Utility and Security tokens Explained

Cryptocurrency markets have evolved rapidly, leading to the emergence of various types of tokens. Two key classifications are security tokens and utility tokens. But what is a token? A token is a digital asset that represents ownership of something, such as a real-world object or a financial instrument. In the context of blockchain technology, tokens are created on top of existing blockchains (like Ethereum) to represent new assets.

Token utility refers to the specific function or purpose of a token and answers the question, “Why should I hold this token?“. Ex: paying transaction fees, providing access to specific services or features, etc.

Token use-case refers to the specific application in which a token is used within the ecosystem and answers the question, “What is this token used for?“. Ex: medium of exchange, governance, etc.

Tokens have diverse applications ways, such as providing access to specific services within a designated platform; acting like rewards points allowing users special privileges when using them while interacting with different applications built on top of the same network; facilitating transactions between parties directly without intermediaries involved by paying transaction fees through these coins. The value and function of tokens vary widely depending on their use case which could range from improving security protocols to streamlining payment processes.

Now, let’s explore the differences between the two tokens.

A utility token is a digital asset that provides access to specific products or services on a blockchain network, usually by providing users with the right to use certain features of an application. Utility tokens are different from security tokens in that they do not represent ownership in any real-world asset nor do they confer rights to dividends, or profit sharing, and their value is derived solely from their functionality within the associated platform. Utility tokens are generally subject to fewer regulatory requirements than security tokens, although regulators may still classify some utility tokens as securities, depending on their specific characteristics.

Examples: Ethereum (ETH), Binance Coin (BNB), and Chainlink (LINK).

A security token represents ownership in an asset, such as equity or debt and token holders have rights to dividends, interest, or other forms of profit sharing. Unlike utility tokens, which provide access to specific products or services, security tokens represent regulatory-compliant financial instruments, making them subject to federal laws and they offer investors the opportunity to profit from price appreciation, dividends, revenue-sharing rights, interest payments, etc., much like traditional securities do.
Regulatory Compliance: Security tokens are subject to securities regulations and must comply with relevant laws and regulatory frameworks, such as the Securities Act of 1933 and the Securities Exchange Act of 1934 in the United States.
Issuers of security tokens must adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, which involve collecting and verifying the identity of token holders.

Examples: tZERO (TZRO), Polymath (POLY), and Harbor (R-Token).

Governance tokens should not be considered utility tokens, as they are used or held exclusively when a proposal requires voting. However, can utility tokens possess governance rights? Yes, they can.
The Curve model introduces Vote Escrow Tokens (veTokens), which can be used to give voting power to stakeholders and/or liquidity providers.

Disagree? shoot me a DM.

Summary and More

Security tokens and utility tokens serve different purposes within the realm of cryptocurrencies and blockchain technology. While security tokens represent ownership in an underlying asset and are subject to strict regulatory compliance, utility tokens provide access to specific products, services, or platforms, with less regulatory oversight. Both types of tokens have distinct use cases and offer various opportunities for investors, developers, and users in the expanding digital asset ecosystem.

To determine if a token is a security or utility token, we can apply the Howey Test, which is also used by the Securities and Exchange Commission (SEC) to distinguish between securities and non-securities. This test has been employed in the crypto industry on numerous occasions to ascertain whether a token is a utility or security token.

Ask yourself these questions:

• Is there an investment of money involved?

• Does the investment involve a common enterprise?

• Is there an expectation of profit for the investors?

• Is this expectation reliant on the efforts of others?

The majority of token sales (ICOs) meet these criteria, so it’s important to recognize that most tokens in the market should be considered securities.

Equity tokens

An equity token is a type of digital asset that represents ownership in a company or organization. They are essentially similar to traditional securities, such as stocks and shares, but operate through blockchain technology.

Equity tokens allow companies to raise funds by offering investors access to an ecosystem where their assets can appreciate over time based on the success of their venture. These tokens can be traded much like other cryptocurrencies, providing liquidity for investors who want an exit from the investment. Unlike utility tokens, which are used primarily within a specific platform or application, equity tokens represent an actual value within real-world businesses.

