Law regulations have hugely affected the cryptocurrency market and ICOs, but there’s a kind of token, that doesn’t fall unto US federal laws that concern securities. We call it utility token – and it’s an useful model for most business appliances.
>> A Short Guide To Security Tokens
What are utility tokens?
A utility token is a key to your product or service. For example, you can grant access to the users, that have acquired your token, or grant them the right to vote. You can also use it asthe currency within your platform environment, and make them pay for your services with their tokens.
The token basically gains value based on your definition of what the buyer can exchange it for.
Utility tokens and US regulations
The most important highlight is that they are NOT designed as an investment – and therefore do not fall under the US securities’ regulations.
To make sure they are a separate thing, the companies avoid calling the creation process “Initial Coin Offering”, as it refers to the stock market nomenclature. They prefer to use a more technical “Token Generation Event” and “Token Distribution Event” names for that.
How does the Token Generation Event work in practice?
The utility tokens are basically a crowdfunding project backed by blockchain technology. It’s a simple way to fund DAPP projects, keeping the whole process within the blockchain ecosystem.
The Smart Contract code usually contains a separate code that deals with the funding process. It describes how it works and when you should send the transfer to the crowd-sale address. You can split it into a few stages to achieve your particular funding goals.
The number of tokens generated is usually limited, and depends on the main goal of the funding. The price can vary on the various stages – for example, it can get more expensive with every backer.
Interested in blockchain development and ICOs?
Get in touch with our team. We delivered a number of ICOs.