NCFAs innovation and funding ecosystem

Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens

Daily Fintech | | Apr 13, 2019

utility tokens - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security TokensThis post is an update to the chapter on Investing in Utility Tokens in The Blockchain Economy digital book.

This post describes:

  • The SEC rules governing Utility Tokens.
  • Laws change over time and vary by jurisdiction.
  • Four reasons why other jurisdictions will probably follow the SEC rules.
  • Utility Tokens can be used to improve CAC/LTV, which is a critical metric driving valuation.
  • Invest in Security Tokens of ventures that offer great Utility Tokens.
  • Two ways that a Utility Token is different from a traditional crowdsale.
  • The future cryptocurrency landscape will have 4 different types of assets.

See: A Regulation Revolution In Financial Services

The SEC rules governing Utility Tokens

The SEC rules were analysed in Ilias Louis Hatzis’s Daily Fintech post on Monday. For convenience the key rules (defined in a No Action letter for the Utility Token of a company called TJK) are copied below:

  • “Token holders won’t be granted an ownership stake in the company.
  • Any funds raised from the token sale will not be used develop the platform or app.
  • When the tokens are sold, they must be usable immediately for their intended functionality.
  • Transfers of the TKJ tokens are restricted only to TKJ wallets. External wallets are not allowed.
  • TKJ tokens will be priced at 1 USD per token. Each token will essentially function as a pre-paid coupon for TurnKey’s air charter services. If TurnKey wants to buy back the token (coupon), it must do so at a discount (less than 1 USD).
  • The token must be marketed in a way that emphasizes its functionality, and not its potential to increase in value, over time.”

Laws change over time and vary by jurisdiction

The Legacy Finance world has Debt and Equity. The Blockchain Economy has Utility and Security Tokens. You can tokenise Debt (just like you can tokenise Equity or any other asset) but that does not change the fundamental characteristic of that asset.

See: The Security Token Field – The Next Step After the ICO Annihilation?

Debt is illegal in Islamic Finance (for more please read this). There are workarounds that dress up debt to look like equity, just like there are workarounds that ICOs used to dress up a security to make it look like a utility token. This perspective is useful when you look at the legality of Security vs Utility tokens ie laws change over time and vary by jurisdiction.

Four reasons why other jurisdictions will probably follow the SEC rules

Yes, the SEC only has jurisdiction over one market – America, but here are the four reasons why other jurisdictions will probably follow the SEC rules:

  1. America is still the biggest single market.
  2. SEC is known as a tough regulator that is not afraid to take cross border action.
  3. SEC has defined some clear rules. So entrepreneurs can plan around these rules.
  4. There is no single regulatory market in Asia, which is the growth engine of the 21st century.

There will be minor markets that differentiate by being easier on Utility Tokens, but unless they also offer a large investor pool, that will be “noise on the line”. Europe’s legislation/regulation will be interesting to watch. Unless Europe takes a differentiated position soon, the market will follow the SEC rules.

Utility Tokens can be used to improve CAC/LTV, which is a critical metric driving valuation

CAC/LTV = Customer Acquisition Cost/Life Time Value.

You can use this to evaluate the value of both Banks and Fintechs, as we described in this post from 2015. In fact just about any company can be evaluated using CAC/LTV.

Both CAC and LTV are complex in their own right, but it is the interaction between the two that is so often confusing or difficult.

Customer Acquisition Cost (CAC) is the metric to evaluate Marketing efficiency.

See: TokenFunder announces Canada’s first Security Token Exempt Market Dealer

Churn is the kryptonite of Superman Marketing. The problem with Churn it is not directly under the control of Marketing. This is where Product is key. Another way of saying Churn is “if customers think the product sucks, all that expensive Marketing is wasted”. Churn means customers cancel the service and then Marketing have to win new customers, which is far more expensive than retaining them.

Life Time Value is not static. LTV is all about getting the balance right between cross selling, upselling and low churn – too much selling to customers may increase churn. If LTV goes down, you have to reduce CAC. Product strategy, pricing, marketing, customer service all have to be in alignment.

