What is a utility token?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
A utility token is meant to represent access to a function or service rather than a claim on profits. That is how issuers describe them. But the label is the issuer's own, and if the substance looks like an investment, a different set of rules applies regardless of the name.
Key points
- It stands for access to a function inside a service
- It is presented as carrying no claim on profits
- Regulators look at substance, not at the label
- The price risk is no different from any other token
Definition
A token issued to give access to the features of a particular platform or service. It is distinguished from a security token by the nature of the right it represents, not by any technical difference.
Buying an in-game item, paying a network fee, voting on a proposal — tokens issued for uses like these are called utility tokens. The framing is that they are tools for using a service, not a claim on the issuer's profits.
The trouble is that the label is self-applied. If the money was raised by pointing at future price appreciation, the functional story may not save it: regulators have looked at how the funds were raised and what buyers were led to expect, rather than at what the thing was called.
What you can check yourself is whether the token has a real use, how many people actually use it, and how supply and allocation are set. When the use case is described only in the abstract while listings and price dominate the conversation, speculation is probably the point.
Watch out for
- · Do not rely on 'it is a utility token, so it is unregulated' as a reason to buy
- · Which category a specific token falls into is for regulators and lawyers to decide
- · A genuine use case does not stop the price from falling sharply