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Token Marketing: Expectations vs. Reality

by Ethan More

Token Marketing: What are the Benefits?

It’s hard to deny how much easier marketing has become thanks to tokenization. With a simple token, it’s possible to access all of the benefits of blockchain technology and cryptocurrency. Businesses can integrate it into their existing promotional marketing with little effort.

These days it seems that every company with a product or service to offer is trying to jump on the token bandwagon. But there are some key differences between tokens and their underlying utility, and these distinctions can have significant effects on both your marketing approach as well as its effectiveness.

In this blog post, I’ll introduce you to the basics of token marketing like Bitcoin advertise so that you can make an informed decision about whether or not you should be issuing a token for your company.

1. What Is A Token?

A token is a unit of exchange that is mostly used in decentralized Blockchain-based platforms. These tokens can be used to exchange value between participants, but they also contain information about the network and its participants.

With the introduction of Ethereum, Ether has become the best-known token. But there are also many others being used by different Blockchain platforms around the world. Many of these tokens have a utility use case as well, such as Gas on the Ethereum platform (for instance, miners need Gas to run smart contracts). Others are considered “appcoins” and are used solely for speculative purposes.

As a (very) general rule of thumb, if the token’s sole purpose is to raise funds for your company, then you’re looking at an appcoin — and not a token.

2. The Types Of Token Companies Are Offering In Their ICOs

There are three types of tokens that you need to be aware of: Click Here.

Equity tokens 

These are the tokens that are offered by blockchain-based startups in their Initial Coin Offerings (ICOs). Equity tokens function just like stock options or shares and give their holders a stake in the future profits of the issuing company. Since equity tokens have so much uncertainty associated with them, it’s essential that each token is backed up by future cash flows. 

Utility tokens 

These are tokens used in order to provide a service to the token holder, like access to a Blockchain-based application. Utility tokens are often created by companies that are creating their own Blockchain platform and want to keep their users on their own network, rather than going with a competitor. These utility tokens are often sold in ICOs and not traded on an exchange — so we’re not talking about equity here. 

Pre-Sale Token

Finally, there’s the pre-sale token which is issued prior to the ICO when buyers of the company’s securities (equity or utility) start trading them on exchange before they actually have any cash flows backing up their values.

3. The Pros Of Issuing A Token

Tokens are used in Blockchain platforms as a way to raise funds for the development of the underlying technology. You can think of tokens as a way for developers to fund their own projects, thus creating a decentralized development ecosystem.

While that does sound very appealing, you need to keep in mind that issuing a token has some negative consequences for your company and its future token holders too. First of all, issuing a token is much more difficult than issuing other securities such as stocks or bonds: the SEC has announced its intention to crack down on Blockchain-based companies that issue securities without being registered with them for blogger outreach.

Secondly, issuing a token will make you lose control of your company. Issuing an ICO also means that you have to give up a lot of control over your company and its future. While equity provides voting rights, utility tokens do not.

Moreover, an ICO has some other side effects as well: according to some recent research conducted by William & Mary Law School’s business law department, 77% of ICOs are fraudulent — meaning that they’re scams designed to raise money and run with it — while 92% of ICOs failed within four months after their launch.

4. Concluding Remarks

When you’re dealing with a new technology like Blockchain, it’s essential to establish whether or not the investor community is even interested in participating in token marketing. In most cases, if the use case of your token is clear and has clear benefits for its holders, then issuing a token might be worth considering.

But be careful. There is an enormous amount of hype surrounding the topic of tokens these days and the ICO and Securities laws haven’t quite caught up yet, so make sure that you do your homework before even considering issuing a token.

So if you’re thinking about issuing a token — consider it carefully, take your time, and make sure that it makes sense. And always double-check whether or not it complies with the SEC’s rules and regulations as well as all local securities laws.

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