The story of Banking in the 20th century can be summed up as Low Churn. We are statistically more likely to get divorced than change banks. There was no point in changing Banks, because the difference between banks was marginal. The Fintech disruption changes that. Now customers have more real choice and regulation is seeking to protect consumers from lock-in strategies that make it hard for them to switch.

Crowdsales are a great way for companies to sell a service aka reduce CAC. It is Internet Marketing 101. Crowdsales have been around for a while, but Utility Tokens enable Crowdsales on steroids.

Two ways that a Utility Token is different from a traditional crowdsale.

  • The buyer has the comfort that if they no longer want to use the service they can sell their Utility Tokens. If everybody wants to sell their Utility Tokens because their service is no good, token holders will lose. If the service is great but the token holder’s life situation changes they can sell their Utility Tokens.
  • The buyer feels more committed to the success of the venture. Some of that commitment is psychological and some of it is quite practical. A Utility Token is like a Loyalty Coin (more than it is like a Security) but it is a Loyalty Coin with some fungibility (you can sell it for cash if the venture/service is a success and demand exceeds supply).

Continue to the full article --> here


NCFA Jan 2018 resize - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security TokensFF Logo 400 v3 - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokenscommunity social impact - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens

Support NCFA by Following us on Twitter!






NCFA Sign up for our newsletter - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens



For more information about FFCON21: BREAKING BARRIERS, on-demand videos and ways to participate




