In crypto-assets, there are two major families: digital tokens and digital coins.
In the first one (the token family), there are two subcategories: the security tokens and utility tokens.
Utility tokens:
Utility tokens are digital tokens that provide a right of access to products or services offered by a company. They are not intended to be investments. Utility tokens are only necessary within the specific context of the project for which they were created. These tokens do not confer any title or ownership stake in a company. Companies use this type of token to generate interest in their products or services provided within blockchain ecosystems.
Just like a subway ticket, it provides access to a transportation service, but is useless and has no value outside of it. Nor does it grant ownership of the transport company.
The value of a utility token is correlated with its actual demand for use in the project, but also with the maximum number of tokens issued.
The public sales of these tokens are called ICOs (Initial Coin Offerings).
Security tokens:
Security tokens are digital tokens that grant ownership rights in a non-digital real-world asset. These tokens are subject to federal laws governing securities.
For example, we can offer the digital representation of a company's shares or property rights in a building in the form of a security token.
Buyers of this type of token hope to profit from their investments just like with stocks. Utility tokens leverage the speed and efficiency of blockchain technology while benefiting from government regulatory measures offering protection against fraud.
The public sales of these tokens are called STOs (Security Token Offerings).
The Howey Test:
This test was established by the US Supreme Court in 1946 to allow the identification of an asset category. Since a token is an asset, it is sufficient for any of the following conditions to be met to classify a token in the category of security tokens, the investment is:
–> made with money.
–> carried out in a «normal», «centralized» company.
–> carried out with the intent to make a profit through efforts generated by the developer or third parties.
If none of these three conditions are met during the test, then it means that the token under study is a utility token.
It is difficult to tell the difference between these two types of tokens, but I hope I was able to make things clearer for you!
