A Utility Token: What Is It?
In the cryptocurrency world, utility tokens are blockchain-based tokens with a specified purpose and utility. They are native to the platform they are utilized on and are built on the blockchain. They are not regarded as financial instruments, hence they are not governed by the same rules as securities.
Typically, utility tokens are sold to investors during an ICO, IDO, or IEO in return for cryptocurrencies or fiat money. They are used to fuel the network and entice users to participate in a platform. For instance, a platform can demand that users own a specific number of tokens in order to have access to or engage in particular features or activities. Users may receive utility tokens as payment for completing tasks or rendering services on the site.
A utility token can only be used in the ecosystem for which it was created. A future version of Uber, for instance, might have its own utility token that users could use to pay for trips on the Uber network. Utility tokens aren't intended to be used as investment instruments.
New security tokens and utility tokens are continually being monitored by the SEC. To assess whether a given token is categorized as a security token or a utility token, the regulator applies the Howey Test.
Because utility tokens are not regarded as investment contracts, they are not subject to the same rules and restrictions as security tokens. The most well-known illustration is Filecoin, which was created to assist consumers in using the decentralized data storage network.