The onslaught against utility tokens (and why it’s wrong)

The hype of 2017 made utility tokens the target of much debate and dare I say hate. The idea of companies raising ridiculous amount of money in short time, founders getting rich fast and token holder left with loses pissed-off many people. Rightfully so.


Utility tokens are not the fault of it all, it’s as if the security markets never saw such craziness. One shouldn’t look too far into history to realise that dumb money and greed are an explosive combination. No matter the amount of “regulation” applied. The vehicle with which it explodes has little bearings on the end result. It could be a security, utility tokens or even flowers. The fact is, pointing the utility token as what caused is like accusing the match in a wildfire (Pro Tip: it’s the arsonist not the match who is in fault)

Don’t blame the match, blame the arsonist

Here are some of the most common arguments made against utility tokens.

1] No long term value creation/ no need for the token

I think this is by far the biggest claim. It usually involves saying that the token model is badly designed and/or there is no need for a token. This is probably true in many cases but has nothing to do with the actual concept of utility tokens. A token model can take many shapes and forms, from governance or discount to medium of exchange. Some models suck and some don’t. To say that there are many tokens which got created badly/ fraudulently, therefore utility tokens as a whole are worthless is like saying gyms and workout are ineffective since most people are still overweight. It takes time and effort to make it work. Just because there are a lot of failed attempts doesn’t point to a fundamental issue. If in 5–10 years the industry will fail to generate viable utility token models then we can call it a failure.

Also a token model is just half the story, a good product is the other half.

A utility token, generally speaking, needs to tick 2 boxes to create value. It has to be well thought economically and the product needs to be good and adopted by many. The idea that utility tokens are badly designed and therefore token holders lose is simply not true. Especially if the critics claim that by just moving to “security tokens” all will be solved. It seems they all forgot that the biggest issue is creating a product people want, combined with a good enough token model, is the only way for long term success of both holders and company (which in many cases is the biggest token holder in the network)

Only where there is a good product and a good token model can a both company and token holders gain value

Regarding the issue of “why does that product need a token”. It has some truth to it but not always. There are plenty of products out there who have created a huge network around points, air-miles and so on which do not require them strictly speaking. It’s a big industry and there is a reason why. Those models benefit the user with discounts, special/ premium service and status for his loyalty. Sounds familiar? Many utility tokens were inspired by those models because they work. Usually new technologies try to copy old ideas and re-implement them. Same happened here, things will get more sophisticated as we go forward. Could companies use ETH/ USD and other existing currencies for their product instead of creating a new token? sure. Should they? I don’t think so. Holding a token is saying that you trust a certain company to do it’s work, so much so that you buy it’s token. If that is not loyalty than i don’t know is. If companies recognise it and be smart about it, it could be huge.

2] Exit scams for founders

Yes, we saw too many scams the past year. No it’s not the fault of utility tokens but rather human nature. There were scams before crypto and there will be after it. It does not point to a fundamental issue with utility tokens. It does points us to rethink how much capital companies need, how to filter good and bad teams apart and how to valuate ideas and potential.

As 2018 almost ends we see crypto funding falls into the same pattern as traditional equity investments. Companies raise smaller amounts to build a product to get validation to raise more money. It’s healthier and reduces the risk for token holders. Thats is what ICO will look like in the future.

3] good only for speculation, nothing else.

Is bitcoin not highly pumped? New industries usually suffer from over promising and under-delivering.

4] They are all securities (or should be converted to securities)

This industry quickly changed it’s voice from wanting to change the world to wanting to change it slightly as long as it’s reasonable and perfectly fits the current regulatory mindset and frameworks. Governments are trying their best to fit the square regulation framework into the round blockchain industry to stay competitive.

If blockchain will live to it’s full potential than regulation will need to change as it did with the PC and internet. Could you imagine a world where a YouTube channel will need to apply for a licence? you don’t? Well, before the internet broadcasting video was heavily licensed (and still is today). But things change.

I’m not writing this to say utility tokens are perfect. I just think that liberating the markets to everyone is a very noble idea. It will not happen without breaking some borders and it will definitely not happen with securitising everything.

To make an omelette you need to break some eggs.

CEO @ and Developing trustless staking products for eth2.0.