Steemit Cryptoacademy Week 10 Homework Submitted To Professor @pelon53| Security Tokens, Utility Tokens and Equity Tokens In Cryptocurrency

WHAT IS A SECURITY TOKEN?

Source

Thanks to professor @pelon53 for an interesting lecture on tokens. I decided to explore the topic to the best of my ability in this article.

Security token refers to a twenty-first century modern technology whereby forms of a real life asset or fractions of such assets are held as digital assets with an equivalent real-life liquidity. Such digitally held assets are represented on blockchain technology which can be permissioned or permissionless and can always be claimed or easily converted to liquid cash in form of different fiat currencies recognised by Central Banks all over the world. These stakes of real-world assets which are so represented are preserved or stored over such distributed ledgers in such a way that each investor knows and can redeem the full value of his real-life asset as represented on the ledger.

Harmonizing this definition with the traditional concept of security tokens, then , it can be viewed as a sort of digital voucher which can be used to authenticate and verify the ownership of a particular value of asset by somebody. As has already been said, the token is identifiable and located on a blockchain. However, it can be used to gain access to that asset. Also, it can be used to access services which such tokens represent in value or for which such tokens can simply be used as access keys.

While a security token can be seen as the representation of the digital asset on the blockchain, it can also be argued that it is a sort of access key to the asset which such a token represents. A practical and analytical example can be seen in the case of a car owner and his car key. Actually, the car key may not be synonymous as the car, in essence. However, without the car key access cannot be gained to the car. So, the car key invariably gives the car owner the right of ownership and authenticates him as the verifiable holder of such an asset. So, security tokens help to identify, authenticate and verify one's ownership claim of a particular real life asset. Actually, the asset could just be a service, even. Nonetheless, the key is required to gain access into such services or claim such a real life asset. This is my understanding of security token from my well-informed and researched analysis.

During an Initial Coin Offering (ICO) companies can decide to offer some security tokens to be purchased by investors who would now own a fraction or share in the company from which they have bought the tokenized real assets.

A very good example of a cryptocurrency security token is the Resolute Fund.

THE RESOLUTE FUND SECURITY TOKEN

Source

The Resolute Fund Inc., is an investment firm that focuses mainly on real estate management in the United States. It is a very good example of cryptocurrency security token because its securities have been offered for purchase over blockchain technology. This real estate investment firm focuses mainly on opportunistic investments in the real estate market. This opportunistic position makes them lean towards non performing mortgages loans, the hospitality industry and then in multi-family and single-family properties which are undervalued.

Through a Security Token Offering, the Resolute Fund offered a $50 million USD worth of tokenized real estate assets in the form of digitally held security tokens over the Ethereum blockchain to qualified investors. The company was assisted by integration platform known as Swarm in the tokenization of their real estate values.

This real estate venture was tokenized as an ERC-20 token on the Ethereum blockchain and investors were given rights to profits, dividends, equity ownership, shares and redemption rights in the company. When investors purchase the offered fractions of the company's real estate assets, they may decide to trade such tokens on cryptocurrency exchanges and on a peer-to-peer basis for liquidity. The company boasts of a very robust and strong management team. Their management team are said to have had over 30 years experience with such ventures as internet startups, real estate management, blockchain technology and asset management. It has as its CEO, Andy Strott, and has acquired over 100 properties in the United States. These properties are estimated to be worth more than $1 billion so far. Interestingly the company has been known for achieving returns far above its investments, thereby maintaining their core value of maximizing profits for investors.

The Resolute Fund team of experts include:-

EXPERT	POSITION
Andy Strott	Founder-CEO
John Lydon	Managing Director
John Cuneo	Managing Partner
Casey Dong	Partner
Michaela Dibernardo Ferrigine	Partner
Ron Dechambeau	Partner

You can learn more about them from the Resolute Fund whitepaper.

WHAT IS A UTILITY TOKEN?

Source

A utility token is a form of digitally-represented precision of value which is first, useful for the development of the underlying project initiated over a cryptocurrency blockchain; and then, important and necessary for access, participation and usage of the services being offered by the project. The simple idea behind utility token is that people can purchase such digitally-valued assets, hold them and be able to gain access to some services or participate in some protocols or any protocol upon which such a token has been developed to function. A very important and readily available case study is a situation whereby a company decides to offer some tokens in the form of utility tokens. Initially, it can be for the set-up and development of a particular gaming function on a blockchain. The moment this gaming function is fully developed, the token holders can then have access to the services provided by the game and even make some in-app purchases while utilising the gaming service.

Usually, utility tokens are not purchased for the purpose of garnering huge gains or profit in the near future. Often, they may just have been purchased for the purpose of being held digitally as an access key into the services being provided by the project which the tokens underpin. Utility tokens 20 offer you a part of fraction of any real word except neither does it make you part of the team of investors who may actively participate in decision-making or vote on projects based on the large size of their token holdings. The tokens may not be regulated by the Securities and Exchange Act as such may become valueless should be project not succeed.

A very good example of a cryptocurrency utility token is the Basic Attention Token.