Crowdfund Insider | Tony Zerucha | Nov 19, 2021 A review of the Securities and Exchange Commission’s (SEC) enforcement actions in this fiscal year show a growing threat posed by cryptocurrency and decentralized finance (DeFi) scammers. The year ended Sept. 30. The SEC filed 434 new enforcement actions in FY2021, and that is a seven per cent increase over FY2020. Overall, 697 total enforcement actions were filed, including 120 against issuers for delinquent filing and 143 “follow-on” proceedings that sought bars against people for criminal convictions, civil injunctions, or other malfeasances. Orders for almost $2,4 billion in disgorgement fees and more than $1.4 billion in penalties, the latter a 33 per cent increase, were obtained. A total of $564 million was awarded to whistleblowers. See:  Hester Peirce Says SEC Enforcement is Not the Way to Provide Crypto Clarity Among the highlights the agency cited were charging Poloniex for operating a digital asset exchange and the BitConnect platform and some top executives in an alleged $2 billion cryptocurrency scam. They also entered into new areas like SPACs, highlighted by an action against the Stable Road Acquisition Company which alleged, among other things, a former CEO tried to obtain shares worth around ...
Read More
SEC enforcement - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens
UK Law Society | Michael Cross | Nov 25, 2021 The existing law of England and Wales is able to accommodate and apply to self-executing 'smart' legal contracts without the need for statutory law reform, the Law Commission reports today. In a conclusion likely to be welcomed by the government, it suggests that 'an incremental development of the common law is all that is required to facilitate the use of smart legal contracts within the existing legal framework'. A smart legal contract is a legally binding contract in which some or all of the contractual obligations are defined in and/or performed automatically by a computer program. They are usually secured by blockchain encryption. The commission’s findings generally echo the conclusions reached by the UK Jurisdiction Taskforce, chaired by the master of the rolls. See:  Will the Law Keep Up with Smart Contracts in 2021? In its report, the commission encourages the market to anticipate and cater for potential uncertainties in the legal treatment of smart legal contracts by encouraging parties to include express terms aimed at addressing them. Examples of such provisions include clauses allocating risk in relation to the performance of the code, and setting out clearly the relationship between ...
Read More
Smart contracts - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens
InsurTech Insights | Dec 5, 2021 As the cyber risk environment evolves from occasional data theft to rampant extortion, cybersecurity experts believe that the current cyber insurance model – where policies are easily accessible – is ripe for a change. This comes as several insurance providers have decreased coverage and pushed up rates in recent years as a surge in ransomware attacks have left them smarting from hefty payouts. See:  Here is why InsurTech is heating up as an investment category One of these insurers, Lloyd’s of London, which accounts for almost a fifth of the global cyber insurance market, has reportedly discouraged its syndicate from taking cyber business next year, according to Reuters. “Cyber insurance was only ever meant to be for a novel, an unforeseen catastrophic event,” Jess Burn, senior analyst at advisory firm Forrester, told SC Magazine. “When things like ransomware were limited to someone’s grandmother on their old PC, that was a license to print money. But now that music has absolutely stopped and they’re reeling from those losses.” Data from market intelligence firm S&P Global has shown that the loss ratio from cyber insurance has risen in recent years. From 43 cent for every dollar in ...
Read More
insurtech digital and data driven - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens
The Economist | Dec 4, 2021 A startup called PatentVector, founded by a law professor, an information science professor and a software engineer, is trying something new. It uses a variation of a method started in the 1960s which evolved into tallying up how frequently individual patents are cited (a similar process based on citations is used to evaluate academic research). Rather than attempting to understand the patent, PatentVector employs artificial intelligence to comb through 132m patent documents kept by the European Patent Office in Munich (the world’s biggest collection). Then it evaluates, first, how frequently a patent is cited and, second, how frequently it is cited by patents that are themselves cited frequently. That provides an indication of importance which is then multiplied by a mean value of patents based on an estimate by James Bessen, an economist at Boston University, which has become a reference point. A number of companies, legal firms and institutions (including the Canadian Patent Office) are buying PatentVector’s product. See:  Our patent and copyright system isn’t prepared for inventions or designs by AI The results contain interesting insights into inventing. Frederick Shelton IV (pictured) does not feature among prominent innovators of the 20th century ...
Read More
Patents - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens
PYMTS | Dec 3, 2021 Last month, a hastily formed group calling itself ConstitutionDAO threw together a fundraising scheme to buy a rare copy of the U.S. Constitution at auction, raising $48 million in just a few days. Now another group is following its playbook in an effort to free dark web marketplace Silk Road’s imprisoned founder. So far, the day-old FreeRossDAO has raised more than 840 ether, worth $3.8 million. In doing so, it is laying the groundwork for a new way of crowdsourcing fundraising. While FreeRossDAO’s ultimate goal is to get Ulbricht out of his two-life-sentence-plus-40-years jail term, its short-term goal is to win an NFT auction of 10 Ulbricht drawings being sold to raise funds for both the Free Ross campaign and more general prisoner support. The auction is being held on the SuperRare NFT marketplace during Art Basel Miami, which runs from Dec. 2 through Dec. 4. See:  9 digital assets powering the DeFi revolution? If its bid is successful, FreeRossDAO is planning to tokenize the 10 Ulbricht NFTs and distribute the $ROSS cryptocurrency to donors, who will own a fraction of the artwork, along with voting rights over what to do with it. FreeRossDAO plans ...
Read More
BeInCrypto - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens
