Utility Token
IntermediateA utility token is a digital token that gives holders access to a product or service on a particular blockchain platform or network, rather than representing ownership or a claim on profits.
Utility tokens are designed to be used within a specific ecosystem. They might be used to pay transaction fees, access services, use storage or computing power, take part in governance votes or unlock features on a platform.
For example, a decentralized file storage network might require users to pay for storage with its own token, while people providing storage space earn tokens as payment.
Utility tokens are often distinguished from security tokens, which represent investments, such as shares, bonds or rights to profits, and are usually regulated as securities.
In practice, the line between utility tokens and securities can be blurred. Many tokens sold as utility tokens in initial coin offerings around 2017 were bought mainly as speculative investments. Regulators, such as the US Securities and Exchange Commission, have argued that some such tokens were in fact securities. The European Union’s Markets in Crypto-Assets Regulation sets specific rules for utility tokens and other crypto assets.
Investors should be cautious, since many utility tokens have lost most of their value when platforms failed to attract users or projects collapsed.
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