The Real-World Analogy For a Utility Token

There are currently two types of tokens offered for sale in ICOs. Security tokens and utility tokens. Tokens classified as security tokens are regulated and thus limited to who can invest in them and how they are traded. Utility tokens have a use case and are not designed as an investment. The reason people try to figure out if a token is a security or a utility is a regulatory one. It determines which laws the token needs to be compliant with.

Utility token

Starflow is currently in the middle of a token sale. The token offered is a utility token, meaning if you participate in the token sale you are not entitled to any shares in the company. Buying a utility token only gives the user an ability to gain access to the platform and the system services on the platform. This is best compared to a software license. Relevant and successful utility token offerings are Steem and Ethereum. In both of these projects, the tokens weren’t available for trading until the platform or the network was live, and tokens were utilized.

Security token

According to the Howey[1] test, a security token offering is when a token offer for sale is an investment contract, where the main reason to buy the token is the anticipation of future profits. These profits can come in form of dividends, revenue share or price appreciation.

The analogy

In my view, buying a utility token is like buying a foreign currency. You are not entitled to any rights in that country just by holding its currency. You can use the currency if you travel to the country in question but not more than that. You may also buy the currency because you believe that the country in question is running its economy efficiently, that the economy will grow relative to other economies or that the central bank is running a conservative monetary policy. This might result in appreciation of that currency relative to your domestic currency or some other currency. That’s it.

Anelis Redzic | Investor Relations Officer | Starflow

[1] https://en.wikipedia.org/wiki/SEC_v._W._J._Howey_Co

Disclaimer

This article should not to be viewed as legal advice, trading advice, financial advice, investment advice or personal advice.