Topic: What is the difference between Utility Tokens and Security Tokens (Read 156 times)

Today my friends asked me to explain the difference between Utility Tokens and Security Tokens and I was able to explain it to their understanding and I thought it wise to do the same thing here for the benefits of some community members we want to know the difference between Utility Tokens and Security Tokens.

What is Utility Tokens?

Utility tokens are also called app coins or app tokens, Utility tokens either allows u to access a function or feature within a decentralized application or allows u to get a discount in services but u don't earn income as a result of holding any of their tokens

There are several examples of utility tokens out there but investors need to be aware of some projects that try to present themselves as utility token when they are not one.

And because almost all utility tokes have a finite supply, many teams try to promote it like an investment option because due to the laws of demand and supply the price of that token will surely increase if the app becomes popular.

But such tactics are also on the watch list of SEC nowadays. Therefore, one needs to understand thoroughly the economics and utility before investing in a token sale or ICO.

Some example of pure utility tokens are:

Filecoin
Sia
Ether

What is Security Tokens?

In simplistic terms any token that gives u a share of d company or gives u d right to receive a share of income from the project. Income can be from profits or fees charged by d project for its service.. This sorts of income are deemed dividend as such d tokens are seen as securities

In a realistic terms Security tokens are crypto tokens issued to investors in a token sale or ICO for the exchange of their money. Crypto tokens that pay dividends, share profits, pay interest or invest in other tokens or assets to generate profits for the token holders are deemed as ‘security tokens’.

Such tokens are prohibited in countries like the US and should be compliant with SEC prior to their ICO or token sale to be able to conduct in such affairs.

But lately, due to the euphoria of blockchain and ICOs, many start-ups and founders have become ignorant of this fact and have launched ‘security tokens’ without the knowledge of US SEC. That is what has led the US government to crack down on such unregulated ICOs or token sales such as Centra (CTR Token)  in order to protect the investors. If you are a ‘security token’, you need to abide by the rules of SEC.

The US or the SEC is not against ICOs in general, they are against unregulated security tokens or ICOs this they do to protect the investors from scam.

Example of some of the SEC regulated ‘security tokens’:

tZERO
Polymath

I believe this have really help someone to understand the difference and next time you want to invest in an ICO try to know the type of token they are offering to you.

If you find this helpful please encourage me with some merit.