exchanges and access to supporters worldwide, as the pure utility tokens should be unaffected by any existing ICO bans.
As we go into 2018, the token economy space will continue to evolve quickly, as it has in the past. We believe that the equity/utility split is a good next step for many blockchain startups as we wait for the new asset class to develop. We’ve been working for months with our legal team and advisors to develop the idea and define the optimal legal token crowdsale framework that will give maximum value to blockchain startups, their supporters, and the Cofound.it CFI holder community while ensuring legal compliance worldwide. We’re finally close to finishing it and hope to announce the full details by the end of the month.
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https://blog.cofound.it/ico-3-0-towards-a-new-asset-class-d2f4c141052e
