ICO is the excellent starting point for the new investor, a great chance to dip their toes in the water. In other words, get in as early as you can, never miss a promising ICO and choose the type of token with great attention. With such low prices as some ICOs are setting for their tokens, you can gain experience without risking too much money.
Experts consider that only 10 percent of ICOs happening at any time have a chance for successfully meeting their goals. This doesn’t stop investors because, according to the recent research, the average ROI of ICO investment is over 1200%. Yet on many occasions, new investors could avoid disappointment if they better researched the basics of the ICO, and most importantly, the token.
Currently, financial regulators treat tokens in the same way because there’s no clear understanding of what type of assets they belong to and how they relate to securities regulations.
The first group of tokens used in the ICO is security tokens. Sometimes called tokenized security, these tokens are most popular among investors. In traditional investment terminology, they are similar to bonds, derivatives or equities. Securities tokens resemble stocks that are traded on stock exchanges. Security tokens are subject to financial regulations which of course makes them more attractive for investors.
Utility token is the second, and most popular type, of ICO tokens. Their function is to help run the blockchain and circulate inside the platform to pay fees, goods and services. They can also buy discounts or premium access to some of the features of a new product. Utility tokens cannot be used for investment and buying them in hopes that their price would grow is a common mistake. It’s worth remembering that some projects can offer two types of tokens.
Cryptocurrencies, according to the US classification, or payment/currency tokens, as classified by Swiss FINMA, are the third type of tokens. Cryptocurrencies, or virtual currencies, enable financial transactions, can be sold or purchased, and they inherently are designed to store value.
Reward tokens are not used commonly for investment because it’s still unclear how they will be rising in value. It’s an interesting concept similar to loyalty programs that reward users for their activity in the platform and on social media. Reward tokens remain close to utility tokens and are not good for investing.
Asset tokens is a very promising type of tokens. They are derived from tokenisation, for example, a token can represent a share of a real-world asset. This is a very promising idea which is still being explored, so new investors are not keen on investing in this type of a token. But it’s worth keeping an eye on it.
Experts agree that any project that launches the ICO is destined to fail to attract the investment because of the problematic token. Sometimes the token minted by ICO is simply not necessary for the solution to work and as a result adds no value to the project. In other occasions, the token price is valued too high and the structure of the project simply doesn’t have any economic reason for the price to grow. We hope this article will help you to make informed decisions when choosing a project to invest in.