Blockchain loyalty approaches have for the most part been dominated by utility tokens, with the likes of EZToken, Incent, LoyalCoin, CampusCoin, GatCoin and more launching their own branded cryptotokens in an effort to disrupt this multi-billion dollar industry.
Utility tokens deliver a range of benefits for the program operator, the primary one being that they can be created and sold to raise funds without the need to sacrifice company equity. This has made ICO’s (Initial Coin Offerings) a thoroughly exciting and highly-lucrative crowdfunding vehicle over the past few years.
But easily raising funds using utility tokens appears to have come to a sudden halt, with many ICOs struggling to hit soft caps in recent months. And one doesn’t need to search too far to find the culprit; the current and persistent crypto-bear market. That being said, some may argue the culprit is an excess of ICOs not delivering on their promise, which then led to the bear market? Irrespective, the days of irrational exuberance regarding ICO’s are over.
A good example to illustrate the market sentiment is EZToken. The team raised US$10m in January via ICO, including raising US$6m in around 30 seconds in their last round, a staggering feat. Today, EZToken would be lucky to raise US$1m (if they could raise at all), with the appetite for ventures selling an idea without an MVP all but dead. Meanwhile the EZToken price (EZT), which debuted at $1.20, is worth just 2c on exchanges.
So where does the future lie? Many industry advisors are looking squarely at security tokens. Unlike utility tokens, which confer no rights on the holder other than ownership and the ability to sell on a participating exchange, a security token can provide the investor with dividends, equity, profit share rights, buy back rights and voting rights, making them potentially more valuable and thus more desirable.
An example of a security token is Blockchain Capital. They raised US$10m via ICO and now distribute their trading profits to token holders, something a company who distributed utility tokens wouldn’t do.
This should be of significant interest to loyalty experts around the world. While security tokens themselves cannot be provided to members of a loyalty program as a reward currency because of licensing and disclosure issues, a loyalty program can be designed around security tokens to make them more attractive to acquire and retain.
An example of a security which has used this approach in the past is Coles-Myer, a now-disbanded Australian supermarket and department store organisation. Back in the day, shareholders of Coles-Myer were provided with the Coles-Myer Shareholder Card, which entitled them to benefits including a 10 per cent discount at Myer and a 5 per cent discount at Coles. Launched in 1993, the card was so popular that by 2001 shareholder numbers had swelled from some 68,000 to 580,000 , including large numbers of ‘mum and dad’ investors. This successfully kept the share price value inflated and also reduced the risk of a hostile take-over.
This provides a neat model for a new type of blockchain loyalty program; one where security token holders can be provided with the opportunity to access additional rewards, thereby increasing the likelihood of accumulation and retention. Thus, in turn can lead to increased demand for a reduced tradeable supply, which has the potential to drive the price higher on exchanges.
It even provides an opportunity for a new approach for utility cryptotoken-powered loyalty programs. Consider a company who wishes to raise funds to expand. Instead of running an ICO, they can choose to run an STO, providing investors with security tokens. The company can then use some of the funds raised to launch a loyalty program when members are rewarded with a branded utility cryptotoken. The cryptotoken can later be floated on an exchange without the need for the company to run an ICO, avoiding a lot of cost and effort, and enabling better management of liquidity.
Philip Shelper is a loyalty management consultant based in Sydney, Australia who obsesses about everything to do with loyalty and rewards. His company Loyalty & Reward Co are a leading loyalty consulting firm.
Phil is the author of Blockchain Loyalty: Disrupting loyalty and reinventing marketing using cryptocurrencies. Buy the book.
www.blockchainloyalty.io is a global resource centre for everything blockchain loyalty.