Tokenization of real-world assets, like real estate, art, or intellectual property, is an expanding trend in the crypto space. As more assets are tokenized, the distinction between these two types of tokens might become less apparent, leading to the emergence of new classifications. This token belongs to the security token category.

What the future holds

As the cryptocurrency and blockchain industry continues to evolve, we may witness the emergence of new types of tokens, as well as the convergence of characteristics between security and utility tokens. For instance, some projects may explore hybrid token models that combine features of both security and utility tokens.

Regulatory authorities worldwide are intensifying their efforts to provide clarity and guidance for token offerings. The evolving regulatory landscape will likely lead to the development of more sophisticated token models that better adhere to legal requirements and protect the interests of investors.

Memecoins are tokens without utility, serving as speculative assets.
Fueled by a narrative that entices speculators to buy low and sell high.
Indeed, there is an expectation of profit.
Therefore, it raises the question of whether they should be considered security tokens. We welcome your thoughts on this matter. Let us know your thoughts.

Conclusion ~ Understand your investment

Understanding the differences between security tokens and utility tokens is essential for investors, developers, and regulators navigating the cryptocurrency landscape.

Each type of token presents distinct opportunities and challenges, and their ongoing evolution will significantly influence the future of digital assets and blockchain technology. By staying updated on the latest trends and developments, stakeholders can better position themselves to capitalize on the growth of this dynamic and rapidly evolving industry.

Mark ~ May 6, 2023

Nothing in this report/analysis constitutes professional and/or financial advice. The shared content is for educational and informational purposes only. Do your own research before investing.

Portfolio Diversification Explained

“Diversification is for idiots, because you can’t diversify enough to know what you are doing.” – Mark Cuban
“Diversification generally makes very little sense for anyone that knows what they are doing. Diversification is a protection against ignorance.” – Warren Buffett
“Much of what is taught at modern corporate finance courses is twaddle.” Charlie Munger

Many respected investors in the traditional market suggest that diversification is not the best solution to building financial wealth, some investors, such as Bob, suggest that investing in multiple asset classes, such as stocks, bonds, real estate, and crypto, can reduce exposure to any single investment that may decline in value. This helps ensure that if one part of your portfolio underperforms or experiences losses due to market fluctuations or other factors beyond your control, the rest will continue generating profits for investors, which helps balance out overall portfolio performance over long-term horizons.

“To diversify, or not to diversify, that is the question”.

Diversification plays a crucial role in long-term financial planning as it helps balance short-term risks with long-term gains, resulting in better overall returns.

So which investment strategy is the best?

  1. Concentration. By focusing your investment on three assets or areas you’re familiar with, you can conduct deeper due diligence and devote more time to preparing your entry and exit strategies. However, this approach also increases risk: if an investment goes sideways in one of those areas—such as during stock market crashes—it may significantly impact your portfolio.
  2. Diversification. Spreading your investment among 10 to 100 assets reduces liquidation risks, but at the same time, diversifying also means that you are not heavily invested in any one particular opportunity, and thus profits generated from each investment may be lower than if you had bet on just one or two opportunities.

While no strategy guarantees success every year, nor does it guarantee against loss, prudent investors understand how diversified portfolios provide smoother experiences through market cycles than more concentrated ones do.

That being said, there are many self-made millionaires who made it by investing in 1–3 assets at the right time, which is a very important variable when it comes down to entry and exit strategies, as previously mentioned.

Ultimately, both concentration and diversification have pros and cons. Finding the right balance between the two depends on your experience, goals, preferences, risk tolerance, and other factors.

E&E (enter and exit) STRATEGIES
Smart investors know when to invest and when to get out of an investment; usually, the exit strategy is well-defined before investing (during this period of time, the investor’s mind is more rational, not being involved with the investment yet).
With regard to the entry strategy, it is important to take into consideration variables such as market sentiment and the project development stage.

Conservative diversification

Diversification is one of the most important principles in investing, but it’s easier said than done. It requires extensive market knowledge and experience to build a well-rounded investment strategy.
Many investors work with brokers or financial advisors to help them make a personalized long-term plan that takes into account their risk tolerance, time horizon, liquidity needs, tax concerns, and other factors that affect their investments.

