What Is Utility Token Offering?
It’s a process whereby a company that wants to create or launch a new project looking to raise funds by issuing a utility token. We can say it’s the digital currencies industry’s equivalent to the traditional Initial Public Offering (IPO), although there are many important differences that we’ll see later.
It has become very popular around this space and many investors were able to benefit from a very high return on investment. In 2017 alone, there were more than 500 successful utility token fundraising that collectively raised a total amount of $6.2 billion for that year alone.
The primary benefit of a Utility tokens fundraising is first the potential for very high returns, every early investor is usually motivated to buy the utility tokens in the hope that the plan of the project will succeed after it launches. If this happens to be the case, the value of the tokens that were purchased during the fundraising will increase above the initial price, and the investor will achieve overall gains.
One of the important points here for an investor in addition to the ROI is the liquidity of the asset, it will be very simple to resell your tokens once listed on a decent trading platform.
Secondly, Utility Token Offering have made investment more democratic and accessible to all. In an IPO, investment is limited to a very small panel of people.
Then, it makes it possible to free oneself from venture capital financing by issuing tokens.
The advantage being that, unlike other types of financing (venture capital, private equity), in the context of a utility token offering, the shareholders of the issuing company do not see their capital diluted. Tokens are not shares in the company.
Why Utility Token Offering have failed in the recent past
Although, 2017 and 2018 saw them gained popularity and made waves which helped them raise $6.2 billion and $7.8 billion in the respective years, utility token offering hit a decline when more and more Utility token offering turned out to be scam projects or bad quality projects due to the little regulatory scrutiny. According to Coindesk report, exit Scams Swindled $3.1 billion from investors in 2019.
Since these incidents, the interest in utility token offering began to wane as it could only merely raise $346 million in the first half of 2019, a very little figure compared to how much attention they were getting in the previous years. These problems, in turn, gave rise to other digital currency funding method like IEO (Initial Coin Offering) & STO (Security Token Offering)
The emergence of these new digital currency fundraising initiatives has led to the decline of the utility token offering, but in no way means that they are dead and out of business.
The utility token market has matured, they are now regulated in most countries and therefore, there are far fewer projects than before, but often more qualitative ones.
How do you determine if utility token offering has potential?
One example of a digital currency project that is running such a fundraising is SaTT. It’s a utility token that stands for (Smart Advertising Transaction Token) based on the Ethereum network technology and allows for the exchange of advertising and audience payments. Let’s take a closer look at what need to be analyzed for a utility token offering, with the example of the SaTT one.
Team and stakeholders
The first point to analyze is the team and stakeholders behind the project. The SaTT has got a strong case to make about them. They are filled with solid and experienced members led by CEO Gauthier Bros. The company behind the SaTT idea is ATAYEN, Inc financed in part by the renowned French investment fund Kima Venture.
Atayen is an American company that specializes in developing applications that are dedicated to business pages on Facebook and other social networks. They currently count more than 4,000,000 users with their various applications and have internationally renowned customers such as Coca-Cola, L’Oréal and McDonald’s.
In addition, they are supported by various renowned advisors in their different fields, such as established investment expert Richard Wang, Partner at Draper Dragon Digital Fund, Eric Alexandre, CEO of Jetcoin who has already achieved a successful Token offering and Quentin Herbrecht CEO of Markchain, a renowned marketing agency for digital currencies & fintech projects.
The use of the technology within the project. Hype or real competitive advantage?
The online advertising industry is facing many challenges at the moment, from the announcement of the end of Cookies by google, the lack of automated analytical tools adapted to the results of a personalized campaign, the increase of bots and low-quality audiences and several other issues.
Using the SaTT Smart Contract allows advertisers and publishers to set a defined trusted third party (oracle) that accurately determines on the campaign performance, statistics and the amount to be paid to every participant. Thanks to the smart-contract and oracles, allowance to pay according to the performance in a fast, automatic and transparent way.
By building the product on the Ethereum network, the project ensures the integrity of the billing data and payments without the possibility of falsification.
MVP is a must and Road Map need to be strictly respected
Utility token offering always provide roadmaps and indicate when the project is expected to progress and on which points. It is important to check whether the company is meeting these forecasts on time.
Secondly, it is relevant to have an MVP before launching the fundraising, which will be a proof of concept for investors and shows that it is not just based on an idea but on a concrete use case.
In the case of SaTT, it is not an MVP that is developed but fully functional products that can be used for promotional campaigns on Facebook, Twitter, Linkedin, Instagram and Youtube. Even more, they already have customers and several advertising campaigns ongoing on SaTT DApp.
We can notice that they respect their Roadmap strictly and even often ahead of time.
Other important points must be mentioned for a complete analysis of a utility token offering project such as the partnerships carried out by the company, the media coverage and communication, the technology used, the different supports such as the website and the whitepaper or the project community. The purpose of this article is for you to see a little more clearly through all these fundraising projects and to educate you not only to avoid the scams that are always present within the sector, but also to identify projects that are worth looking into.