THE BASIC ATTENTION TOKEN (BAT)

Source

The Basic Attention Token (BAT) as a token for advertisement was built and developed to function over the Ethereum blockchain. The token has as its core mandate the vision to develop, in a decentralised manner, a marketplace that will serve as an ad exchange which is capable of connecting users, publishers and advertisers with a whole lot of advantages and benefits to all the parties involved. It is a user-friendly ad exchange because it implements strategies to incentivize user viewership of ad networks. In like manner publishers and advertisers get their own cut from the ad exchange market without the interference of unnecessary middlemen who rather take a large chunk of ad revenues as is common with other traditional ad exchange platforms.

The BAT token serves as the currency to be exchanged over the ad exchange network. It would be used to reward users, advertisers and publishers. While the BAT network takes the issue of user privacy very seriously, it equally implements strategies to track user intent and interest for future purposes. So, it implements the vision of using its BRAVE native browser to show fewer but highly relevant ads to users while also incentivizing user attention and experience.

You can learn more from the BAT whitepaper.

WHAT IS AN EQUITY TOKEN?

Source

An equity token is a form of security token which can be understood in the traditional sense of assets held in the form of stocks. However, these assets are represented by figures which serve as tokenized values of the asset on a digital blockchain network. Holding this form of token, which may have been offered by a company or investment firm over the blockchain technology, simply means that you now have some form of ownership right to a certain fraction of the company's investment portfolio which has been listed for investor entries.

These assets can be listed in the form of:-

• Tokenized real estate
• Securities
• Futures
• Actions
• Digital mutual funds
• Tokenized companies
• Options contracts

The equity token does not just give holders the right to ownership of the company- even if just a fraction- it also gives them the right to vote in the company's future and benefit from the profits made by the company. Actually, the major distinguishing factor between traditional equity rights and their counterpart equity tokens in cryptocurrencies is its mode of issuance. While traditional equity rights make use of paper works and traditional databases, the equity token is completely transacted over a distributed ledger network called blockchain.

Before a company can issue equity tokens over a digital blockchain through what is called Equity Tokens Offer (ETO), the company usually follows an identifiable procedure. Thus:-

1 Registration with a cryptocurrency exchange platform

• Usually, a company which wishes to issue an equity token would have to, first, register with a cryptocurrency exchange network. This would enable them to be able to issue the equity token over that protocol and be able to track the information of holders.

2. Make open the provisions of their commercial venture

• What this simply means is that the company or investment firm hoping to issue an Equity Tokens Offering (ETO) over a blockchain platform will have to declare and make open the terms and conditions of such a commercial venture which they intend to undertake to potential investors.

3. Initiate and complete a pre-ETO offering

• Actually, the company would have to, first of all, undertake efforts to privately issue the equity tokens to interested private investors through a pre-ETO offering. If by the end of the day the privately issued tokens do not meet the required target, the company can then decide to go open over a distributed ledger platform to declare an official ETO.

4. Undertake an official public offering

• If the company has issued a private ETO and they are still unable to meet their required target, it becomes expedient for the company to announce a public offering of its equity tokens. Investors and interested companies can then buy into the equity stocks over the blockchain protocol it is hosted. Agreements are then signed which become legally binding and, therefore, authenticate such token holders as legitimate owners. This, together with the protocol over which it is hosted, would ensure that the token has liquidity in secondary markets.

A notable example of an equity token is the elephant private equity coin

THE ELEPHANT PRIVATE EQUITY COIN

Source

The elephant private equity coin is the in-built token developed to be operated and utilised by the elephant platform. It functions as an equity token through which investors can gain access to real world assets through its holdership. The elephant platform itself is an investment firm which has been tokenized over the blockchain for purchase and which operates in the private secondary market. This token aims to put a bridge between the blockchain and the secondary investment market space by making it possible for its cryptocurrency private equity coin token holders to have access to real life assets in the secondary market.

Holding this token will mean having a share in the elephant platform target companies- which are companies in their pre-Initial Public Offering stage. Also, the token allows individual shareholders to put up their private shares for blockchain investors to purchase and hold them as real life company shares tokenized and valued over the blockchain.

The equity token which is known as Private Equity Coin (PEC) can be purchased with Bitcoin and Ethereum. In that manner, holders can purchase little fractions and become legitimately recognised as real life asset owners. As such, they now have a right to partake in the dividends, profit and gains accrued from the companies in the secondary market in which the elephant platform has partnered with or invested in. Such individuals may not have been able to own rights in the secondary market but can now own fractions of it, thanks to the private equity coin of the elephant platform.

More information pertaining to this project is contained in their project whitepaper.

CONCLUSION

Security and equity tokens can be very useful as a way of verifying and authenticating ownership of real-life asset which have been tokenized on a blockchain technology. Utility tokens are also quite important for their role in granting us access to the underlying projects or services for which they have been developed.

On the whole, these tokens are amazing in the fact that they give us the opportunity to hold, even if just in fractions, ownership of real-life assets which we may not have traditionally been able to purchase.