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What are Dividend Tokens?

Basics

With the boom of cryptocurrencies, many different types of tokens have emerged. While people know about crypto tokens, they don’t know much about dividend tokens. It is basically the class of tokens apart from currency tokens.

Currency tokens help you buy goods through the tokens and you can withdraw the fiat equivalent of the tokens.

Dividend tokens offer you the opportunity to earn passive money through the investment in a project as the value appreciates or by mining or getting regular dividends from the issuer. We will talk more about this below.

How do Dividend Tokens Work

When you invest in dividend tokens, you prime yourself for passive income. “Passive income” is the term for getting money for work done in the past. In the bonds and stocks world, you get a dividend according to the number of stocks you hold in the organization.

Advantages

With smart investments, people can get a full return on their initial investment in a few years. This is only compounded manifold in the crypto realm where the profit margins are immense.

There are different dividend based organizations in the blockchain world. Some like Nexo.io pay regular dividends to the investors. 30% of the profits from Nexo are returned to token holders in the form of Ethereum.

Similarly, there are other projects which give you routine passive income to those who stake or hold their coins.

As with the stocks world, these might or might not give you voting rights in the project’s environment based on the issuer.

A project that hands out dividends only does so when it has profits. Since you get dividends it means the project is successful which also means the value of coins appreciates, landing you more money.

Disadvantages

With dividend tokens, you are usually at the mercy of the issuer. The practice of sharing dividends might be changed on the whim of the issuer.

As mentioned above, the dividends are handed out when the project has profits. If the project starts to be in loss, your dividends might become less frequent, and the value of the coins you hold might plummet.

There are many projects which hand out dividends based on the coins the investor holds. If you are a small time investor, this works against you.

How are Dividend Tokens best used?

Although dividend tokens have both good and bad points, they do something that other tokens cannot; they unlock the potential of your digital assets. Therefore, investment and financial related projects are the obvious areas to create and use such tokens.

Thus, you can invest in them and continue to enjoy your digital holdings while getting passive income based on the amount you invested and hold.

Those companies that invest in mining also offer such a service. They ask people to invest in them and then share the profits from their mining investments with the token holders.

Regulation of Dividend Tokens

Dividend tokens are not regulated in a uniform manner all over the world. Each jurisdiction has its own laws governing dividend tokens.

The United States Securities and Exchange Commission treats any token that offers future profits as securities. Other countries have their own laws regarding dividend tokens. Some countries do not have any regulation.

With regulation, there also comes an assurance for investors as they know how the token is treated by the law and can take measures accordingly. Regulation is only going to increase in the coming future.

Conclusion

Dividend tokens offer a way for investors to gain passive money.

One way to maximize the profits is to reinvest the dividend and enjoy the benefits of returns as well as the value appreciation of the token.

Since you won’t reinvent in a failing project, this gives you the platform to earn huge profits on the initial investment.

Although a lack of regulation and the confusion over it has resulted in many of the digital assets and dividend tokens being unused so far, this will most likely change soon.

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