Only Tokens With Real Utility To Be Left Standing And Here's Why
The concept of a utility token is rooted in its ability to provide a gateway for users to a particular set of digital services. The ICO boom saw 1600+ companies attempting to use the issuance of utility tokens as a means of crowdfunding their ventures.
Perhaps inevitably, this boom resulted in some spurious use cases, many of which have since been consigned to the token graveyard as the ICO rush slowed down. However, the evolution of token generation events is good news for legitimate utility tokens. They now have an opportunity to demonstrate the case for genuine utility beyond the initial fundraising stage.
The Untapped Potential of Utility Tokens
Decentralized networks built on blockchain will play a pivotal role in powering online and offline services. A 2016 academic paper by Sun et al. explores the role of a blockchain-enabled sharing economy in smart cities. It covers potential uses in transportation, goods, services, space, and food.
We can envisage a future where utility tokens are used to access a range of services provided by private firms and public agencies alike. For example, digital tokens could be used to access private transport services like Uber, or for parking or using public transportation.
Remote workers could exchange utility tokens for time in shared co-working offices. Eating out could offer the opportunity to accrue utility tokens as loyalty points, which provide discounts and other special offers for future dining. All this, using only a digital wallet controlled from a smartphone or even a smartwatch.
While we are still in the process of realizing the potential applications of utility tokens in everyday life, several companies are already leveraging the features of utility tokens for the benefit of their users.
Binance (BNB) Token
The growth of Binance has been nothing short of stratospheric. It was launched in July of 2017 and has quickly become one of the world’s biggest cryptocurrency exchanges, trading around $1.5 billion each day and signing up new users even throughout the bear market.
Binance has its own ERC-20 token called BNB. It offers a straightforward utility as an incentive to users of the Binance exchange, providing them with discounts on trading fees and other rewards. Whereas everyday users benefit from an already competitive trading fee of 0.1%, users who pay their fees in BNB tokens pay only half of that fee during the first year.
Alongside the utility of discounts, BNB can also be used to invest in some ICOs that partake in Binance’s Launchpad program. When the ICO ends and the token launches, they are automatically listed on the Binance exchange.
Binance burns BNB periodically, as a way of protecting the value of the token. So far, it seems to be working. BNB is one of the few tokens that has defied the current bear market for cryptocurrencies, with the value having doubled over the last three months.
Bancor (BNT) Token
Bancor is a liquidity network, with the (BNT) token offering a means of creating liquidity and processing automated conversions across cryptocurrency markets. The token operates under the hood as a medium of exchange for other tokens.
So, if you want to exchange Token A for Token B, then Bancor will conduct a background conversion from Token A to BNT, and then from BNT into Token B. The user doesn’t see any of this, as their trade is instant.
While Bancor has a competition in the realm of liquidity networks, it’s unrivaled in its ability to offer non-custodial conversions between tokens built on different blockchains, which is where the real utility of having BNT as a “hub token” becomes apparent. Centralized exchanges are only able to offer cross-chain token conversions by taking custody of customers' funds, whereas Bancor enables cross-chain trades through the use of the BNT token. Currently, Bancor has integrated Ethereum and EOS, offering 9,500 combinations of over 140 tokens. There are plans to expand to more blockchains in the near future.
Cross-blockchain functionality brings unprecedented liquidity to cryptocurrency markets for users and developers alike. This has led to Bancor processing more than $1.5bn in conversions in over 1.2m transactions on Ethereum, EOS and between the two chains. With 10% of the total BNT supply staked in Bancor Network liquidity pools, BNT is one of the most active utility tokens in the world.
Decentraland (MANA) Token
The team at Decentraland have developed a rather unique product. It plays on the features of non-fungible digital assets and is tapping into the existing hardcore fanbase of games such as Sims and Second Life.
Decentraland is a decentralized universe set in virtual reality (VR). Its currency is MANA, an Ethereum-based token used for purchasing virtual land, as well as goods and services, in the Decentraland universe.
The virtual real estate in Decentraland is divided up into parcels called LAND, which can be purchased using the MANA tokens. Upon purchasing LAND, the equivalent MANA tokens are burned, which preserves the economic balance of both LAND and MANA. Each piece of LAND is a non-fungible digital token with its own unique characteristics. It’s akin to buying an actual piece of land in the real world.
Once you have your LAND, you’re free to build upon it as you wish. You could open a virtual cinema, casino or shop as a means of monetizing your LAND and charge other users MANA tokens for buying your goods or services.
The blockchain landscape has undergone significant development in recent years, and it’s clear that with the evolution of the sharing economy, there’s much more to come. However, the examples used here show that there is already a place for genuine utility tokens. User adoption is thriving for those projects which can demonstrate a clear use case, without needing to promise any investment-based returns.