A utility token is a type of cryptocurrency that is issued to fund the development of the cryptocurrency project and then used to purchase a good or service offered by the issuer of the token. Unlike security tokens, which represent an investment in a project with the expectation of profit, utility tokens are not designed as investments. Instead, they provide users with access to a product or service and can often be used within a specific ecosystem related to the project.
Key characteristics and uses of utility tokens include:
- Access to Services: Utility tokens often grant holders access to certain services or functionalities within a blockchain platform, such as voting rights, transaction fee waivers, or use of specific features.
- Project Funding: They are frequently used in Initial Coin Offerings (ICOs) or token sales as a means of raising capital for blockchain projects. Purchasers of these tokens are typically early adopters of the project's technology or service.
- Ecosystem Incentives: Many projects use utility tokens to encourage participation and engagement within their ecosystem. This can include rewards for network participation, content creation, or other contributions to the platform.
- Exchangeable Value: While utility tokens are not primarily intended as investments, they can be bought, sold, or traded on various cryptocurrency exchanges, and their value can fluctuate based on market demand and the perceived value of the underlying service.