A utility token is a daily tool of the blockchain, not an investment.

Why is it difficult to understand token types? A utility token is a type of digital asset that actually performs a function within the network. Unlike speculative instruments, a utility token exists to fulfill a specific purpose within its ecosystem.

How a utility token works in blockchain

These tokens are created on the blockchain and function as the native currency of the platform. Their main distinction is that they are not securities, and therefore do not fall under the same regulatory control. A utility token provides access to the platform’s features, services, or resources. For example, a user can hold a certain amount of such tokens to activate special capabilities or earn rewards for participating in the network.

Where utility tokens originate

Most often, such assets are issued during ICO, IDO, or IEO. Investors acquire them in exchange for cryptocurrency or traditional money. However, the primary goal of issuance is to attract participants to the ecosystem, not to maximize investor profits.

Practical examples of utility tokens in action

Filecoin demonstrates a decentralized data storage model. Users use the token to pay for services on the platform and to incentivize content distributors.

0x (ZRX) – an open-source protocol that enables direct asset exchange based on Ethereum. The ZRX token activates decentralized trading for ERC-20 compatible resources.

Augur (REP) functions as a motivator for market makers on the prediction platform. People are awarded REP for accurate forecasts of real-world events.

Golem (GLM) – a decentralized computing network. Users sell their computing power to others and receive GLM as payment for resources.

Basic Attention Token (BAT) operates within the Brave browser. Users earn BAT for viewing ads, creating an alternative monetization model.

How regulators distinguish utility tokens from securities

The SEC constantly monitors new issuances on the market. The Howey test is used to classify whether an asset qualifies as a security. If a token does not meet the criteria of an investment contract, it remains a utility token and does not require regulation as a security.

Limitations and features of utility tokens

The functionality of such tokens is tied to a specific ecosystem. For example, if Uber launched its own utility token, it would be used exclusively within the Uber network to pay for rides. A utility token is a tool for accessing a service, not a means of earning income.