Utility Tokens in Blockchain: Is There Any Hope Left?
Utility tokens? The ones that, strictly speaking, cost nothing these days? People lost fortunes investing in ICOs; no way would someone turn to them again! But is everything this straightforward? Is it true that nobody needs utility tokens and they have no future within the blockchain community? Let’s investigate this topic together.
You’ve probably found out about utility tokens a year or two ago when everyone was talking about super-popular ICOs that raised crazy money for their projects. Almost any idea, no matter how far from reality it had sounded and what team had backed it up, was receiving enormous investments via token sales. All you needed was a dozen-page whitepaper, a reputable-looking board of advisors and strong marketing. Voila! You’ve got several million in your pocket.
Yes, exactly that was the problem. Millions gathered for project development were usually spent… oh, well, on anything the team wanted: from the actual creation of the product to the vacation in Vegas. No one controlled the expenses. No one set any regulations for ICOs. Investors were left to hold the sack and could do nothing about it. The boom ended, and those who didn’t manage to get rid of trash coins soon enough watched their price drop to zero.
Just some figures. In 2017, ICOs raised $6.3 billion, with the biggest project, Filecoin, gathering $257 million. But these numbers pale when compared to 2018 statistics: $7.8 billion raised, with Telegram collecting $1.7 billion and EOS finishing their sale at a record $4.2 billion.
Unfortunately, as of today, the majority of projects are dead, and their tokens cost almost nothing (EOS and Telegram prosper, thank Bitcoin).
Of course, this influenced the public opinion and the investors’ attitude toward utility tokens:
- the trust in token offerings is at bargain-basement levels
- utility tokens as a type of investment are practically dead
So, what do you say? Can we forget about the terms “utility token” and “ICO” now? Not exactly. Let’s distance ourselves from the bad history and return to the initial definition of the terms.
Behind all these scam ICOs, the basis of utility tokens was lost. And the basis is utility. Startups and companies tried their best to “invent” the applicability for their coins, but the main point was to sell nothing for real money. Like, say, the ICO of the DAV Network. No real purpose of the DAV token. More than $28 million raised. The current price of DAV is $0.0013.
What should it really look like? Let’s think of an analogy. A construction company announces it’s building a new city subway. They suggest purchasing subway tokens at the initial stages of the construction for half of the real price. When the subway is ready, everyone will need tokens to use it. They will be more expensive, a dollar, for instance, but you have bought them for 30 cents beforehand. You can either use these subway tokens yourself for a certain period or sell them to other people for 80 cents, get your profit and buy a car.
Another example is a casino chip. You can purchase chips for fiat in the casino, but what if you had a chance to get these chips on the stage of casino building? So, you invest some money in casino construction and receive chips that will be used when the casino is ready. For the risk of early investment, you get a great discount for chips, and then you can either use them or sell at a higher price to casino clients.
The idea was good. The implementation failed.
After everything that’s been said, the answer is, surprisingly, yes.
We can talk about two reasons why people would want to use utility tokens. The first one is to be able to exploit a particular service, platform, new blockchain, etc., which require their own tokens within their ecosystem. For instance, there is an online economic strategy on EOS blockchain called The Prospectors. To purchase some assets and artifacts in the game world, you have to own the game gold, which is their token PGL. The concept is similar to the one with the city subway: if you’ve got tokens, you can use the service.
The thing is, you will purchase the genuine utility tokens, ones that you actually plan to use. You won’t invest money in some hyped project, just because you hope it would bring you profits, like a year or two ago. Only the companies with a strong reputation and clear history will be able to raise money/engage investments via utility tokens.
This is the second purpose of utility tokens – investment. Here, the market has become healthier, more stable and less fraudulent. ICOs are still running, but the quality of projects has increased dramatically. Young startups with unknown teams and raw ideas have no chances of getting any serious funding. More than that, the shock from the bear market had a significant impact on the general opinion, and the share of ICO investments in 2019 and further is going down significantly. As a matter of fact, ICOs are substituted by STOs (Security Token Offerings) and IEOs (Initial Exchange Offerings) as more reliable and better-regulated ways of crypto investment. The IWOs (Initial Wallet Offerings) are on their way up as well.
Tokens with genuine utility will survive. They will even rise in price if the number of platform/service/game users increases. Still, investing in utility tokens becomes less popular, bluntly speaking, since it’s hard to overcome the shock from the market collapse. Instead of ICOs, investors purchase security tokens and take part in IEOs, which sound more reliable since they are backed up by the reputable cryptocurrency exchanges. The general trend shows that the cryptocurrency market becomes more mature while staying significantly more dynamic as compared to the traditional forex or stock, and, therefore, quite attractive for investors.