Security tokens can be used to represent ownership of tangible or intangible assets, such as stock, real estate, fine arts, or company stock. They must comply with federal securities laws and regulations. This means they can only be legally sold or traded. Security tokens, for example, may need registration with the Securities and Exchange Commission (SEC). They may also need to go through a rigorous review to ensure they are sold to accredited investors.
Utility tokens are digital assets that can be used to exchange in a particular ecosystem or platform. These tokens do not confer ownership rights on any asset but allow access to specific products and services. A utility token may give the holder access to certain features on social media platforms, cloud storage or participation in a decentralized autonomous organisation (DAO).
The way they are regulated is a key difference between utility tokens and security tokens. Security tokens are considered to be assets and therefore they are subjected to the same regulations that traditional securities like stocks or bonds. They must adhere to federal and state securities laws and may be subjected to additional regulations, depending on where they are offered.
Utility tokens are not subject to the same regulation as security tokens. Utility tokens are considered a digital asset or currency and therefore may not be subjected to the same regulatory scrutiny as security tokens. This can change depending on the use case and jurisdiction where the utility token is offered.
The purpose they serve is another difference between utility tokens and security tokens. Security tokens represent the ownership of assets and provide certain rights and privileges to their holders, such as the right for them to vote on important issues related to the asset or to receive dividends. Utility tokens on the other hand are intended to be used to exchange within a particular ecosystem or platform and provide access to specific products or services.
Noting that utility and security tokens can both be created on different blockchain platforms is also important. Security tokens are typically built on more established, central blockchain platforms like Ethereum. Utility tokens, on the other hand, are built more often on open-source, decentralized platforms like EOS and TRON.
Security tokens and utility tokens can be described as two types of digital assets built on blockchain technology. They offer different rights and privileges to their holders and are subject to different levels regulation depending on the use case and jurisdiction where they are offered. Utilities tokens can be used to exchange in a specific ecosystem. However, security tokens may be considered ownership of an intangible or tangible asset. They are subject to federal securities laws.