Definition
A token is a digital unit designed primarily for utility, providing holders with access to and use of a broader crypto‑economic system. Unlike security tokens, utility tokens are generally subject to lighter regulatory scrutiny, though projects must still comply with applicable laws. Companies, especially blockchain startups, issue tokens during events such as initial coin offerings (ICOs) to grant buyers future privileges, product access, or service rights. Tokens can represent ownership, governance rights, or simply a medium for interacting with decentralized platforms, and their popularity has grown as some observers anticipate they may rival traditional IPOs.
Types
- Utility tokens – grant functional access to a platform or service.
- Security tokens – behave like traditional securities and are regulated.
- Governance tokens – provide voting rights within a decentralized protocol.
- Revenue tokens – entitle holders to a share of future protocol revenues.
Regulatory considerations
- Failure to follow securities laws can lead to heavy penalties for issuers.
- DeFi risk frameworks and compliance tools (e.g., Proof of Innocence) help assess and mitigate exposure.
- Proper self‑custody of private keys and adherence to anti‑sanctions procedures are essential for risk management.