Utility token

A utility token is meant to be used inside a specific platform. It might pay for transactions or storage, unlock features, grant discounts or serve as the unit of account in an application. Unlike a security token, it does not promise dividends, interest or a share of the issuing company.

The label became popular during the 2017 ICO wave, when many projects sold tokens to fund development and argued they were utility tokens to stay outside securities law. Regulators looked past the label: what matters is how the token is sold and what buyers expect. In the EU, MiCA sets specific rules for crypto-assets that are not stablecoins, including utility tokens, with a white paper requirement for public offers.

Many utility tokens have value only if their network is actually used, and demand driven by speculation can far exceed real usage. Before buying one, it is worth checking what the token is needed for and whether that need could be met without it.