CNBC | MacKenzie Sigalos | Dec 5, 2021 AUSTIN, TEXAS – The Texas power grid is struggling with fluctuating energy prices and sporadic service, but the state's growing bitcoin mining community believes it can help fix it. Republican Sen. Ted Cruz agrees. "A lot of the discussion around bitcoin views bitcoin as a consumer of energy," said Cruz at an event in October. "The perspective I'm suggesting is very much the reverse, which is as a way to strengthen our energy infrastructure." The grid is called ERCOT — short for the Electric Reliability Council of Texas, which is the organization tasked with operating it — and it's fussy and temperamental.  ERCOT powers about 90% of the state, but to run smoothly, it requires a perfect balance between supply and demand. Having too much power and not enough buyers is just as bad as everyone wanting to fire up their AC units on the same day in July. See:  MintGreen to make North Vancouver world’s first city heated by bitcoin The price of power per hour is all over the place, routinely going negative. Rolling blackouts at moments of peak power consumption no longer come as a surprise. A lot of ...
Read More
fluctuating energy prices - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens
Finconecta | Betty DeVita | Dec 3, 2021 The Open Banking model marks a global evolution (although some experts talk about a “revolution”) in the financial market. Motivated by the increased need to respond to customer demands, compete with new financial players and meet regulation requirements, banks are adopting API-based business models. Open Banking emerges in the financial industry as a new model of collaboration with third-party providers. By working in partnership with fintech banks, they are able to expand customer reach, accelerate the adoption of new technologies, and create new revenue streams. The underlying mindset is the realization that complex problems that demand immediate resolution, need a strategy that taps into “the wisdom of the many”, rather than siloed proprietary solutions. While, in some countries like the US and China, Open Banking is spreading only by market forces, in other geographies the regulatory agenda is playing a central role. In Europe, some Asian and Latin American regulators, often driven by financial inclusion mandates, are promoting the shift to open ecosystems by launching directives like the well-known PSD2 in Europe and the Open Banking Standard in the UK. See:  Privacy Implications of an Open Banking System in Canada Canada’s Library ...
Read More
Finconecta article on Open Banking in Canada - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens
University of Waterloo | Melanie Scott | Dec 2, 2021 Waterloo maintains its position in the 2021 PitchBook rankings and is the top Canadian university on the list The University of Waterloo is ranked 22nd in the world for universities that produce the most successful entrepreneurs, according to the 2021 PitchBook rankings of top 50 colleges for founders. PitchBook is a financial data and software company whose annual rankings uncover which colleges and universities produce the most successful entrepreneurs. The global rankings are based on undergraduate and MBA programs that have venture capital-backed founders among their alumni. The 2021 rankings take into account companies that have received a first round of venture funding between January 1, 2006 and October 31, 2021. See:  Gen Z VCs are entrepreneurial, digitally native, values-focused President and Vice-Chancellor Vivek Goel says the University of Waterloo is proud to hold this position among so many esteemed colleges and universities around the world. “At Waterloo, entrepreneurship is in our DNA. We are focused on nurturing talent by creating an environment that removes barriers and allows imagination and impact to lead the way,” Goel says. “With our unmatched programs for entrepreneurs, our role in supporting the Toronto-Waterloo Tech Corridor and our focus on nurturing the next generation of talent, Waterloo will ...
Read More
Uniersity of waterloo - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens
Financial Post | Stephanie Hughes | Dec 1, 2021 Bitbuy’s next step: bring more coins onto the regulated platform Toronto-based crypto company Bitbuy Technologies Inc. is set to announce Wednesday that it has received registration approval from the Ontario Securities Commission (OSC), making it the first registered marketplace that is also a brokerage of crypto assets. Bitbuy was formed in 2013 as a trading platform before pivoting to become a marketplace in November 2019, merging the broker dealer business with a market infrastructure. Michael Arbus, Bitbuy’s chief executive officer, told the Financial Post that the marketplace element sets them apart from other Canadian crypto trading platforms that function solely as a brokerage or have crypto as a feature on a larger business model. Arbus described that marketplace has buyers and sellers meeting and agreeing upon a trade. Once their prices match, the trade goes through. However, a broker would go through a third party when making the transaction. See:  CEBL Becomes The First Pro Sports League In North America To Offer Players Pay In Bitcoin Through Bitbuy “(Consumers) never know about pricing or transparency. They have no control over the price that the other side is giving them,” Arbus said ...
Read More
Bitbuy - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens
Yahoo | Mike Butcher | Dec 1, 2021 UK equity crowdfunding business Seedrs - who’s merger with rival Crowdcube was earlier blocked by competition regulators - has been acquired by start-up investing platform Republic in a $100m deal.The move comes after Seedrs criticised the the UK’s Competition and Markets Authority earlier this year as stifling the UK’s potential to boost startups. Seedrs was the first ever regulated equity crowdfunding business in the world and has pushed £1.5bn of investment through the platform during its history, even acting as retail investment platform for digital bank Revolut, now a unicorn. The platform was also the first to introduce a secondary marketplace. Republic is a leading US fintech company that allows people to invest in private market equity, debt or crypto offerings and has almost one ($1) billion dollars under management through its private asset management practice. See:  Republic Announces $36M Series A to Democratize Access to Investing for Everyone UK Competition and Markets Authority Not Inclined to Approve Seedrs-Crowdcube Merger Prior to this deal, Republic and Seedrs had a longstanding partnership where Seedrs advised Republic’s leadership team. The acquisition of Seedrs follows Republic's recent $150M Series B financing announcement, led by Valor ...
Read More
republic acquires seedrs - Entrepreneurs who use Utility Tokens to reduce CAC (Customer Acquisition Cost) will create the most valuable Security Tokens

 

Leave a Reply

Your email address will not be published. Required fields are marked *