Utility Token Distinction

The utility token distinction is the effort to categorize digital assets based on their functional use within a protocol rather than their investment value. Utility tokens are designed to provide access to services, governance, or resources on a network, theoretically distinguishing them from security tokens.

However, the line is often blurred, as many utility tokens are also traded for profit on secondary markets. Regulators often look past the label to the economic reality of how the token is used.

Maintaining a clear distinction is crucial for protocols that wish to avoid being classified as securities. This involves rigorous design of tokenomics to ensure the token is necessary for the network to function as intended.