The U.S. Securities and Exchange Commission (SEC) divides cryptocurrencies into two categories: utility tokens and security tokens. The Howey test developed by the SEC became the standard for judging whether a token is a utility token or a security token.

The U.S. Securities and Exchange Commission (SEC) divides cryptocurrencies into two categories: utility tokens and security tokens. The Howey test developed by the SEC became the standard for judging whether a token is a utility token or a security token.

The Howey test was introduced to make up for the shortcomings of the US securities law and securities exchange law. According to the U.S. Securities Act and Securities Exchange Act, the following three categories of investment products are classified as securities:

1. Investment products that are generally regarded as securities, such as company stocks, bonds, etc.

2. Other investment products designated as securities, such as "the right to earn income from investment in oil, natural gas and other minerals".

3. All other "investment contracts" identified by government departments as securities.

The first two categories are clear and clear, while the third category of "investment contracts" is general and broad. It was not until the US Supreme Court heard the case of SEC and Howey in 1946 that it had a precise definition.

The Howey Company owns large citrus farms in Florida. In order to raise funds for the future development of the farm, the Howey Company has carried out a rather innovative investment attraction to tourists through its tourist resorts.

First of all, tourists first bought a piece of land from Howey Company at a uniform price, and then contracted the purchased land to a company called Howey-in-the-Hills. After that, the farm's operation, harvest, and citrus production and sales were all handled by this company. It is managed by a company, and tourists only need to wait at home for the annual dividends.

In the view of the SEC, Howey's practice is essentially to issue bonds to raise funds from the public. Howey believes that they just add a "service contract" after the land sale contract, which is not considered a bond issue at all and does not belong to the SEC. Regardless, both parties refused to accept it, and the lawsuit went all the way to the Supreme Court of the United States.

In the end, the Supreme Court agreed more with the views of the SEC, and put forward four conditions for identifying an "investment contract", which is called the Howey test by scholars and is still in use today.

The Howey test requires that an "investment contract" should simultaneously meet the following four conditions:

1. Investors invest in cash or equivalents;

2. All inputs are pooled into the same project or fund pool;

3. Investors have profit expectations, that is, the purpose of many investors' investment is to make profits;

4. Profit is entirely dependent on the efforts or operations of the promoter or a third party.

first level title

utility token

Utility tokens are primarily issued by companies to fund the development of their projects, and the value of utility tokens is determined by the future utilization of the token. Utility tokens can be further divided into: tokens used in products and services and reward tokens.

Tokens used in product services

Utility tokens can be used for specific products or services, and token holders can use their tokens to purchase the product or service and enjoy a price discount, which is a bit like discount coupons provided by early mobile or network operators .

reward token

Customers are rewarded with tokens through loyalty points and can gain special access to new products and services when token holders maintain a certain interaction with the company within a certain period of time. With the reward tokens held, users can enjoy discounts or even get free products or services in future consumption.

profit:

profit:

1. Due to the increase in demand for products or services, the value of tokens will increase;

2. These tokens are easily traded on exchanges;

3. Allow the use of tokens to obtain the company's products or services;

Disadvantages:

Disadvantages:

1. Not subject to any laws and regulations;

2. The SEC has not given guidance on utility tokens;

security token

security token

Security tokens are usually backed by certain assets, such as stocks, shares in a limited partnership or commodities. Security token holders can be granted ownership or shares in a company. Security tokens are also used to back traditional IPOs, and when it comes to regulation, security tokens are subject to federal regulations.

Security tokens can be used to pay dividends, share profits, pay interest, or invest in other tokens or assets to generate profits for token holders. Public equity, private equity, real estate, managed funds, exchange traded funds, bonds are common examples of security tokens. These tokens can be further broken down into two types: equity tokens and asset tokens.

Equity Tokens

Equity tokens are the most typical application of security tokens, which represent the ownership of assets, such as debt or stocks. Equity tokens could allow startups to raise capital with tokens like a traditional IPO. It removes barriers for ordinary investors or start-ups to enter the market.

asset class token

Asset tokens are another typical security token. These tokens are usually linked to real-world assets, such as real estate or gold. By investing in tokens to invest in real-world assets, investors can invest a part of Rather than the entirety of the asset, this increases investment flexibility.

profit:

profit:

1. Security tokens that comply with federal law are cheaper than IPOs;

2. The bridge between traditional financial industry and blockchain;

3. Reduce legal risks;

4. The barriers to entry into the financial market are much lower;

Disadvantages:

Disadvantages:

1. Failure to comply with federal regulations could result in penalties and possibly derail the project;

2. There are trading restrictions;

3. There are restrictions on specific investors.

Will 2018 be the Spring of Security Tokens?

Many startups are trying to make their first bucks through tokens, and many in the industry believe security tokens offer the clearest and safest path to do so. Generally, Security Tokens are issued under D, S, A+ and Regulatory Crowdfunding regulations, which make Security Tokens faster and cheaper than ICOs. In addition, these regulations also provide investors with certain legal protection.

Security tokens registered with the SEC are backed by a wealth of legal precedent, and issuers are bound by federal law, making them more transparent to buyers about token offerings and how they will appreciate in value. It is very important for investors to combine the current stock and financial markets with the encrypted world through security tokens, so that security tokens can be sold and traded in the international community and attract more investors globally. benefit.

Marketing Differences Between Utility Tokens and Security Tokens

If your token is indeed "utility", your marketing strategy is mainly aimed at your product or end users. Your goal should be to get the product or service for the minimum cost to the majority of your buyers.

The marketing strategy for security tokens looks very different from the marketing strategy for utility tokens, and if you are offering security tokens, you should be targeting those who have made $200,000 or $300,000 in annual revenue over the past two years U.S. dollars, accredited investors with a net worth of more than $1 million (excluding the value of their principal residence). These groups are completely different from the users who are willing to buy your utility tokens to use your gaming platform.