WHAT ARE FAN TOKENS AND HOW DO THEY WORK?

The word ‘token’ and ‘coin’ are often the center of discussion in the blockchain world. But what are tokens, how do they differ from coins, and how can you ‘use’ a token?

A cryptocurrency is often referred to as ‘coins’ or ‘tokens’. Their purpose is to be items of inherent value that are designed to enable purchases, sales, and other financial transactions. They are intended to provide many of the same functions as long-established currencies.

Bitcoin is the primary cryptocurrency: the first, the most valuable, and perhaps the most well-known and most-used. It serves many purposes, but they are almost entirely financial. Coins are used on their own blockchains, so Bitcoin is used on the Bitcoin blockchain, Ether coins are used on the Ethereum network and so forth.

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Tokens, on the other hand, are different to coins on many levels, as they are created and used on an existing blockchain. Tokens are generally assets that can represent proof of ownership or even membership. As tokens are already being used for an ever-growing range of purposes, a growing number of specialized blockchains have been developed with native intent to support tokens, the most popular of which is Ethereum and their ERC standard tokens.

The value of a token can be determined by its purpose and popularity, but since most tokens have a fixed or limited supply, their value is often related to supply and demand. But that has not always been the case — with Ethereum, for example, there is a fundamental emphasis on continuing minting new tokens, covering transaction fees and executing smart contracts. However, speculation on the value of a token is supposedly secondary to its actual use.

Although there is no definitive classification, tokens generally fall into two categories: Utility and Security.

A Security Token represents an asset or an entitlement to an earning stream or dividends. In terms of their economic function, the tokens are comparable to equities, bonds or derivatives, and are expected to make a profit.

A Utility Token provides access to the goods and services that a project launched or will launch in the future and can be used as a type of discount or premium access to the services. A lot of tokens tend to be used specifically as a funding mechanism for companies.

During the Covid-19 pandemic, sports clubs had to look for other revenue streams to compensate for the lack of ticketing on game days. And a bunch of platforms in the sports blockchain space have thrived during the pandemic by offering an innovative and lucrative way for football clubs to entertain and engage with fans. Platforms like Sorare – a fantasy football game, Chiliz’ and Socios.com have all been at the forefront of this. 

Also Read – The “Other” Side of Crypto

Alongside other sports blockchain ventures, a new category of the token has emerged — the Fan Token. Once announced by Socios.com platform, the club partners will be giving away Fan Token Offering (FTO). Fans must purchase $CHZ via a cryptocurrency exchange in order to acquire Fan Tokens. These tokens — which are specific to a team or club — are a finite, digital asset that provide access to an encrypted ledger of voting and membership rights ownership.

According to the Socios.com management team, the app has had almost 1.2 million downloads since its launch in 2019. Of those, almost 70% took place in 2021. The platform enables fans to purchase club fan tokens, an area of the blockchain industry that generated over $200 million in revenue in the first half of 2021 alone. Fan tokens can be exchanged for rewards such as merchandise, the ability to participate in polls, access exclusive content, and play interactive games. They can also lead to experiences like meeting players or attending home games.

Besides generating revenue, fan tokens also enable clubs to collect data about their fans, which is a key aspect to conduct an appropriate and efficient marketing strategy. Tokens give an outlet for clubs to reward loyal fans and those who invest more in the club through in-app purchases. It is an innovative way to commercialize engagement.

Ownership offers fans the ability to participate in fan-led decisions through a mobile voting platform, as well as serving as a ticket into a secure, exclusive inner circle of fans, with shared passions and beliefs. The more tokens a fan holds, and the more they vote, the higher the clout rating of that fan, moving them upwards through different reward tiers until they have access to the biggest VIP benefits that are on offer.

Football clubs intend to use these platforms as part of their fan engagement strategy to continue to build their global fan bases, particularly in Asia, where the football fan community is experiencing exponential growth. Socios.com connects the clubs to their fan bases, securing additional revenue streams that are digital, secure, transparent and entirely connected to the real fan experience.

In addition to football, many crypto platforms and companies have broadened their market to the likes of Formula 1, UFC, the National Hockey League (NHL), the National Football League (NFL), cricket, and many more.