If you can’t afford a broker or a financial advisor, we suggest going for conservative diversification, which has lower risks involved but also lower expectations of profits. Developing a conservative diversification plan requires conducting proper due diligence on desired assets and gaining a deeper understanding of the market and its regulations. Here are two examples:

Traditional market

  • 15% in liquid cash.
  • 40% on long-term investments (ex: ETFs, bonds, commodities, etc.).
  • 25% on blue-chip assets (ex: Amazon, Bank of America, Google, Netflix, etc.) +$100 billion market cap. These assets must:
    • must have long-term expectations (+10 years)
    • must have a high reputation.
    • might pay dividends.
  • 15% mid-term investment on growth stocks (ex: Mercedes-Benz, Airbnb, Shopify, etc.); assets with high expectations.
  • 5% in high-risk investments (crypto and penny stocks).

Allocating a bigger piece of the pie to ETFs, bonds, and commodities is not a bad idea considering that the traditional market is less volatile; that being said, a 15% allocation to cash is a must. Being liquid is also very important because performing transactions (i.e., selling assets) is slower in the crypto market.
In the traditional market, you can allocate more money to mid-term and high-risk investments because the return on the investment is slower and lower compared to the crypto market.

Not only can brokers or financial advisors help you build an investment portfolio, but corporate lawyers also play a crucial role when crafting complex portfolios for high-net-worth individuals or private equity firms looking into merger and acquisition opportunities.
We suggest watching this TV show for fun and educational purposes: Suit.

What is an ETF?
ETFs (exchange-traded funds) are a type of index fund; by buying these funds, you invest in everything that is in the fund. Investors do not own the underlying assets, but they may still be eligible for dividend payments. There are many ETFs in real estate, energy, and more.

Crypto market

  • 30% in liquid cash or stablecoins (at least 2 of them). Read more about stablecoins in Episode #5.
  • 35% on blue-chip assets (ex: Bitcoin and/or Ethereum).
  • 20% on long-term investment (ex: providing liquidity to stablecoins).
  • 12% mid-term investment (ex: staking Ethereum for passive income).
  • 3% short-term investment and highly volatile assets (ex: NFTs, DeFi, etc.).

We have allocated a huge piece of the pie to cash and stablecoins because of the high volatility of the crypto market and because of the many opportunities (it is good to have liquid assets ready to be invested). As per the other allocations, it is very important to know what you are investing in, and experimenting with asset classes can broaden your knowledge and experience, even if it’s only 3%.

Modern Portfolio Theory
MPT is a set of rules in finance that are meant to help investors get the most out of their investments while minimizing the risks.
This method involves spreading out investments by putting together groups of assets that have a good balance of risk and reward.
The goal is not only to get the highest expected returns but also to take into account how much risk a person is willing to take.

Disclaimers: DO NOT take these allocations for granted; this is just an example. The fund allocations should depend on your investment plan, which is based on many variables such as individual goals, preferences, risk tolerance levels, and more, as previously mentioned.

How many assets should you hold in your portfolio?

Know that you can’t beat the companies that have more than 10 market analysts, whose job it is to lower the risks and increase profits for the companies they work for. Over-diversifying into assets that might give you a 100x return might not be the best idea, especially in the crypto space.

How to diversify in 2023

Needless to say, 2023 will be a tough year for investors. Will the bull market continue? Are we going into a market recession? Or is the bull market next door? Whatever your gut tells you, trust only the numbers, and if you don’t have a plan, fly safely with a super-conservative investment plan.
This is a historical moment for the market. Everyone is more or less suffering as a result of COVID, the Russo-Ukrainian War, and the bank collapse (even though many people were able to hedge the market and profit from the situation, such as pharmaceutical companies and their investors).

You can’t beat the market; you have to adapt your plan to it. Where there is fear and depression, there are more risks involved with investing, and to mitigate these risks, the best solution is to get ready for the worst outcome that may come and invest when bullish signals start appearing (ex: when the FED makes it clear that it will stop these interest rate hikes or start doing interest rate cuts; it is all a matter of timing!). Here are two examples:

Traditional market

  • 35% in liquid cash.
  • 35% on long-term investment.
  • 18% on blue-chip assets.
  • 10% mid-term investment in growth stocks.
  • 2% in high-risk investments (high-risk investments include investing in start-ups, venture capital projects, and options contracts.).

