The Difference Between Utility Tokens and Equity Tokens
With more than 11,000 cryptocurrencies out there, each token has its own functionality. This article aims to differentiate between utility tokens and equity tokens. But what are utility tokens and equity tokens, first?
This is not financial advice. This article aims only to educate crypto enthusiasts on the different types of cryptocurrencies available in the market. Do due diligence and research crypto before investing in them.
What are Equity Tokens?
Equity tokens are subcategories of security tokens. Security tokens constitute ownership of a company. This is usually in regards to the stock of an enterprise, with all terms and conditions (TOC) recorded on the respective blockchain. Like the security tokens, these equity tokens are regulated by securities laws of the respective country where the issuing firm is based.
Equity tokens are issued via equity token offering (ETO), an event in which companies offer equity in their stock for sale to investors. This provides holders the benefit of voting on the matters of the company on the blockchain. The community acquires control in proportion to their holding. Also, the holders have the right to get a share of the profit made by the company that issued the token.
What are Utility Tokens?
Utility tokens provide holders with future access to a product or service. Through utility token initial coin offerings (ICOs), startups can raise capital to fund the development of their blockchain projects, and holders can purchase future access to that service.
Utility tokens are not designed as investments. However, many investors contribute to utility token ICOs with the hope that the value of the tokens will increase as demand for the startup’s product or service increases.
The Difference Between Utility tokens and Equity Tokens
The difference between utility tokens and equity tokens are as follows:
- Equity tokens can be acquired from existing businesses or companies via ETO while utility tokens are from startups and can be acquired through ICO
- Equity tokens are regulated by the local government jurisdiction where the company is registered to while utility tokens are not.
- It is riskier to invest in utility tokens than equity tokens.
- Equity token holders can vote transparently through the blockchain for decision-making in the company while utility tokens do not. Equity holders have ownership rights while the latter has none.
- Equity tokens can be considered as security while utility tokens may not.
- Both can be traded but investors need to know the risk of using utility tokens and look into their terms and conditions while equity tokens are from existing businesses and researching on these establishments is needed before investing in them.
Equity tokens and Utility tokens can benefit investors and holders depending on the nature of their business and usage. It is really important for investors to do their due diligence before investing in equity tokens and utility tokens, or in any cryptocurrencies. The crypto market is volatile and the risk needs to be put into consideration.
This article is published on BitPinas: The Difference Between Utility Tokens and Equity Tokens
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