Fungible tokens include utility tokens and security tokens. Asset tokenization has a great effect on how we manage assets in a digital environment.
In the blockchain world, the fungible token is a popular concept. Fungible tokens exist in various blockchain applications. This widespread emergence is mainly due to interchangeability, which plays an essential role in how blockchain works.
New Token Offerings (ICOs) can be a prevalent use case of fungible tokens, created for the purpose of capital raising. However, fungible tokens are not restricted to this specific role, instead, they have many other roles in enterprise operations. They are used to represent assets and create a new method for exchange and investment.
What are fungible tokens? – The role of fungibility
As the name suggests, fungibility is an important property of fungible tokens on the blockchain, which distinguishes them from non-fungible tokens.
In economic terms, fungibility refers to an asset’s or good’s capacity to be interchanged with another asset or good of equal value. Currencies are the most prominent instances of fungible assets. For example, your $1 bill has the same value as my $1 dollar bill. Also, fungible tokens are divisible. You totally can exchange your two $1 bills for my one $2 bill. Since they are standardized and have no uniqueness, they are interchangeable in terms of inherent value.
There are two main types of fungible tokens:
- Utility tokens – which power the operations on the protocol.
- Security tokens – which record your asset ownership on the blockchain.
Which type of fungible tokens is taking the lead to practice?
Utility tokens are types of fungible tokens that carry value and provide users with access to a product or service in the future. The most common use case of utility tokens is the initial coin offerings (ICOs). Similar to an IPO for stocks, a start-up can issue an ICO to raise capital and create an internal economy for their blockchain project or application. Therefore, for an existing business, they will often be of little practical use.
While users who own utility tokens have certain voting rights in the ecosystem, there may be no relationship between the company valuation and the value of these tokens. In addition, utility tokens are often very unregulated but easy to issue, and as a result, the number of scam ICO projects accounts for a significant proportion of the token market.
The highlight of this article is security token due to their practical potential in real deal businesses. With the tokenization and division ability of real assets such as stocks or real estate, security token providers give ownership of these assets to investors on the blockchain.
Since the value of security tokens is based on real assets and represents the value of real assets, they need to be strictly compliant with legal regulations and guaranteed by law. It can be said that security tokens are created for mainstream investment.
When it comes to liquidity, real asset-based tokens allow individual investors to participate in a multi-million dollar industry. Security token investors may or may not have voting rights depending on the platforms/projects they invested in.
In addition to real asset-based tokens, security tokens come in several variations such as governance tokens, debt tokens, and derivatives tokens. However, these forms are considered risky and lack applicability for activities to build new-value business models.
Tokens are active on the blockchain. Enterprises need a blockchain platform to generate and manage tokens. However, if the enterprise only applies blockchain tokens to one segment of the enterprise, then building a whole new blockchain platform is a big challenge and unnecessary cost. Instead, there are enterprise blockchain solutions providers like akaChain, who provide you ready-to-use solutions.
akaChain will build you a token management platform. Main operations may include creating, storing, and exchanging tokens. The flow of tokens will also be custom designed, based on the transactions of each business.
Real-based asset tokens really have a lot of potential for the real estate sector. However, we cannot deny the fact that there are quite a few issues surrounding the novelty and legal side of the model.
If you’re interested in token applications, stay tuned for more on our blog, or leave us your information, we will reach you as soon as possible.
akaChain is backed by FPT Software, a globally leading technology, and IT services provider. It is an end-to-end, permissioned, multi-chain network based on the Hyperledger Fabric. Since its establishment in September 2018, akaChain’s product has assisted many enterprises, from SMEs to Fortune 500 firms, to transform with distributed ledger technology. The company provides a broad range of permissioned blockchain-based products and services in multiple sectors, including retail, supply chain, banking and finance, insurance, shopping mall management, etc. to transform with its distributed ledger technology. For more information, please visit https://blog.akachain.io/
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