This article seeks to explain why we decided that utility tokens are better suited for our business model than securities or off-chain schemes based on karma points or direct fiat currency subsidies.
Utility tokens (UTILITY) are digital assets with the sole purpose of giving access to a specific product or service . For example, if an enterprising individual creates an online marketplace selling pizzas, he may decide that it is easier for him to accept Bitcoin as payment than to worry about needless conversion rates and transaction fees. However, the creator of the pizza website would not be able to list his business on Google Maps because Google does not currently accept cryptocurrencies. The only way that this problem can be solved is if someone develops a service that allows sellers that already accept Bitcoin payments to show up in Google searches automatically.
That is exactly what Yumerium hopes to provide—a decentralized gaming platform that can be used to make in-game purchases with a wide variety of cryptocurrencies, including Bitcoin. While all gaming platforms based on blockchain technology provide their users with the ability to purchase in-game items and upgrades with crypto coins, Yumerium will also allow its partners to start earning money by renting out their idle servers and bandwidth.
We would like to focus on another aspect of our business model: we distribute 50% of our profits from the year's operations among holders of YUM tokens, which we define as "utility" tokens — see one of our previous articles for an explanation why it is preferable not to use "security" or "payment" tokens for this kind of scheme. However, holders of YUM tokens will not receive their share of the company's profits until the first token buy-back event , which is scheduled to take place after three years have passed.
In order to facilitate our investors' decision-making process regarding the purchase of UTILITY tokens during ICO, we would like to outline some major reasons why a utility token scheme is better suited for a cryptocurrency exchange and an algorithmic trading platform than a direct fiat currency subsidy or an on-chain system based on karma points.
First and foremost, giving away free money can be done only once—in other words, an initial direct fiat currency injection has no future potential as it can be used by recipients only for purchasing services at the very same moment. That is why many startups opt to give away free tokens or discounted cryptocurrencies, so they can re-sell them on secondary markets at higher prices and put this additional capital towards development of their product.
What they don't realize is that most ICOs are not liquid enough to be listed on exchanges before their very first buyback event, meaning that new owners will not be able to sell them without incurring losses. This makes it impossible to attract investors by promising them some future potential increase in token value—naturally, if no one even wants your tokens today, they won't suddenly become more attractive next month after you've made a fancy marketing release.
