security tokens

The Difference Between a Security Token & a Utility Token

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Opening a mystery door into the realm of cryptocurrencies can feel like stepping into a parallel dimension where nothing makes sense and people seem to speak the same language as you, but all the words imply different things. There's no denying that the initial few steps are complicated, but that's why there are bite-sized educational nuggets like this one to act as a decoder ring.

Points to Remember:

  • In the cryptocurrency world, security tokens and utility tokens serve very distinct objectives.
  • Security tokens are ownership shares in a corporation that uses blockchain technology to conduct business.
  • Utility tokens are promotional tools that give holders unique access or discounts to new products or services in the future.

Tokens are a typical occurrence in the crypto and blockchain computing worlds. Therefore, it's important to distinguish between a security token and a utility token. So let's talk about it.

One is not the same as the other regarding tokens and coins

Although both tokens and coins fall under the umbrella of "cryptocurrency," they are not the same thing. Instead, a token is used to represent some form of non-cash asset, including an ownership interest, special privileges within a blockchain, like voting rights, or early access to a product developed by the company that's issuing the token.

Coins, on the other hand, are only used to signify money. A coin's cash equivalent is always determined by demand and market conditions. Tokens can have value, but they aren't created purely to transmit it. They're usually made for anything more involved than a basic financial transaction.

Meaning of each token - and their legal compliance

What is the meaning of a security token?

Because they're commonly linked to a securities offering, "security tokens" should indeed be termed "security tokens." The securities in question are typically shares in the company that issued the token as a long-term investment in the technology company's growth. They're regulated in the same way as securities in more traditional markets.

The right to influence the organization that issued the security token is crucial for most security tokens. When you purchase a security token, you are effectively becoming a significant shareholder, and the company's valuation directly influences the amount you invest. This differs from the value of a cryptocoin, which is determined by the demand for that coin and the level of trust others have in the platform (of which you are now an owner).

What is the definition of a utility token?

Other tokens are not security tokens, even though security tokens ("security tokens") are. For example, utility tokens are the most popular token issued in an ICO (ICO). Rather than reflecting a share of the company's ownership, they're more akin to "golden tickets." They provide holders with unique services or preferential treatment, such as a discount when a start-product up's line is launched. For example, these goods could be software packages or software as a service platform.

Utility tokens aren't regarded as investments because they're more like promotional tools than ownership holdings in companies. However, utility tokens can appreciate if the token they represent becomes extremely popular and in demand. If your token represents a restricted access pass, for example, those that haven't been cashed in yet could see a massive increase in value among individuals who missed the ICO.

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Words are useless, but tokens can be handy

Tokens are valuable in several blockchain transactions, but before you spend your hard-earned cash on them, make sure you know what you're getting. Because security tokens constitute an ownership stake in a corporation, they are subject to regulatory monitoring. In contrast, utility tokens are more of an "anything goes" situation, similar to any limited-run collection or promotional item.

Security tokens may be the ideal method to enter the crypto market for new investors. The notion should be recognizable, as they represent firm shares the same way that equities do. The probability of owning a part of the next big decentralized application start-up isn't alarming either.

A utility token can get you a discount in the future if you merely want to buy and hold a little token from an ICO for a firm that matters to you. Before you buy a token, read the redemption terms carefully to ensure you know exactly what you're getting.

Security tokens & utility tokens - What are the differences?

The Howey test can be used to determine what constitutes security and what does not. This test was developed in 1946 during a legal dispute between the SEC and the Howey Company. The Howey Test was born out of this court procedure, and the SEC has subsequently studied what constitutes security.

The following are the sections of Howey's Test:

  • There is a monetary investment.
  • There is a profit expectation.
  • The money is invested in the same company.
  • Any profit is the result of a promoter's or a third-party effort.

Any transaction that fits these four conditions is classified as a security. This basic test will help you distinguish between a utility and a security token.

The UFUND Token - A Utility Token

We plan to issue our token for the initial fundraiser, the UFUND Token (UFD). With its powerful ERC20 Token (UFD) issued for initial fundraising, UFUND will reach its following goals:

  • The development of the UFUND platform.
  • Integrating Artificial Intelligences (AI) to UFUND Platform.
  • Developing the blockchain and tokenization process.
  • Enhancing its digital marketing strategy and UFUND mobile apps functionalities.
  • Integrating multi-token standards to different blockchain systems.
  • Launching the UFUND Crowdfunding Club for businesses and investors.
  • Enhancing user experience with more possibilities to use more Fiat currencies and more Cryptocurrencies.
  • Offering businesses exchange for P2P trading and connections with liquidity providers.

UFD will be a utility token at first, based on the ERC20 standard, and will be sold on our platform and a dedicated token sales website. On the Polygon Blockchain, the price will be fixed at 20 USD/Token, equal to 8.7 Matic (during the UFD Token private sales event, a 50% discount is granted, bringing the Token price down 4.35 Matic).

UFD tokens will be used for platform transactions, access to several premium services, and incentivize trader ratings and value creation through a dynamic reward structure.

After finishing the regulatory procedure to achieve more excellent value, we will switch UFD to a hybrid model. Users will be forced to hold the hybrid token for one year once this happens.

Keeping a UFD utility token for a year instead of six months will result in 10% of Hybrid tokens being provided for free for each total of UFD utility maintained by each holder since the UDF token will acquire value as it transitions to a hybrid model. This is a fantastic perk.

UFUND's dual token approach ensures that we can administer the platform in the best interests of UFD holders and consumers, and businesses who join up for the services we provide per US SEC regulations.

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