What Are Utility Tokens And Equity Tokens In Crypto

What Are Utility Tokens And Equity Tokens In Crypto

Since 2017, ICO sales have been one of the most prevalent ways of investing in new crypto assets. In comparison, few people made bank out of but not the most.

Those making big profits in an ICO park their investments in the early stages of funding. This involves private equity, venture capital, or institutional financing.

The experienced players in the markets know the difference between the many types of crypto tokens.

But not the newcomers in the market. since the players in the market have a habit of reading about news and new technologies. Thus, this article is for those who fall in the uninitiated category.

This article would cover the difference between utility tokens and equity tokens.

Utility Token

A utility crypto token is being issued initial coin offering or an ICO. Utility tokens are a special kind of asset that serves the dual purpose of investment and governance rights in a protocol.

Due to the volatile nature of post-ICO price fluctuations, utility tokens behave more like. Promotional schemes as fresh token issues.

Generally, they provide special privileges to investors rather than investments.

During the seed listing phase for a utility token, the price of the token usually remains static. The purchased tokens live on a crypto wallet, giving access to the buyer to exercise services from the blockchain project.

Moreover, the tokens do not allow any ownership in the blockchain project. But they do allow the holders to get the given set of tokens on a preferential basis.

The price of the utility tokens is in correlation to the demand and popularity of the project. It mints profits for its users if the roadmap shows reasonable success.

Utility Token Examples

A fantastic example would be the Basic Attention Token (BAT). It is a utility token based on the Ethereum technology.

Its purpose is to serve as a unit of account between advertisers, publishers, and users. It does that in a form of blockchain-based digital advertising and services platform.

Equity Token

An equity token is a branch of a security token that generally represents a stake in a given asset. It can be a stake in a company's stock with all the details recorded on the blockchain ledger.

This type of ownership is better for crypto investors. This involves contributing directly to the decision-making process of the blockchain project.

Equity tokens get a cover of governance and regulations from the Issuer's country.

Also, the crypto investors of such tokens get legal protection as well. The issue of these tokens is respective to relevant offering processes.

The sale then entitles the buyers with voting rights in matters of the company through the blockchain. Investor control is usually calculated according to an investor's proportionate holding.

The price of the crypto token is generally correlated to the performance of the company. Also, the shareholders receive a contribution in the profits and dividends.

Utility Token Vs Equity Tokens

1. The biggest difference between equity and utility token falls in one big category: ownership. The investors in the former token are legally protected and show proof of ownership in the project. While in the other, only access to service is possible.

2. The logical argument for investing in utility tokens is a correlation between the access to services provided by the blockchain project and its future demand.

3. It is generally advisable for new crypto investors to put money in equity tokens. They have an easy concept of understanding while providing ownership benefits. Also, these tokens are the issuance for running businesses, and the fear of fraud and bank runs gets low.

4. Markets often pair greater returns with greater risks. This is the same in the case of utility tokens as well. Due to increased risks, if the possibilities of success seem solid, the tokens can give outstanding returns.

Note: The risk factor of investing in utility tokens is high. Thus, it is fairly advisable to go through all the terms and conditions before investing.

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