Money is sovereign. Cash is the most liquid asset we have in our economy, making it less volatile. Nevertheless, investing is important because, as we all know, money loses value over time due to inflation. To safeguard against inflation, we must put our capital to work while always attempting to limit losses. Considering the scarcity of information and uncertainties with regard to the market, it’s essential to conduct proper due diligence before investing (this advice cannot be emphasized enough).

Crypto market

  • 50% in liquid cash or stablecoins.
  • 25% on blue-chip assets.
  • 15% on long-term investment.
  • 9% for mid-term investment.
  • 1% short-term investment and highly volatile assets.

The crypto market is the most volatile of all. For this reason, more time and attention have to be deployed before investing, and even if you are not invested but hold a big chunk of your bag in stablecoins, there is no guarantee that the asset won’t depeg. Diversification is a good way to mitigate your risk, but it is not a final solution.


If you are a new investor and you don’t know how to diversify your portfolio, you can fly safer by buying the S&P 500 and ETFs for passive income (7–12% yearly).
But what if you are new to the crypto industry? Here are some options:

  • Go solo, learn by yourself, and invest in what you know and understand. More risks are involved.
  • Join DAO-driven ventures or investment groups that will help manage your investment (similar to ETFs, but less regulated).
  • Hire MHL Solutions to build you a custom investment plan based on your needs and goals. Click here to request this service.

Risks involved with diversification

  • Over-diversifying (or deworsifying) your investments may lead to lower overall returns as the gains from high-performing assets will likely be offset by losses in underperforming ones.
  • Holding too many different assets could make it difficult to keep track of all your holdings and monitor their performance effectively.
  • Even if you buy a lot of different securities, that doesn’t mean you’re truly diversified if they all move in the same direction with market trends instead of being affected by different things that affect each security on its own. This phenomenon is called correlation risk.

Conclusion ~ it’s up to you!

So, what’s the answer? To diversify, or not to diversify Better to all in on one asset or spread your investment among 100 investments? Both strategies are right in their own way; it mostly depends on the investor’s mindset and needs. New investors tend not to diversify, while more experienced investors have a well-diversified portfolio. Diversification can be a beneficial solution, provided that investors stay informed and conduct thorough due diligence, while also being aware of the associated risks. Don’t get fooled by influencers who put $10 into hundreds of projects, hoping for a 100x return, when you can invest in a few projects and perhaps earn more. But what really matters is having a plan, whatever it may be.

Mark ~ Apr 12, 2023

Nothing in this report/analysis constitutes professional and/or financial advice. The shared content is for educational and informational purposes only. Do your own research before investing.

Stablecoins Explained

Are Stablecoins Securities?

What else can you do with stablecoins?

Are stablecoins safe?

Conclusion ~ Long-term stability

Mark ~ Mar 13, 2023

Nothing in this report/analysis constitutes professional and/or financial advice. The shared content is for educational and informational purposes only. Do your own research before investing.

Liquid Stacking Derivates Explained

What is staking?

How do LSDs work?

More about lido

Risks involved with staking with LIDO:

A new type of staking is available with LSD now, called leverage staking, which basically works this way:

Swap ETH for stETH (on Lido)
Earn rewards
Stake stETH to earn ETH
Swap ETH for stETH (on Lido)
Earn rewards
Stake stETH to earn ETH
and repeat that again…

It looks to me like an endless Ponzi scheme… I do not like it at all.


Mark ~ Feb 18, 2023

Nothing in this report/analysis constitutes professional and/or financial advice. The shared content is for educational and informational purposes only. Do your own research before investing.

Liquidity Explained

Who will catch the most fish today?

