When a company or individual creates a utility token, it usually plans to create a form of a digital coupon that can be redeemed in the future for discounted fees, or special access to a product or service. Unlike security tokens, utility tokens are not used as investments as they can be exempted from the federal laws governing securities if they are properly set up.
Token Offerings
Explore different token offering types and differences between them
Tokenization is the concept of using blockchain technology to issue a token that digitally represents a real tradable asset.
The issued tokens are created through a specific type of initial token offering. Depending on the intended use and functionality, there is a distinction between security tokens and utility tokens when launching a token offering.
Utility Tokens
Security Tokens
Security tokens on the other hand can either represent regulated financial instruments (equities, bonds, loans, and funds), tangible assets (real estate, artwork, precious metals), or intellectual property (copyright to works of authorship).
Over the years, there have been multiple iterations of companies or projects issuing their own token. In all cases, this occurs through a token offering, although the distribution model can differ a bit.
Let’s explore different token offering types and differences between them.
What is a Token Offering Exactly?
A token offering is a very interesting concept, but can be a bit confusing especially if you are new to blockchain. Token offerings have become a growing trend in the financial services industry. This is primarily thanks to the help of blockchain technology and cryptocurrencies.A token offering is a virtual form of investment. At the moment, it is primarily used by startups to raise capital for future development or business affairs.
What makes a token offering appealing is the use of blockchain technology as it introduces:
- An extra layer of transparency;
- High volume liquidity;
- Fragmentation of assets & ownership;
- Scalability & efficiency;
- Globalized investor or trader access;
- Faster launch times.
In addition, they are able to code the transactional protocol into a blockchain-based contract. These contracts are known as smart contracts. Once funds are allocated, those that relieved those funds will automatically receive tokens on a prorated basis via the predetermined parameters. A very convenient business model, approachable by anyone with a basic knowledge of finance. In terms of the technological aspect, applications like the Levolution platform handles it all for you.
What Are the Different Forms of Token Offerings?
ITO
Initial Token Offering
The basic ITO model is the most approachable one. ITOs make use of publicly available technology to help startups raise extra capital with relative ease. The code written in the smart contract takes care of all administrative aspects, including verifying deposits and issued tokens. Perhaps the largest benefit of the ITO is that there are no middlemen involved. Everything can be settled between the token issuer and token purchasers directly.
IEO
Initial Exchange Offering
An Initial Exchange Offering (IEO) extends the basic ITO model by involving the help of exchanges and trading platforms. An IEO makes it simple to attract potential investors, as any user of that exchange can contribute funds to the token sale in question. Additionally, the participating trading platform will often list the token for trading shortly after the token offering. In turn, this creates potential extra liquidity of the token. Instead of allowing teams to raise capital themselves, projects and business ideas would be vetted first by exchanges looking to facilitate the fundraising effort. As such, any exchange in the world is – in theory – capable of helping out with the IEO business model.
STO
Initial Exchange Offering
Another prominent model is the STO, or security token offering. This model can be embraced by startups and smaller companies, but requires a much stronger focus on regulatory and legislative aspects of the token offering. Especially in the United States, STOs are subject to strict regulation, which explains why there aren’t too many projects exploring this opportunity as of yet. A security token offering or STO is a public offering where tokenized digital securities are sold to investors. These tokens are eventually traded on either cryptocurrency exchanges or security token exchanges. Security tokens can be used to trade real-world financial assets – including, but not limited to, equities and fixed income – by leveraging blockchain technology to store and validate ownership of tokens. As the term “security” is in the name, this form of raising capital is subject to regulation. For investors, this introduces an extra layer of safety and security. Currently, STOs are slowly starting to gain traction among smaller and mid-sized companies looking to secure additional financing.
What Are the Advantages of a Token Offering?
Considering how any company providing specific goods and services can explore this option, it is a potential replacement for the current loyalty points systems in place. Customers often tend to forget their loyalty points, instead of maximizing their potential.
It is also a viable option to introduce membership tiers, issue permissible access to content on a platform, or serve as an identity-based authentication system. Using a token offering doesn’t instill the appeal of “currency”, offering companies a lot of leeway in terms of what they want to achieve with these tokens.
There are several use cases of a token, and this is what makes token offerings so special. It grants you an easier route to receive funding for your project.
For token buyers, a token offering is also more legitimate, These tokens are directly correlated to existing services and products offered by the parent company.
How to Launch A Token Offering?
Primarily due to their inferior and illegitimate technology, many token offering platforms have come and gone. Among the few token offering incubators that exist, the Levolution platform has held its ground as a keystone application within the blockchain ecosystem.
Moreover, the platform drastically cuts costs inherent to such an offering. On the Levolution platform, campaigns can be run from start to finish. The platform offers the ability for business leaders to create, launch, market, and optimize their token offerings all in one place.
Levolution is a one-stop-shop for entrepreneurs with the idea of launching their own token offering, even for those who aren’t so tech savvy .
Through Levolution’s transformative token offering platform, everyone with an idea can turn it into a reality.