Some thoughts to begin with

Bitcoin, blockchain and ICO have been generating lots of buzz since late 2017 and caused some very interesting discussions and debates between friends are myself. Among all discussions, token connects all dots of interesting topics such as whether ICO is an innovative crowd funding source or just another format of Ponzi Scheme and pyramid selling model and etc. To me, I am not so keen to jump into judgement. If any, my takeaway is that ICO and token are just instruments like securities (e.g., equity or debt). Whether it becomes part of an innovative financing revolution or just an easy way for crooks to conduct Ponzi Scheme, really depends on people’s intention. In the eyes of crooks, even traditional securities are useful tools for cheating and frauds.

But what makes me fascinated about token is its cohesive way of combining operational and financial characters to stimulate the growth of a young venture. The design and utilities of token in the business model of blockchain enabled projects, has gradually become a science of its own—token economics.

As a professional private equity investor and later an entrepreneur, I feel lucky to get exposure to bitcoin and later various cryptocurrencies early since 2012, when I joined TiE Hong Kong Chapter. Recently I have started to write down some thoughts and interesting findings, by comparing tokens with traditional securities, with the purpose of providing some thoughts of foods to friends with common interest and encourage more people to study this interesting subject with me.

Below are interesting sub-topics in my mind I would like to explore and share some thoughts. I will post the writing piece by piece in my Steemit account and please feel free to reach out to me for discussion via the contact details listed at the bottom of this article. To make the discussion a bit more interesting, let’s also discuss some case studies:

Types of tokens—characteristics, functions and format ·
The regulatory and compliance perspective ·
How could we effectively utilize token in business model ·
What issues and problems could token cause given its multiple characteristics
Cases on multiple token issuance
The supply and demand of the tokens
The structuring of ICO and token offering
The valuation methods of token

Let’s start with something simple and easy…

BTW, since I am not a native English speaker, please feel free to correct my typos and mistakes in wording and gramma. And you are more than appreciated for doing that.

Token and Token Economics

Token is actively functioning in many of the ICO or blockchain projects. In terms of definition, personally I prefer the one come from William Mougayar.

A token is “A unit of value that an organization creates to self-govern its business model, and empower its users to interact with its products, while facilitating the distribution and sharing of rewards and benefits to all of its stakeholders

And the science to research and study the role, purpose, structure, usage and value of token is what we call Token Economics here. (In other occasions, it is also called Tokenomics, Blockchain economics and etc.)

Utilities Token vs. Securities Token

In terms of types, a simple division of two—utilities token and securities token might be easier to remember for all of us. There are other reasons I like to categorise them in this way:

Based on the nature of their characteristics—the operational character and the financial one
Based on how relevant regulators would like to categorize them in many different jurisdictions

We could further divide them into sub-categories, again based on their characteristics as shown in the chart below. In the following session, we would first discuss them from the economics perspective and later the regulatory perspective.

Figure 1: Types of Tokens

![001_Categorization of Tokens.png](https://steemitimages.com/DQmYU1zPYp77nw82NtgVd19KjzJve9KgVi9t5fTKUg5zR4v/001_Categorization%20of%20Tokens.png)

Source: Qeelyn Analytics

Utilities Token from the name itself refers to token with various functions and use rights, but has not yet owned any economic right over the underlying project. It could be further categorized into the following three:

Digital currencies: Also called digital money. These have three typical functions— as medium of exchange, as a store of value, and as a unit of account. To confirm a trade, digital currencies are based on complex mathematical algorithm running on blockchain, which is also knowns as consensus. It is decentralized and peer-to-peer. The obvious example is Bitcoin. But there are more such as Bitcoin Cash, Bytecoin, Dash, Dogecoin, Litecoin, Peercoin, Zcash and etc., with details listed in the table below. Many of the tokens from ICO function as digital currencies, namely a medium for trade, a storage of value and a unit of account, in its own community but are more than currencies.

Figure 2: A Brief Introduction to Key Digital Currencies

![002_A Brief Introduction to Key Digital Currencies.png](https://steemitimages.com/DQmWsEboPj7mXVwLZsvZtZUP8NYGTTwqAMguobb6EyXyvYE/002_A%20Brief%20Introduction%20to%20Key%20Digital%20Currencies.png)

Source: Qeelyn Analytics

User Token: This is a common utilities token that empower users to interact with its products. Typically, token holders are entitled to use rights of relevant products and services. Some token issuers also grant holders voting rights. In the case STORJ, users could share their unused disk space to earn tokens and tokens could you used to rent for space too. Another example is WAVES. The Waves platform has three tokens, and the main one WAVES is a typical user token to pay for transaction fees..

Figure 3: Examples of User Tokens

![003_Examples of User Tokens.png](https://steemitimages.com/DQmRye6sdsKZC2kmq2RNLKFub3ETm942CMHAg9hrBRMrJda/003_Examples%20of%20User%20Tokens.png)

Source: Wikipedia, Qeelyn Analytics

Reward Token: Reward token is mostly used to encourage contributions such as technology development, promotions of productions, improvement of services, sharing of information from stakeholders and etc. These contributions could be both active ones (e.g., actively helping to promote the adoption of the platform) and passive ones (e.g., passively sharing daily health data to earn reward tokens). Reward token could be in various innovative presentation formats or issued just to encourage a very specific behavior of users. In the case of Waves Platform, it has Minners Reward Token (MRT) to reward POS mining and Waves Community Token to encourage long-term holding of WAVES token and reward collective due diligence on new projects on the Waves Platform. Another interesting form of reward token is called “candies”, which could be obtained for free or through very simple tasks such as signing-up an account or checking-in everyday. The purpose is to encourage the utilization and liquidity of the token to obtain a large user base. The value of the token increases overtime due to a wider adaption. (BTW, my invitation to CANDY if this is of interest to you. https://candy.one/i/4437491 )

Figure 4: Examples of Reward Tokens

![004_Examples of Reward Tokens.png](https://steemitimages.com/DQmcpw6GmbHWwJcifkQvNTxyXmvCFrxFoTsQCWHYqErqZet/004_Examples%20of%20Reward%20Tokens.png)

Source: Wikipedia, Candy.one and Qeelyn Analytics

In next section, we will discuss more on securities token.

Recommended further readings:

Tokenomics — A Business Guide to Token Usage, Utility and Value, William Mougayar http://startupmanagement.org/2017/06/10/tokenomics-a-business-guide-to-token-usage-utility-and-value/

About the Author:

https://www.linkedin.com/in/yqguo/

Email: yqguo@qeelyn.hk

Telegram: @yqguo

Donation:

BTC：3ChsZh86nGqe5ncXxdmusuCt8BtTKGZHmt

ETH： 0x0CDE176370145679391b3fB10f9CcB1CdEf7571B