Crypto Liquidity Pools

What if I want to sell MHL for AVAX?
Well, if the DEX does not have the pair AVAX/MHL, you will still be able to exchange your MHL tokens for AVAX; in this case, the contract will execute 2 transactions:
Sell MHL for ETH then Sell ETH for AVAX.
It will take a little longer, and you will have to pay more in gas fees.
Most of the time, you do this kind of procedure because the token may have just been launched and the DEXs are not offering that specific pair.
If you really want to buy such a token, I would suggest you do it on a big DEX, such as Uniswap, so that the trade will be faster (if the token is liquid enough).

The bigger the value of the pool, the more stable will be the price of the assets; this means that if the pool is small, the price impact will be bigger.
Always ensure that your trade will not have a significant impact on the price of the token, because if you buy an illiquid token and its price rises by 30%, traders will sell to make a quick profit out of it.

Risks of investing in liquidity pools:

Conclusions — Don’t be exit liquidity

Why do people say that NFTs are not liquid? Because they are not. In order to sell your NFT, you have to list it on a marketplace and wait until someone meets your price needs and buys it. This is a peer-to-peer trade.
Even though there are some protocols trying to fix this issue by introducing liquidity for NFTs, the problem persists. It is indeed harder to sell NFTs than token.

Mark ~ Jan 14, 2023

Nothing in this report/analysis constitutes professional and/or financial advice. The shared content is for educational and informational purposes only. Do your own research before investing.

Crypto Fundraising Explained






Benefits and risks of fundraising

Here are two websites where you will be able to follow the investors’ money during the fundraising of blockchain-based applications:

Having difficulties with company valuation for fundraising purposes?
Check out Educational Program #1.
Be prepared to explain the amount of funding you are requesting from the investor. Know your numbers.

  • Clearly define the purpose of the fundraiser and the benefits of the product or service being offered.


Mark ~ Jan 4, 2023

Nothing in this report/analysis constitutes professional and/or financial advice. The shared content is for educational and informational purposes only. Do your own research before investing.

Startup Valuation Explained

How to evaluate your business

Usually, during the 3Fs-round, the valuation of the company is very low because of the high risks, and it can range from $50,000 to $500,000.
Are the investors in the 3Fs-round a good deal? No, most of the time they bring only money and no experience, and they take a big chunk of your equity.

Risk management in the early stages

Before spending funds on advertising, it is very important to build a marketing plan based on the financials of the company. No rush; just because you are spending money today does not mean that you will make it back tomorrow.
Door-to-door and word-of-mouth advertising are the best and cheapest forms of advertising because you are selling your product directly to the consumer.

The revenue is the income generated, including the expenses. Profits refer to the net income earned after accounting for taxes, employee salaries, investor returns, and personal compensation.

Other variables

The Friends and Family round could be structured as a convertible note (which converts to equity at a later stage to delay the company’s valuation) or a SAFE (Simple Agreement for Future Equity) which is a convertible security that has no payment requirement, no maturity date, and no interest rate.
Pre-money valuation. EX: $100,000 investment for 10% at a $1 million valuation keeping the valuation at $1,000,000 after the investor has made the investment.
Post-money valuation. EX: $100,000 investment for 9.09% at a $1 million valuation brings the valuation to $1,100,000 after the investor has made the investment.
Vesting. Both for the founders, in order to ensure that they will continue to work after the funds are raised (between 2 and 4 years), and for the investors.
A business idea is not a business. Before making up valuations, think of the expenses and your margins. Do you have a prototype or beta test? How are you and your investors going to be profitable?

Once you have the answers to these questions, the product, and the business model, you can get closer to a realistic valuation of your business.

WEb3 project valuation

Can we apply the same valuation model to Web3 startups? Yes, we can.
Even though valuations in the Web3 space are frequently exaggerated, we can apply the same valuation model to blockchain-based startups.
Whether they are selling equity shares or tokens during the sale rounds, the team evaluates their project at a “future evaluation”, which is why investors sign SAFE and/or SAFT agreements.

Simple Agreement for Future Equity is a founder-friendly alternative to convertible notes, which are used by founders to raise capital in early rounds).

Is there a formula to calculate your future valuation without revenue? No, there is no such thing. This type of valuation is based on two factors:

Mark ~ Dec 1, 2022

Nothing in this report/analysis constitutes professional and/or financial advice. The shared content is for educational and informational purposes only. Do your own research before investing.