David Durand, Advisor, Innovation and Advocacy
September 9th, 2020
Daily Fintech | | Apr 13, 2019
This post is an update to the chapter on Investing in Utility Tokens in The Blockchain Economy digital book.
This post describes:
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:
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.
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.
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:
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.
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.
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.
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
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