Top Benefits of Consumer Token Offering (CTO)
Consumer Token Offering (CTO) is a new concept of primary funding for blockchain startups developed by the Brooklyn project consortium. It involves the production of consumer tokens intended solely to gain access to a specific set of goods, services and / or content within the framework of a running project, which does not require registration and permission from the SEC and other regulators.
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In essence, this concept most closely resembles the pre-order model of something (for example, pre-order a video game or an iPhone). That is, you give money now in exchange for the right of priority access to a product or service as soon as it appears on the market without the opportunity to transfer this right to another person. In most cases, this model involves the provision of discounts to customers: the earlier the pre-order, the greater the discount.
Only in the case of the CTO, “pre-ordered” consumer tokens should also have such functions and limitations that guarantee the passing of the Howey Test. The Brooklyn project believes that such an approach will allow attracting funds to blockchain startups without the need to register and obtain permits from the SEC and other regulators.
According to the Brooklyn project, the CTO is an evolution of ICO, which in 2017-2018 made it possible to easily and easily finance the launch of many blockchain projects, among which are Ethereum, Filecoin, EOS and many others. But unlike the ICO, the CTO will have no problems with regulators like the SEC in the USA, ASIC in Australia or BaFin in Germany. If this assumption is correct, Consumer Token Offering will have the following five advantages.
According to ConsenSys General Counsel Matt Corva, when conducting a CTO, there is no need to register the issue with the US Securities and Exchange Commission or limit sales of coins only among accredited investors. This makes no sense, since it is not about selling “digital” securities, but about selling consumer goods, “which are not similar to an investment contract, nor to collateral, nor to any other financial instrument”.
This is the main advantage of CTO, which greatly simplifies the launch of new blockchain projects, making this process simpler, faster and cheaper. In essence, such an approach implies a return to the “good old” ICO for blockchain startups without the threat of prohibition and / or punishment from the regulatory authorities. That is, anyone can initiate an initial offer of coins by creating a website and writing white paper.
For comparison, you can remember Kickstarter, where people can also finance the creation of a new product (video game, recording a music album, creating a toy, gadget, food, etc.) and then get this product at a discount, thanks to the manufacturer, autograph or other bonus. According to the Brooklyn project, crowdfunding through CTO will be just as easy.
CTO implies a permanent or rather long limitation (more than 3 months) on the sale of tokens in the secondary market, which makes it impossible to purchase tokens at a discount during CTO and their subsequent resale to extract speculative profits. Buying and selling tokens in the secondary market after the launch of the project is also impossible (for some time or at all). Limitations are supposedly imposed by smart contracts.
For investors, traders, speculators and other parties who make money on the course speculation in the short, medium term, this is bad. But for everyone else, this is definitely good, since such an approach will reduce market volatility, increase user confidence in a product or service, and also protect against manipulations with the price of a token:
Due to this, the rate of CTO tokens will become stable and easily predictable, which will be a big plus for a startup and its users: the product and / or service will not be in high demand if their value jumps by ± 20–100% within a month (which is typical of all cryptocurrency).
The ICO-model was extremely popular in 2017-2018, because it made it very easy and quick to launch a startup with a minimum starting capital. In fact, anyone could create a website, write white paper and use one of the specialized blockchain platforms to create a new coin and sell it to investors. Provide a MVP, pass any tests, provide information about yourself or make a detailed business plan - all this was unnecessary.
The crowdfunding model from the Brooklyn project involves reducing the entry threshold for startups to almost the ICO level. Presumably, this will have three important consequences:
After the arrival of the SEC and other regulators, such investments have become inaccessible to ordinary people, since these are high-risk assets, which only very rich people or specialists with appropriate education and experience have the right to invest in. On the one hand, this is good, because in this way people are protected from fraudsters and high risks. But on the other hand, this approach also closes the market for those who buy tokens not for money, but for the use of goods or services of a startup.
The CTO crowdfunding model returns consumers access to this market, which is good for all market participants:
Consumer Token Design. The created virtual coin must correspond to the characteristics of the consumer token and be usable within the framework of the launched service.
To make it all right, make sure: